South Korea’s inheritance tax system, among the highest in developed nations, is hampering business continuity and economic dynamism. (Image courtesy of Yonhap)
SEOUL, Nov. 19 (Korea Bizwire) – South Korea’s inheritance tax system, among the highest in developed nations, is hampering business continuity and economic dynamism, according to a new report released on November 18 by the Korea Chamber of Commerce and Industry (KCCI).
The report, “Five Reasons Why Inheritance Tax Reform is Necessary,” comes as the government’s proposed tax reform bill awaits parliamentary approval. The legislation, submitted in September, would reduce the maximum inheritance tax rate from 50% to 40% and eliminate the additional 20% premium applied to majority shareholders’ stock holdings.
Current regulations can push the effective inheritance tax rate to 60% for major shareholders when including the premium evaluation on inherited stocks. This creates significant challenges for business succession and makes companies vulnerable to hostile takeovers, the KCCI argues, as heirs often must sell shares to pay tax obligations.
“Imposing the world’s highest inheritance tax burden on our companies, which must navigate through challenges with aggressive investment amid strengthening protectionism and economic nationalism, is demanding excessive sacrifice,” said Kang Seok-gu, head of the KCCI’s research division.
The business organization highlighted several critical concerns in its report. The current rate ranks second highest among 38 OECD nations, becoming the highest when including the majority shareholder premium. The system also creates double taxation as inherited assets have already been subject to income tax.
Moreover, the high rates encourage tax evasion while constraining corporate investment and stock price growth. Companies face additional challenges in business succession planning due to limited defensive measures against hostile takeovers.
The government’s reform proposal reflects growing recognition of these issues. In July, it announced plans to lower the maximum rate and eliminate the majority shareholder premium tax, marking a significant shift in policy.
“It’s time to ease the excessive inheritance tax burden by referring to major countries’ tax systems to support corporate competitiveness and enhance economic vitality,” Kang emphasized.
M. H. Lee (mhlee@koreabizwire.com)
