Korean Inheritance tax can be a complex issue, particularly for those living abroad. An important ruling by the Korean Supreme Court (Supreme Court, 1994. 11. 11. 94nu5359 Decision) sheds light on whether inheritors residing outside South Korea must pay inheritance tax in Korea when they just inherited foreign assets from a non-resident deceased. This ruling remains the governing precedent on this issue and continues to be applied by Korean courts and tax authorities today. This post aims to clarify the key points of the ruling and its implications for foreign heirs.

Case Background

The facts of the Case are as follows:

• Deceased A passed away in Japan, leaving behind assets in both Japan and Korea.
• The heirs included Korean residents (the wife and two children) and non-resident heirs living in Japan (four children).
• No will was left.
• The heirs agreed that the Korean heirs would take the Korean assets, and the Japanese heirs would take the Japanese assets.
• National Tax Service, the Korean tax authority, calculated the inheritance tax based on the Korean estate, and then imposed it to the Japanese heirs as well, pointing out that under Korean inheritance tax law all heirs are obligated to pay the inheritance tax jointly.
• the Japanese heirs filed a petition with the court to declare they have no Korean tax liability on the ground that they did not inherit the Korean estate, but the Japanese estate.

Key Points of the Supreme Court Ruling

The Domestic Residency Test: The Key Factor

Whether the deceased was a Korean resident at the time of death is the single most important factor in determining inheritance tax liability.

• If the deceased was a Korean resident: Korean inheritance tax applies to all worldwide assets, regardless of where the assets are located or where the heirs live.
• If the deceased was not a Korean resident: Korean inheritance tax applies only to assets located in Korea. Overseas assets fall outside the scope of Korean inheritance tax.

In this case, the court found that Deceased A was not a Korean resident. As a result, only the Korean assets were taxable — and the Japanese heirs, who inherited only Japanese assets, had no Korean tax liability at all.

How is Korean residency determined?

Korean courts and tax authorities assess residency based on the overall picture of the deceased’s life in Korea, not any single factor. Key indicators include:

• How long the deceased had lived in Korea
• Whether the deceased had family members living with them in Korea
• Whether they held a job or earned income in Korea
• Whether they owned significant assets in Korea
• Whether they were expected to stay in Korea for 183 days or more per year

As a general rule, a person who lived abroad with foreign citizenship or permanent residency, had no family in Korea, and had no strong reason to return is likely to be classified as a non-resident. Temporary stays abroad — for travel or medical treatment — do not change residency status if strong Korean ties otherwise remain.

TIP: Residency is determined by facts, not by formal registration status. Even someone officially registered as a Korean resident may be reclassified as a non-resident if their actual life was centered abroad.

Joint Tax Liability

• According to the Inheritance Tax and Gift Tax Act of South Korea, when there are multiple heirs, each heir has a distinct liability to pay inheritance tax corresponding to the proportion of the Korean property they have inherited or will inherit. Additionally, each heir is jointly liable for paying inheritance tax of other joint heirs up to the extent of his own inherited or to be inherited Korean property.
  
  
• When calculating the portion of the estate that any heir inherited or will inherit, the intestate share becomes the base, unless there is an agreement among the co-heirs to divide the estate differently. 

In this Case, the court recognized an agreement where the Japanese and Korean heirs agreed to divide the estate such that the assets located in Korea would go to the Korean heirs, while the assets in Japan would be inherited by the Japanese heirs.

As a result, the court ruled that only the Korean heirs were liable to pay inheritance tax, because the inheritance tax is imposed only on the Korean estate, and the Japanese heirs’ proportion taken from the Korean estate was zero, which rendered the Japanese heirs joint tax liability zero.

Implications for Foreign Heirs

This ruling clarifies several important points for foreign heirs who may inherit assets from relatives having estate both in Korea and a foreign country:

• Residency Matters: The key takeaway is that Korean inheritance tax obligations are critically tied to the residency status of the deceased and the location of the estate.

If the deceased is not a Korean resident and inherited assets are located outside of Korea, there is no inheritance tax liability in Korea.

If the deceased is not a Korean resident, but the estate is located both in Korea and a foreign country, the heirs who only inherited the foreign estate is not responsible for inheritance tax in Korea.

• Legal Agreements Among Heirs: The court recognized and upheld the division of the estate agreed upon by the heirs.  This suggests that clear agreements and documentation among heirs can be significant in determining tax obligations.  This agreement should specify which assets each heir will receive, especially distinguishing between domestic and foreign assets.

Conclusion

This Supreme Court ruling provides valuable clarity regarding the Korean inheritance tax liability of foreign heirs. By understanding the two key factors — the residency of the deceased and the location of the estate — foreign heirs can better manage their obligations in Korea and avoid unnecessary taxation on overseas assets.

However, applying these principles to your specific situation requires careful legal analysis. Whether the decedent qualifies as a Korean resident, where the inherited assets are located, and how co-heirs have agreed to divide the estate can all significantly affect your tax exposure.

With more than 20 years of experience advising foreign clients on Korean inheritance matters, our team can help you assess your liability, structure the most efficient approach, and ensure timely filing to avoid penalties.

Korean inheritance tax deadlines are strict — 6 to 9 months from the date of death. Early consultation is strongly recommended.