SOUTH KOREA Law and Practice Contributed by: Woong-kyu Cho, Ji-eun Kim and Hyun-kyung Kim, Barun Law LLC
fore seeks to balance effective tax enforcement with the protection of personal privacy.
If the decedent is a Korean tax resident, inheritance tax may apply to worldwide assets; if the decedent is a non-resident, Korean inheritance tax may still apply to assets located in Korea. Advance planning is therefore essential, including reviewing the decedent’s residency status and the location of assets. Where the decedent qualifies as a Korean resident, various deductions, including the basic deduction, spousal deduction, personal deductions, and, where applica - ble, the family business succession deduction, may be available. Accordingly, where overseas assets are limited, satisfying the Korean tax residency require - ments may in some cases be advantageous. 2.3 Forced Heirship Laws Korea has a statutory reserved portion ( yuryubun ) system. The reserved portion is calculated based on the value of the decedent’s estate at the commence - ment of inheritance, plus certain lifetime gifts and less outstanding debts. Regardless of the decedent’s intentions, each statutory heir is entitled to one half of their intestate share (or one third for lineal ascend - ants). Reserved portion rights are recognised only for lineal descendants, the surviving spouse and lineal ascendants. An heir whose inheritance and lifetime gifts fall short of the reserved portion may claim against another heir who has received property exceeding that amount by inheritance or gift. Although heirs may agree to adjust their reserved por - tion entitlements, such agreements are valid only after the decedent’s death. Korean law does not permit advance waivers of reserved portion rights. 2.4 Marital Property The Korean Civil Act adopts a separate property regime as the default marital property system. Unless the spouses enter into a marital property agreement before marriage, property owned before marriage and property acquired during the marriage in one spouse’s name generally remains that spouse’s separate prop - erty, even if acquired through the spouses’ joint efforts or for the benefit of the household. Accordingly, either spouse may generally dispose of property held in their own name without the other’s consent during the mar - riage.
2. Succession 2.1 Cultural Considerations in Succession Planning Traditionally, Korean families have sought to preserve family wealth, including business ownership and con - trol, across generations while retaining parental own - ership of assets until death. In recent years, however, rising asset values combined with largely unchanged inheritance tax brackets have significantly increased the tax burden on wealth transfers. As a result, more families are implementing succession plans during the parents’ lifetime. Korea also has a forced heirship system (the reserved portion ( yuryubun )) that guarantees each statutory heir a minimum share of the estate (see 2.3 Forced Heir- ship Laws ). Accordingly, even where a parent intends to leave the entire estate to a single heir, the other statutory heirs may still claim their reserved portions. Succession planning must therefore take into account both inheritance tax and the potential impact of the reserved portion rules. 2.2 International Planning In cross-border successions, Korean conflict-of- laws rules generally apply the law of the decedent’s nationality at the time of death. Accordingly, where the decedent is a Korean national, succession issues are governed by Korean law regardless of the heirs’ nationality, and the Korean reserved portion rules may apply. In some cases, however, the succession may instead be governed by the law of the situs of the real property or the decedent’s habitual residence, avoid - ing the application of Korean law. By contrast, Korean inheritance tax is determined pri - marily by the decedent’s tax residency and the loca - tion of the inherited property, rather than the national - ity of the decedent or the heirs. The decedent’s tax residency is therefore often the key consideration in cross-border succession planning.
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