November 21, 2024

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South Korean Finance Minister and Deputy Prime Minister Choi Sang-mok speaks during a press briefing held at the government complex in Sejong City on Monday. (Newsis)

South Korea is set to overhaul its inheritance tax system next year, with the Finance Ministry preparing a bill to tax the inheritors instead of the estate that is being inherited.

To enhance fairness and ensure consistency in taxation, as well as align with global trends, the government plans to shift to an inheritance acquisition tax system," Finance Minister and Deputy Prime Minister Choi Sang-mok said Monday during a meeting with journalists at the government complex in Sejong City.

The ministry will focus on drafting a detailed reform plan this year through research and expert consultations. Based on this plan, it will collect opinions from different affected areas, aiming to submit the necessary amendments to the National Assembly by mid-2025.

Choi highlighted two key issues for the new system: defining tax brackets and setting deduction rates for different beneficiaries.

"As the inheritance acquisition tax is imposed on the assets each beneficiary receives, determining the tax base of the different beneficiaries is crucial," the minister explained.

"Advanced countries set the tax base using methods like wills, statutory shares, and agreed-upon divisions. In light of these practices, we are reviewing our civil law and property division methods to accurately reflect actual value of inherited assets," added Choi.

He also stressed the need to replace the current blanket deduction system -- which applies a uniform deduction to the entire estate -- with specific deductions for individual beneficiaries, such as spouses and children.

"A government proposal on inheritance tax deductions has already been submitted to the National Assembly, and through discussions at the regular session, we will finalize the deduction amounts for the new system," Choi added.

The Yoon Suk Yeol administration has been pushing to replace the current estate tax system -- which taxes the entire estate regardless of individual inheritances -- with an acquisition tax system that taxes each beneficiary separately.

This initiative is part of the government's broader effort to revamp the more-than 20-year-old tax system, which has faced criticism for its high rates -- the second-highest in the world after Japan -- and the excessive burdens it places on the local companies, including the risk of double taxation.

Monday’s announcement follows the July tax code revision, which introduced key changes including reducing the top rate from 50 percent to 40 percent and eliminating the 20 percent surcharge on controlling stakes in major firms. A bill with these amendments was submitted to the National Assembly earlier this month.

On Monday, Choi also discussed the government's initiatives to enhance corporate value.

“As of last week, 31 companies have revealed their corporate value enhancement plans, with several major firms issuing pre-notices for upcoming disclosures,” he said. “Improving corporate governance is a key issue, and the government is considering amendments to the commercial law to address industry concerns while safeguarding shareholder rights.”

He also committed to bolstering efforts to revitalize domestic demand, prioritizing vulnerable sectors such as low-income households, small businesses, durable goods and construction.

“We have moved past unprecedented domestic and external crises, but the aftereffects of high interest rates and inflation still persist,” he said. “The pace at which export recovery is translating into domestic demand is slower than anticipated, and accelerating this process will be a top priority for the government.”

By Choi Ji-won (jwc@heraldcorp.com)