South Korea’s Inheritance Tax Burden Accelerates Business Relocation AbroadPosted on Feb 27, 2025

Recent discussions have highlighted the significant impact of South Korea’s inheritance tax regime on the domestic business environment. In particular, the succession of small and medium-sized enterprises (SMEs) and mid-sized companies has become increasingly difficult, accelerating the outflow of capital and talent abroad.

Failure of Inheritance Tax Amendment and Its Implications

On December 10, 2024, the National Assembly rejected a proposed amendment to the Inheritance and Gift Tax Act. The bill aimed to lower the top tax rate applied to taxable estates exceeding KRW 3 billion from 50% to 40%. However, due to concerns over perceived tax breaks for the wealthy, the proposal ultimately failed to pass.

As a result, South Korea’s highest inheritance tax rate remains at 50%, the second-highest among OECD countries after Japan’s 55%. Furthermore, when the 20% premium tax applied to major shareholders is considered, the effective rate can rise to as high as 60%.

A survey conducted by the Korea Federation of Middle Market Enterprises revealed that 89.4% of 151 mid-sized firms view the current top inheritance and gift tax rate as excessively high, and 72.9% believe the rate should be reduced to at least below the OECD average. The average top inheritance tax rate among OECD member countries stands at approximately 26%.

Global Comparison: Declining Competitiveness of Korea’s Inheritance Tax

In contrast to the global trend of reducing inheritance tax burdens, South Korea maintains one of the highest rates in the world. Canada abolished its inheritance tax in 1972, replacing it with a capital gains tax. The United States has maintained a top rate of 40% since 2012, while countries like Germany and Italy have significantly reduced or even eliminated inheritance taxes altogether.

The heavy inheritance tax burden is a major factor driving the relocation of Korean businesses’ capital and talent overseas. According to data from the Ministry of Justice, 88.8% of recent emigrants have chosen destinations such as the United States, Canada, and Australia, where inheritance tax burdens are significantly lower.

Limitations and Suggested Improvements to Business Succession Policies

The Korean government offers inheritance tax deductions of up to KRW 60 billion through its business succession deduction system. However, the requirements to qualify for these benefits are highly stringent. Conditions such as maintaining the business sector and expanding employment for five years after succession create significant challenges for companies attempting to adapt to changing business environments.

Experts argue for the relaxation of these requirements and advocate transitioning from the current inheritance tax model to an acquisition-based tax system. This alternative approach would tax beneficiaries based on the actual inheritance received, offering a more equitable solution to reducing tax burdens.

The Need for Institutional Support for Sustainable Business Management

The primary challenges of South Korea’s current inheritance tax system lie in its high rates and complex post-succession management requirements. These institutional barriers threaten corporate stability and accelerate the overseas relocation of SMEs and mid-sized companies.

Without substantive reforms to the inheritance tax system, the outflow of domestic businesses abroad is expected to intensify. To ensure that business succession contributes to economic growth and job creation, it is crucial to implement institutional adjustments and discuss lowering tax rates.

Rise Partners offers strategic consulting services designed to support businesses in navigating these evolving tax environments and fostering sustainable growth and global expansion.