2039 Recipients Subject to Gift Tax for 'Ilgam Molajugi and Tteojugi'... Must Report and Pay by the End of This Month

Small and Medium Enterprises Exempt from Taxation on Domestic Transactions for Export Purposes
From This Year, Expansion to Include Large Enterprises' Domestic Transactions for Export Purposes

If you have engaged in 'ilgam-molajugi' (preferentially allocating work) or 'ilgam-tteoeojugi' (providing business opportunities) by funneling work to a corporation controlled by yourself, your children, or relatives, thereby indirectly benefiting yourself, your children, or relatives, you must report and pay the related gift tax by the end of this month.

On the 8th, the National Tax Service announced that to assist with the gift tax reporting for ilgam-molajugi and ilgam-tteoeojugi, it analyzed corporate tax filings submitted in March this year and sent notification letters to 2,039 recipients and 1,635 beneficiary corporations.

The gift tax on ilgam-molajugi is imposed by deeming the indirect benefits obtained by yourself, your children, or relatives as a gift when a special-related corporation funnels work to a corporation controlled by yourself or your children. The taxation applies if ▲the beneficiary corporation has post-tax operating profit ▲the ratio of sales to corporations related to the controlling shareholder among the beneficiary corporation’s annual sales exceeds 30% (40% for mid-sized companies, 50% for small and medium enterprises) ▲the direct or indirect shareholding ratio of the controlling shareholder and their relatives in the beneficiary corporation exceeds 3% (10% for small and mid-sized companies).

The gift tax on ilgam-tteoeojugi is imposed by deeming the indirect benefits obtained by yourself, your children, or relatives as a gift when a special-related corporation provides business opportunities to a corporation controlled by yourself or your children. The beneficiary must report profits over three years based on the operating profit of the business year in which the business opportunity was received, and after two years, adjust the deemed gift profit according to the actual profit and report it. The taxation conditions include ▲the beneficiary corporation receiving business opportunities from corporations related to the controlling shareholder and having operating profit from that portion ▲the combined shareholding ratio of the controlling shareholder and their relatives in the beneficiary corporation being 30% or more.

Reports can be submitted by mailing the completed report form or by visiting and submitting it directly to the nearest tax office. Filing within the deadline entitles you to a tax credit of 3% of the calculated tax amount.

Following the amendment of the 'Inheritance and Gift Tax Act' in December last year, some of the taxation conditions for ilgam-molajugi gift tax have been eased starting from this year’s filings. Previously, export-related overseas transactions were excluded from ilgam-molajugi taxation regardless of company size, while domestic transactions were excluded only for small and mid-sized companies. However, from this year, to promote exports, domestic transactions for export purposes by large corporations are also excluded. Additionally, corporations with business divisions unrelated to ilgam-molajugi can now calculate gift benefits by each business division.

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