CONTENTS
- 1. Gift | Differences From Inheritance
- - Key Differences
- - Points to Note for Inheritance Within 10 Years
- 2. Gift | Formation and Rescission of the Contract
- - Core Requirements for Formation
- - Grounds for Rescission
- 3. Gift | Taxation Upon a Gift
- - Scope of Gifted Property
- - Gifted Property Exempt From Taxation
- 4. Gift | Person Liable to Pay Gift Tax
- - The Standard for the Date of the Gift
- - Joint and Several Liability for Payment
- 5. Gift | Gift Tax Filing Deadline and Documents
- - Documents for Filing Gifted Property Subject to the Basic Tax Rate
- - Documents for Filing Gifted Property Subject to the Special Tax Rate
- - Disadvantages of Failing to File
- 6. Gift | Checklist
- - Support System of the Inheritance Attorneys
1. Gift | Differences From Inheritance
A gift is a transfer of property made during one's lifetime, whereas inheritance commences after the death of the decedent.
Accordingly, if a decedent wishes to give property to a child or another person during the decedent's lifetime, the method of gift, rather than inheritance, must be used.
Key Differences
Category | Gift | Inheritance |
Time of occurrence | During lifetime | After death |
Legal nature | Contract | Statutory provision |
Type of tax | Gift tax | Inheritance tax |
Possibility of a will | Not possible | Possible (a testamentary gift is possible) |
In this case, a gratuitous transfer by will, such as ‘upon my death, Real Property A goes to my eldest son,’ constitutes a testamentary gift.
Accordingly, a transfer of property by will is subject to inheritance tax.
Points to Note for Inheritance Within 10 Years
Even if a gift was made during one's lifetime, if the donor dies within 10 years after the gift, the property is added back to the inherited estate.
This is a system to prevent omissions and ensure fairness in the assessment of inheritance tax, and it applies according to the following criteria.
Category | Period subject to inclusion in inheritance tax |
Where the donee is an heir | Gifted property within 10 years before the date of death |
Where the donee is not an heir | Gifted property within 5 years before the date of death |
2. Gift | Formation and Rescission of the Contract
A gift is a contract that is formed when one party expresses an intention to gratuitously confer property and the other party accepts it (Article 554 of the Civil Act).
Core Requirements for Formation
: It must be made without consideration
② Agreement required
: A unilateral declaration alone is insufficient, and the donee's ‘acceptance’ is required
③ Writing requirement
: An oral gift may be rescinded at any time, and the intention must be expressed in writing in order to have stable legal effect (Article 555 of the Civil Act).
Grounds for Rescission
After a gift contract is formed, the contract may be rescinded if any of the following grounds arises (Articles 556 through 557 of the Civil Act).
② Where the donee has failed to perform a duty of support
③ Where the donor's financial condition has markedly deteriorated, materially affecting the donor's livelihood
However, if 6 months pass from the day on which the existence of the ground for rescission under ① or ② became known, or where the donor has expressed an intention to forgive the donee, the right of rescission is extinguished.
3. Gift | Taxation Upon a Gift
Gift tax refers to the tax borne by the person who receives the property (the donee) when that person receives property gratuitously from another.
A gift may, on its face, appear to be a ‘present,’ but it is in fact regarded as a transfer of income and is therefore subject to taxation by the National Tax Service.
Scope of Gifted Property
Property subject to gift tax includes all property that vests in the donee and has economic value convertible into money, all rights with property value recognized under law or in fact, and all economic benefits convertible into money.
Gifted Property Exempt From Taxation
However, the following gifted property is not taxed.
∙ The value of property received as a gift by a political party under the provisions of the Political Parties Act
∙ The value of disaster relief goods, medical expenses, living expenses and educational expenses of dependents, and other similar items recognized under generally accepted social norms
∙ Insurance proceeds of 40 million won or less per year from insurance whose beneficiary is a person with a disability or a wounded person registered under the “Act on the Honorable Treatment and Support of Persons of Distinguished Service to the State,” and similar items
4. Gift | Person Liable to Pay Gift Tax
The person who receives the property by gift, that is, the donee (an individual or a non-profit corporation), is the person liable to pay gift tax.
However, where the donee is a for-profit corporation, gift tax is not imposed.
In addition, the scope of taxation and the person liable to pay differ depending on whether the donee is a resident.
Category | Subject to taxation | Person liable to pay |
Where the donee is a resident | All gifted property in and outside Korea | Donee |
Where the donee is a non-resident | Gifted property within Korea | Donee |
Where a non-resident receives foreign property as a gift from a resident | Gifted property outside Korea | Donor (exemption possible where the parties are not specially related persons and foreign tax is imposed) |
In this case, a resident refers to a person who has a domicile in Korea or has had a place of residence in Korea for 183 days or more.
All others are classified as ‘non-residents.’
The Standard for the Date of the Gift
Gift tax is assessed based on the ‘time of receipt’ of the property.
This ‘date of the gift’ is determined differently depending on the type of property.
Property category | Date deemed to be the date of the gift |
Property requiring registration or recording | The date the application for transfer registration or recording is received |
Buildings and pre-sale rights | The earlier of the date of approval for use or the date of actual use |
Shares and equity interests | The date of delivery or the date of entry in the register of shareholders |
Title-trust property | The date of entry in the register of shareholders or the date of use |
Other property | The date of actual delivery or the date use begins |
Joint and Several Liability for Payment
In principle, the donee must pay the gift tax, but in the following cases the donor also bears a joint and several obligation to pay.
▷ Where the donee has no ability to pay and collection is difficult even through compulsory collection
▷ Where the donee is a non-resident
5. Gift | Gift Tax Filing Deadline and Documents
A gift tax return must be filed within the last day of the month to which the date of receiving the gifted property belongs, within 3 months.
At that time, the following documents must be prepared.
Documents for Filing Gifted Property Subject to the Basic Tax Rate
(for filing gifted property subject to the basic tax rate)
2. Gifted property and valuation statement
3. Other supporting documents, such as evidence of debts
Documents for Filing Gifted Property Subject to the Special Tax Rate
(for filing gifted property subject to the special tax rate, such as start-up funds and shares for business succession)
2. Statement of valuation and taxable amount of gifted start-up funds
or statement of valuation and taxable amount of gifted shares for business succession
3. Application for the start-up fund special provision or application for the share special provision
4. Other supporting documents, such as evidence of debts
Disadvantages of Failing to File
Penalty tax for non-filing and under-filing
If gift tax is not filed within the deadline, or only part is filed, the following penalty tax rates apply.
Category | Penalty tax rate |
General non-filing | Tax payable × 20% |
Fraudulent non-filing | Tax payable × 40% |
General under-filing | Under-filed tax × 10% |
Fraudulent under-filing | Under-filed tax × 40% |
However, where ownership of the gifted property has not been finalized due to litigation or other reasons, or where there is a simple error in applying the gift deduction or a difference of opinion as to the valuation of the property, the under-filing penalty tax may be waived.
Penalty tax for late payment
Even where a return was filed but the tax was not paid within the deadline or was underpaid, a penalty tax in the form of interest is imposed.
Category | Method of calculation | Period of imposition |
Non-payment or underpayment | Unpaid tax × period unpaid × 0.00022 | From the day after the payment deadline until the date of voluntary payment |
Excess refund | Excess refunded tax × excess refund period × 0.00022 | From the day after the refund date until the date of the tax notice |
6. Gift | Checklist
A gift is not merely an act of transferring property; it is an important decision that affects taxes, law, and family relationships as a whole.
Accordingly, it is necessary to prepare carefully in advance through a step-by-step checklist such as the one below.
Key matters to review | Description |
Selecting the gift target | Deciding what property to give, to whom, and in what manner |
Confirming the donee's eligibility | Reviewing whether there are legal restrictions, such as a minor or a non-resident |
Tax simulation | Estimating the gift tax and the tax amount depending on the time of filing |
Preparing the gift contract | Securing legal stability with a written gift contract (Article 555 of the Civil Act) |
Preparing the gift tax return | Obtaining the tax base return, the property statement, valuation materials, and similar documents |
Reviewing the relationship with later inheritance | Checking whether the gift will be included in inheritance tax if inheritance occurs within 10 years |
Measures to prevent disputes | Adjusting interests or using a notarial deed to prevent conflicts among family members |
Support System of the Inheritance Attorneys
This law firm includes inheritance specialist attorneys registered with the Korean Bar Association, as well as attorneys with an average of more than 10 years of experience.
Depending on the nature and scale of the case, the firm forms a task force of 1 to 20 members and provides comprehensive support, ranging from review of the gift agreement to analysis of legal disputes and legal status that may arise afterward, and, where necessary, representation in claims for recovery of inheritance and actions for confirmation of nullity.
In addition, through collaboration with tax specialists such as certified tax accountants and certified public accountants, the firm can also respond to tax risks arising from a gift.
If you require assistance, you may request support from an inheritance attorney at any time.
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