Inheritance tax and law

July 11, 2016

The Global Property Guide looks at inheritance from two angles: taxation, and what inheritance laws apply to foreigners leaving property in South Korea: what restrictions there are and whether making a will is advisable.


INHERITANCE TAX

How high are inheritance taxes in South Korea?

A person or company acquiring property through inheritance, or through bequest within 10 years of the benefactor´s death, is liable to inheritance tax. The tax base is the market value of the property or the estate less the following deductions:

  • Debts left by the deceased
  • Funeral expenses of the deceased between KRW5 million (US$4,505) and KRW10 million (US$9,009)
  • Additional deduction of KRW5 million (US$4,505) for usage of burial chambers
  • Public imposts

Properties owned by the deceased and disposed shortly before his death are included in his taxable estate; properties worth more than KRW200 million (US$180,180) are included if disposed within one year and properties worth more than KRW500 million (US$431,035) are included if disposed within two years.

A taxpayer liable for this tax can select a lump-sum deduction of KRW500 million (US$450,451). Where the spouse is resident, the actual amount inherited by the spouse is deductible if the resident spouse´s inheritance is between KRW500 million (US$450,451) to KRW3 billion (US$2,702,703). If the resident spouse´s inheritance is less than KRW500 million (US$450,451), all of his/her inheritance is tax-exempt.

Inheritance tax rates are imposed at progressive rates.

INHERITANCE TAX

TAX BASE, KRW (US$) TAX RATE
Up to 100 million (US$90,090) 10%
100 million - 500 million (US$450,451) 20% on band over US$90,090
500 million - 1 billion (US$900,901) 30% on band over US$450,451
1 billion - 3 billion (US$2,702,703) 40% on band over US$900,901
Over 3 billion (US$2,702,703) 50% on band over US$2,702,703
Source: Global Property Guide

Grandchildren´s inheritance is subject to 30% surtax and this shall be considered as the inheritance tax.

A 10% tax credit is granted to inheritance taxpayers who submit their returns on time, i.e., within 6 months. Payments can be made in installments over three to ten years.

GIFT TAX

Gift tax bands are the same as inheritance taxes, but the deductions tend to be lower, e.g., spouses are entitled to KRW300 million (US$270,270), each lineal family member is entitled to KRW30 million (US$27,027), and each relative is entitled to KRW5 million (US$4,505). The tax return must be filed within three months of receiving the gift.

Korean residents are liable to inheritance tax on all their inherited property except foreign properties inherited from a nonresident.

Korean residents are liable to inheritance tax on all their inherited property except foreign properties inherited from a nonresident.

INHERITANCE LAW


What inheritance laws apply in South Korea?


Foreigners´ real property in Korea is usually inherited in accordance with their own national laws, not Korean law.

The inheritance laws of Korea mainly affect persons of Korean nationality. Foreigners are subject to the Private International Act, which provides for the application of the inheritance laws of the foreigner´s nationality.

Exceptionally, in preference to the foreigner´s national laws, Korean inheritance laws are applied to foreigners who own real property in Korea, but only if permitted by the laws of the foreigner´s nationality, and Korean laws must be designated as applicable in a will.

It is not usual in Korea for an inheritance of a foreigner´s property located in Korea to go to trial in a Korean court, because a court trial is not necessary, unless a dispute arises among inheritors and is brought before a court. Decisions of a foreign court are accepted if they satisfy the requirements listed in the Civil Procedures Act.

Inheritance trials, when they occur, are dealt with by the Korean court which has jurisdiction over the location of the deceased´s property.

The trial usually takes five or six months. If foreigners are involved, a Korean court does not hear foreign legal experts in order to ascertain what the foreign law is. Any objection filed by a counter-party can prolong the trial for at least a year.

There is a reserved portion in Korea, whose size depends on the inheritors available. But since inheritance from a foreigner is governed by foreign law, the reserved portion rules do not usually apply to foreigners.

In Korean law, the spouse and children of the deceased are entitled to one half of the estate. In their absence, one third is reserved for parents or siblings. Any person who is entitled to a reserved portion can demand to receive their inheritance by law.

In the absence of a will, the law prescribes the proportions inherited.

  • First, the children and spouse inherit. If two or more co-heirs exist of the same rank, their shares are equally divided, but the portion inherited by the spouse is fifty percent greater than the portion inherited by the co-heirs.
  • In the absence of children, the spouse and parents inherit.
  • In the absence of children, parents or spouse, the brothers and sisters inherit.
  • In the absence of brothers or sisters, the collateral blood relatives within the fourth degree of the deceased inherit.

To repeat, these rules normally only apply to inheritance from Koreans, not from foreigners.

It is not common to write a will in Korea.

A will in Korea is invalid unless written in ways prescribed by law. Any person over the age of 16 can make a will using one of the five methods prescribed by law. These strict formalities and procedures usually prevent ordinary people from writing a will, except for some wealthy people.

Korean laws do not apply to the writing of wills by foreigners. If a foreigner wishes to make a will in respect of his/her property in Korea, it must be made in accordance with the law of the foreigner´s nationality, as provided by the Private International Act. Such a will can be made while the foreigner is residing in Korea, through his/her attorney.

Property can be gifted during the lifetime of the owner.

In Korea, an owner may freely give property to anyone prior to his/her death. No restrictions apply.

Property titles must be registered.

Any person claiming the title to real property located in Korea must properly register the title. In exceptional cases, if a person has fulfilled all the legal requirements regarding their property, and has occupied the property, such person is deemed to have the title; but, in general, registration is essential for a person to claim the title against other people.

A person may claim the title to inherited property without having to fulfill the registration requirement, but the title must be registered in the name of the heir, before it can be sold to another person.

There are no restrictions on the ownership of real property by a husband and wife. Either husband or wife can own real property, independently or jointly, and sell, give, or otherwise dispose of his/her share.

Any dispute arising out of, or in connection with, real property located in Korea must be resolved in accordance with the laws of Korea, i.e. the law of the country where the property is located.

Children can inherit real property.

There are no restrictions on the age of heirs in Korea. A child who is not of legal age can inherit real property; however, if such property is registered in the name of the child, or sold, then the child must be represented by a person with parental authority or a guardian. Parental authority in respect of the child is vested in his/her parent. In the absence of a parent, or if the parent is not qualified to exercise his/her authority, the child must be represented by a guardian. A guardian may be appointed in a will, or by a parent exercising his/her authority among people who have a kinship with the child, or else a guardian may be appointed by the court.

 

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