Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
High inheritance tax prompts more wealthy Koreans to emigrate
Legislators approve a revised law on inheritance and gift taxes at the National Assembly in Yeouido, Seoul, Dec. 21. Yonhap
By Yi Whan-woo
Korea's high inheritance tax rate is apparently prompting more wealthy Koreans to move to foreign countries that have more lenient regulations.
Asia’s fourth-largest economy is ranked second in the OECD only after Japan regarding inheritance tax rates. The maximum inheritance tax rate in Korea is 50 percent, compared to Japan's 55 percent and the OECD average of 25 percent.
In a taxation environment such as this, a survey recently released by Henley & Partners, a London-headquartered investment migration consulting firm, estimated that Korea has lost the world’s seventh-highest number of rich people to emigration this year.
The estimation is based on tracking the movements of over 150,000 high-net-worth individuals worldwide in the database, which is focused on individuals from high-value companies who have one of the following job titles: founder, chairperson, CEO, CIO, president, director or managing partner.
It estimated that Korea had a net outflow of around 800 high-net-worth individuals, or those whose net assets are valued at $1 million or higher, who have left Korea to relocate to another territory during the year — as of June. The figure was an increase from the net outflow of 400 wealthy Koreans the previous year.
China topped the net outflow chart with 13,500, followed by India with 6,500, the United Kingdom with 3,200, Russia with 3,000, Brazil with 1,200 and Hong Kong with 1,000.
Of the seven, Korea along with the U.K. were the only countries where the estimated number of wealthy emigrants doubled in the 2022-23 period.
China marked an increase from 10,800 during the cited period, while the remaining five saw declining emigration.
Citing Henley & Partners' survey and the 2022 U.N. Population Fund data, industry sources said Korea would be ranked No. 1 if the survey focused on the ratio of rich emigrants out of the total population in their respective countries.
They pointed out that China is more than 28 times larger in population than Korea’s 51.3 million, arguing Korea would have more than 22,000 wealthy emigrants this year compared to China’s 13,500 if Korea’s population were the same as China’s.
The sources also pointed out that Koreans in general are moving to the United States, Canada and Australia, which all offer tax policies on inherited property more lenient than Korea's.
The U.K. imposes an inheritance tax at a rate of 40 percent, while there is no such tax in Canada or Australia.
“Rich Koreans who plan to move to those countries of course would not explicitly say the high inheritance tax is behind the reason for their planned migration,” said Dae Yang Immigration Law Group, a law firm specializing in migration by investment. “But it is obvious they are not happy with the government taking a serious amount of their fortune and thus want to ‘safeguard’ it by moving abroad.”
The law firm referred to a survey conducted by the Korea Enterprises Federation (KEF) this year on 140 Korean venture startup CEOs in their 30s and 40s.
Some 43.6 percent of the respondents said the inheritance tax should be abolished and replaced with a capital gains tax.
Of the respondents, 41.4 percent said that the inheritance tax should be reduced to the OECD average.
Only 9.3 percent found Korea’s current maximum inheritance tax rate of 50 percent appropriate, while another 4.3 percent said it should be raised to prevent unchecked wealth transfers and ease inequality.