Tag: Korean Tax Attorney

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Cross-border inheritance involving Korean assets—whether the decedent or the heir is a non-resident—often leads to unexpected Korean inheritance tax obligations.  Without proper planning, foreign heirs may face administrative delays, tax audits, and significant penalties.

As Korean attorneys who regularly advise foreign families on cross-border estate matters, we have seen many cases where a lack of understanding of Korea’s inheritance tax rules resulted in avoidable risks and financial losses.

In this article, we explain who is liable to pay Korean inheritance tax, which assets are subject to tax, how the tax is calculated, and how to plan for payment—including options such as in-kind contribution or installment plans.  Whether you are a foreign heir, a family representative, or a professional advisor assisting with Korean estate matters, this guide will help you navigate Korea’s inheritance tax system with confidence and clarity.

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When receiving gifts of money or other property, the party should check any tax issues involved.  When the gifts cross the national borders or involve foreign parties, it becomes more complicated.  It could entail an additional filing with a government of a foreign country where the foreign party resides.  Today, we are going to introduce what report and tax liability the parties should take care of and under what condition, when a U.S. resident receives a U.S located house as a gift from his Korean resident parent.

Report to the Bank of Korea

According to Article 7-46 and 7-44 of Foreign Exchange Transaction Regulation(FETR), when a resident of Korea gifts a real property, which is even located abroad, to any non-resident, the Korean resident(devisor) should report the transaction in advance to the Bank of Korea.

The nationality of the parties doesn’t matter here. Only the place of residence does matter.  The Korean Tax authority (National Tax Service) has an internal rule to apply to decide who is a resident and who is not.

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그림 67When a foreign incorporated company does a business in Korea, it is very fundamental to determine whether the company is a domestic or a foreign corporation for Korean tax purposes.  A major difference in tax liability is that, in principle, a foreign corporation is liable for taxes only on the incomes generated in Korea rather than a worldwide income.

In this regard, the Corporate Tax Ac of Korea(“CTA”) defines a “domestic corporation” as a corporation with its headquarter, main office, or actual business management place located in Korea, and a “foreign corporation” as an organization which has its head office or principal place of business in a foreign country.  What makes distinguishing domestic corporation for a foreign corporation under CTA difficult and challenging is the meaning and application of the term of “actual business management place” set forth in CTA.  For example, in a case decided by the Supreme Court of South Korea in 2016, a Singapore incorporated company had challenged the Korean tax authority’s decision that its actual business management place was in Korea.

The Singapore company had a wide variety of international business portfolio and among them was a trading foreign issued corporate bonds including a Korean corporate bond.  The Korean tax authority decided that the company’s actual business management had taken place in Korea after finding the facts that the company had a liaison office in Korea, one of the directors was residing in Korea and financial documents relating to the Korean business was stored and managed in Korea.  And this (more…)