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Deferred Payment for Inheritance Taxes: Up to 20 Years for Business Succession



Introduction:

When receiving gifts or inheritance in Korea, individuals may face a tax ranging from 10% to a maximum of 50%. However, in situations where immediate payment of inheritance or gift tax is financially burdensome due to difficulties in liquidating assets, individuals can benefit from the Deferred Payment System. Regardless of the taxpayer's financial capacity, this system allows for deferred payments, primarily in the form of annual installments.


Deferred Payment Terms:

Under the Deferred Payment System, if the inheritance or gift tax exceeds 20 million won, individuals can apply for a maximum of 5 years for gifts and 10 years for inheritance. The total number of payments can be divided into a maximum of 6 installments for gifts and 11 installments for inheritance, with each installment exceeding 10 million won. Additionally, for inheritance taxes with business succession deductions, individuals can extend the payment period for up to 20 years, and for gift taxes with business succession special tax exemptions, the period can be extended up to 15 years.


Interest and Guarantees:

Each installment under the Deferred Payment System incurs an additional payment calculated as an interest concept. The interest rate, currently set at 3.5% annually as of the March amendment, is determined by the government. Moreover, individuals must provide a guarantee equivalent to 110% to 120% of the total deferred payment amount, including the additional payment, which can be in the form of tax payment bonds, real estate, or other assets. It's essential to consider the liquidity of assets, especially if providing real estate as a guarantee, as selling the guaranteed property may require immediate payment of the remaining tax.


Flexibility and Considerations:

While Deferred Payment differs from installment payment, which allows individuals to pay the excess amount exceeding 10 million won within two months after the original tax payment deadline, it doesn't require additional guarantees or approval from tax authorities. Individuals can simply indicate the installment amount in their tax return within the filing deadline. However, it's crucial to note that individuals cannot simultaneously apply for both installment and deferred payment, so choosing the most suitable option based on their financial circumstances is recommended.


Conclusion:

Understanding the Deferred Payment System for inheritance and gift taxes in Korea provides individuals with financial flexibility and relief, particularly in situations where immediate tax payment is challenging. By exploring these options and considering their implications, individuals can better manage their tax obligations and financial resources.


For more details, please feel free to reach out at jz@taxjz.com or If you would like a consultation with an English-speaking Consultant/Accountant in Korea, please schedule a call at: Schedule a Call with Jz

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