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Korean Inheritance Tax for U.S. Koreans to Watch Out for

I am on a business trip to Korea to establish a liaison office.  There is an increase in baby boomers moving back to Korea as they retire, so a liaison office becomes necessary to support their tasks related to their estates and gifts. In addition, more people plan to transfer their estates into the U.S. to avoid estate tax in Korea—which is almost the second highest in the world. Since Korea’s national power has been growing, Koreans’ scale of estate has been increasing.  This means that the demand for addressing tasks regarding estates and gifts will rise continually.

Accordingly, the liaison office is in the founding process in order to provide holistic services for the U.S citizens and permanent residents to plan for their estates and gifts and for Korean citizens to transfer their estates into the U.S. When I consulted clients in Korea during my business trip, I realized that Korean Americans who moved back to Korea lack knowledge about Korea’s estate and gift law. Most importantly, most of them do not understand that they will need to pay an estate tax on their estate in the U.S. to the Korean government if they are considered Korean residents and die.

Many people mistakenly think that they are Korean residents if they hold dual citizenship and that they are non-Korean residents if they do not achieve dual citizenship. But it is literally a misunderstanding. Regardless of their nationality or green card status in other countries, residential status in Korea is decided by how long one resides in Korea, what kinds of jobs one has, whether one has families in Korea who make a living together, whether one has an estate in Korea, one’s status of living, and many other factors.

So, in what situation would one be considered a Korean resident? First of all, he is regarded as a Korean resident (1) when he has a job in Korea that usually requires her to stay in Korea, (2) when he/she has family who makes a living together in Korea, (3) when it is acknowledged that he will reside in Korea more than 183 days a year in light of her estate status, etc. Then if a Korean American moves back to Korea after his retirement, will he be categorized as a Korean resident? If he stays in Korea for more than 183 days this year, usually, he is considered a Korean resident.

For example, The U.S. citizens, Chul Su Kim and Young Hee Kim came back to Korea and stayed in Korea for more than 183 days. If they purchased an apartment and officially registered their address, are they Korean residents?  If it is regarded that they are not in the situation of returning to the U.S., they are categorized as Korean residents since they stayed in Korea for more than 183 days. In this case, if Chul Su Kim deceases, Kim’s family will be required to pay estate taxes on the entire estate, including estates in Korea and the U.S., to the Korean government. As I mentioned above, Korea’s estate tax rate is one of the highest in the world.

Therefore, before moving to Korea, it is encouraged to consult with a U.S. estate professional, to thoroughly check out whether you will keep the estate in the U.S or give it to your children before moving back to Korea, and to carefully decide whether it is better to dispose of your estate in the U.S. 

On the other hand, in the case of a Korean American, who is not a Korean resident, having an estate in Korea, she is only obliged to pay an estate tax on the estate in Korea to the Korean government. However, if she is a U.S. citizen or a green card holder, since the U.S. government imposes an estate tax on worldwide assets, her U.S. estate tax will be calculated while including her estates in Korea.

Thus, if you are a U.S. citizen or permanent resident who is not a Korean resident, you should carefully check ways to minimize the estate tax that the Korean government will impose on your estates in Korea.

If, Korean real estate value decreases like now compared to the past, one way to minimize an estate tax is to give your children your estate as a gift. Rather than addressing a higher capital gains tax that will be imposed when disposing of the estate, paying a lower gift tax can reduce your estate tax better.


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