SOUTH KOREA Law and Practice Contributed by: Woong-kyu Cho, Ji-eun Kim and Hyun-kyung Kim, Barun Law LLC
al. Korean inheritance tax or gift tax may also apply to transfers by inheritance or gift. Korean real estate may be held directly or indirectly through a Korean or foreign corporation. Under direct ownership, rental income and capital gains are taxed to the individual owner. Where the property is held through a corporation, corporate income tax applies at the corporate level, with additional taxation poten - tially arising upon distributions to shareholders. The choice between direct and corporate ownership generally depends on the intended use of the prop - erty, the investment period, the size of the investment, and succession planning objectives. Given that Korea applies the substance-over-form principle, artificial ownership structures established primarily for tax avoidance may be disregarded, and the intended tax benefits denied. 1.6 Stability of Tax Laws Korea’s tax system is generally stable and predictable. Major tax reforms are typically introduced through the government’s annual tax reform proposals and take effect only after legislative notice and approval by the National Assembly. Taxpayers can therefore generally anticipate significant legislative changes in advance. Inheritance tax, business succession and real estate taxation have been the focus of recent legislative reform. In particular, the government has been con - sidering replacing the current estate tax system with an inheritance acquisition tax system, under which tax would be based on the property received by each heir. If adopted, the reform could significantly affect tax liabilities depending on the number of heirs, the distribution of inherited assets, and the succession structure. High net worth individuals and family- owned businesses should therefore monitor these developments closely. Business succession reforms have likewise focused on the family business inheritance deduction and oth - er support measures. While some advocate reducing the tax burden to promote long-term business conti - nuity and competitiveness, others favour preserving or strengthening the tax base in light of fiscal demands and tax equity.
Real estate taxation has also undergone frequent changes, particularly to the Comprehensive Real Estate Holding Tax, property tax, and capital gains tax applicable to owners of multiple residential prop - erties. Further reforms are likely as housing market conditions and fiscal policy continue to evolve. 1.7 Transparency and Increased Global Reporting The Republic of Korea operates a range of report - ing and international information exchange systems to combat tax avoidance and offshore tax evasion. In addition, under the substance-over-form principle in the Framework Act on National Taxes, taxation is based on the economic substance rather than the legal form of a transaction. Korea has adopted the OECD Common Report - ing Standard (CRS), under which financial account information is automatically exchanged among par - ticipating jurisdictions. It also implements the For - eign Account Tax Compliance Act (FATCA) under an intergovernmental agreement with the United States. Accordingly, Korean financial institutions must col - lect and report information relating to certain foreign taxpayers, while information on overseas financial accounts held by Korean residents may be exchanged with the Korean tax authorities through these mecha - nisms. Korean residents holding overseas financial accounts above the statutory threshold are also subject to for - eign financial account reporting obligations, and addi - tional reporting requirements may apply to interests in foreign corporations. Compliance with these rules is therefore an important consideration in cross-border asset management and succession planning. Although Korea does not maintain a public ben - eficial ownership register, financial institutions and other reporting entities must conduct customer due diligence under anti-money laundering laws and may verify the ultimate beneficial ownership or control of assets where necessary. Overall, Korea actively participates in international tax transparency initiatives while protecting taxpayer and financial information under applicable laws. It there -
580 CHAMBERS.COM
Powered by FlippingBook