Sejong, South Korea – In a significant move to align its tax laws with more commonly adopted international standards, the South Korean government announced plans on Wednesday to overhaul its longstanding estate tax system in favor of an inheritance tax by the year 2028. This revision aims to reduce the financial burden on heirs, according to officials from the Ministry of Economy and Finance.
The current estate tax in South Korea is applied to the net value of all assets left by a deceased person. Compared to this, the inheritance tax, as seen in most developed countries, targets the assets received by each beneficiary, such as spouses and children. This approach generally allows for more individualized taxation based on the specific amount each person inherits.
Presently, South Korea’s estate tax operates on a five-tier system where the highest tax rate is 50% for inheritances above 3 billion won (approximately $2.1 million). This rate escalates to 60% for heirs receiving shares in large corporations. The impact of such high taxation can be substantial; for instance, under the existing framework, a 440 million won tax bill is generated if assets totaling 3 billion won are divided among a spouse and two children, with each receiving about one-third.
The proposed inheritance tax system outlined by the Ministry aims to greatly alleviate these tax burdens. With the new system, tax assessments would become much more individualized. For example, in a similar inheritance scenario under the new rules, each child would owe 90 million won in taxes, and the spouse would be entirely exempt.
Moreover, the new revision includes provisions such as a minimum personal deduction set at 1 billion won, designed to further mitigate the financial impact on the beneficiaries. Any deductions that fall short of this amount will benefit direct descendants and ascendants as an additional deduction.
The Ministry of Economy and Finance plans to finalize the legislative proposal after a required 40-day advance notice period and will present the bills to the National Assembly in May. This tax law revision represents a broader effort by the government to modernize its tax system and make it more equitable for its citizens.
This revision reflects a growing awareness of the need to balance tax collection with economic incentives, especially when considering the generational transfer of wealth. By easing burdensome tax rates on inheritances, South Korea aims to promote a fairer distribution of wealth and stimulate economic growth by potentially increasing disposable income for beneficiaries.
In shifting to an inheritance tax system, South Korea follows in the footsteps of many advanced economies worldwide, aiming to provide a more balanced fiscal approach that can potentially lead to enhanced financial stability for families receiving inheritances.
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