Inheritance Tax

The taxpayers who are obligated to file a return and pay inheritance tax include an ‘heir,’ who inherits property by reason of succession, and a ‘testamentary donee,’ who acquires property upon the death of the donor following a will or a gift agreement.

Where the special related person or the testamentary donee is a for-profit corporation, the inheritance tax payable by the for-profit corporation is exempted.

However, if an heir or a lineal descendant is a shareholder, that heir and lineal descendant must pay tax on the amount corresponding to their equity interest.

As a rule, inheritance tax is imposed on all property received by an heir, but the scope of taxation varies depending on whether the decedent was a resident.

Here, a resident means a person who has a domicile in Korea or who has had a place of residence there for 183 days or more (Article 2 of the Inheritance Tax and Gift Tax Act).

To calculate inheritance tax, the taxable value must first be calculated.

To do so, public charges, funeral expenses, debts, and amounts that are non-taxable or excluded from the taxable value are deducted from the value of the decedent’s inherited property, and then property given as a prior gift and presumed inherited property are added.

Once the taxable value is determined, various deductions are applied to it to determine the tax base.

The tax base is the standard to which the actual tax rate is subsequently applied, so it is important to confirm every deduction item without omission.

Inheritance deductions may be applied only within the filing deadline, and because several deduction items may be applied together, they can have a significant effect on the actual tax burden.

In particular, the cohabiting-house inheritance deduction and the lump-sum deduction have optional requirements, so the conditions must be examined carefully.

Once the tax base is determined, the calculated inheritance tax is computed by applying the rate set accordingly.

Here, the tax rate is applied as a progressive rate structure according to the tax base bracket, and in certain cases a surtax for generation-skipping is added.

Tax rates by tax base

Once the calculated inheritance tax is determined, the tax actually payable must be computed.

Formula for the actual tax payable

The amount remaining after adding the generation-skipping surtax to the calculated tax, deducting the various tax credits, and then excluding the tax paid by annual installment or in kind becomes the final inheritance tax to be paid voluntarily.

Generation-skipping surtax

Tax credit items

Annual installment payment and payment in kind

Where it is difficult to pay inheritance tax at one time, if certain requirements are met, the burden may be spread through installment payment, long-term payment by annual installment, or payment in kind.

Based on the calculated inheritance tax amount, an heir must file a return with the competent tax office and make voluntary payment within 6 months from the last day of the month in which the date the inheritance commences falls.

This return must include details of the inherited property, the appraised value, deduction items, and other information, and the necessary supporting documents must be attached.

Where a return is not filed within the deadline, the taxpayer must receive notice of the tax amount determined by the head of the tax office through the determination and notice method and pay it, and in this case an additional tax is added.

In addition, where the inheritance tax is not paid in full within the payment deadline or is only partially paid, an additional tax for failure to pay is added to the relevant amount.

Where there are several heirs, each one must bear the tax in proportion to the inherited property they received.

However, if any co-heir does not pay the tax, the other heirs bear an obligation to pay jointly and severally, within the limit of what they received.

When filing, various statements and documents that can substantiate the tax base and the inheritance tax calculation must be submitted together.

The documents to be submitted are the same for both residents and non-residents, but some documents are submitted selectively only where applicable.

Mandatory documents to be submitted

Documents to be submitted where applicable

Where inheritance tax is not filed within the deadline, or only a portion is filed, the following additional tax rates apply.

However, where ownership of the inherited property has not been confirmed due to litigation or the like, or where there is a simple error in applying an inheritance deduction or a difference of opinion on the appraised value of property, the under-reporting additional tax may be exempted.

Even where a return was filed but the tax was not paid within the deadline or was paid insufficiently, an additional tax in the form of interest is imposed.

This law firm includes many attorneys with an average of 10 or more years of experience, as well as inheritance specialist attorneys and tax specialist attorneys registered with the Korean Bar Association.

A comprehensive response is possible, from the inheritance procedure to tax strategy, and through collaboration with professionals such as accountants and tax accountants, a strategy tailored to the client can be established.

If you need legal assistance relating to inheritance, you may request assistance from an inheritance attorney at any time.