"South Korea's Highest Inheritance Tax Rate at 60%, Among the World's Highest"

Source: Korea Employers Federation

[Asia Economy Reporter Changhwan Lee] It has been revealed that South Korea’s nominal highest inheritance tax rate when passing a business to children is among the highest in the OECD (Organisation for Economic Co-operation and Development).

The Korea Employers Federation (KEF) announced on the 2nd in a report titled "Improvement Measures for South Korea’s Inheritance Tax System through International Comparison" that South Korea’s nominal highest inheritance tax rate when passing a business to children is 60%, the highest level in the OECD.

According to KEF, South Korea’s nominal highest inheritance tax rate is 50%, ranking second in the OECD after Japan’s 55%. However, in South Korea’s case, when inheriting a business to children, the premium valuation on shares held by the largest shareholder (for companies other than small and medium enterprises) must also be considered, which raises the effective tax rate to as high as 60%.

Among the 36 OECD countries, 13 countries do not have inheritance tax at all. Of these 13 countries, 11 had implemented inheritance tax systems but later abolished them, and two countries?Estonia and Latvia?never had inheritance tax to begin with.

Among the 23 OECD countries with inheritance tax, 17 apply lower tax rates differentially when inheriting to children to reduce the inheritance tax burden and support smooth business succession.

In contrast, KEF emphasized that South Korea limits the business succession deduction to small and medium enterprises and some mid-sized companies, and the deduction requirements are stricter than those abroad, resulting in low practical utilization in the field.

Actual Inheritance Tax Burden After Deduction Also Among the Highest Worldwide

Among 54 countries analyzed, South Korea was found to have the second highest actual inheritance tax burden after deductions.

For example, when inheriting a company valued at 100 million euros (approximately 135 billion KRW) to children, the actual inheritance tax burden in South Korea was 40.53 million euros (effective tax rate 40.5%), ranking second highest among the 54 countries analyzed, following the United States (effective tax rate up to 44.9%).

Only three countries?South Korea, the United States, and South Africa?had actual inheritance tax burdens exceeding 30 million euros (effective tax rate 30%). Notably, among the 54 countries analyzed, 45 countries had actual inheritance tax burdens below 5 million euros (effective tax rate 5%).

This analysis assumes a small and medium enterprise that meets all the complex requirements of South Korea’s business succession deduction system (based on KPMG assumptions).

KEF noted that large corporations are not eligible for such deductions and, uniquely in the world, South Korea applies a uniform premium valuation of 20% on shares held by the largest shareholder (not reflected in the case study assuming a small and medium enterprise). Therefore, the effective inheritance tax rate for large corporations in South Korea is estimated to be much higher.

Ha Sangwoo, Head of Economic Research at KEF, stated, "Not only the nominal inheritance tax rate but also the actual inheritance tax amount after deductions ranks South Korea among the highest worldwide. This is due to the high inheritance tax rates and the significantly less favorable business succession support systems, such as the lack of tax rate reductions when inheriting to children, compared to other countries."

Ha emphasized, "To secure the sustainability of our companies and enhance international competitiveness, the highest inheritance tax rate should be lowered to the OECD average of around 25%, and the uniform premium valuation on shares held by the largest shareholder, which is uniquely applied only in South Korea among OECD countries, should be abolished."

This content was produced with the assistance of AI translation services.