[Korean Law Insights] Why Inheritance Registration Has to be Completed on Time

[Published on December 20, 2022 edition of the "Korean Law Insights" column in the Korea Daily’s Economic Expert Section]

Preparing for someone’s death is difficult, but facing that loss and handling the inheritance left behind can be even more challenging. This is especially true when the deceased’s assets are in Korea, and the heirs reside in the United States. In such cases, it’s common for heirs to postpone the inheritance process in Korea. The grief of losing a loved one, combined with unfamiliar legal procedures, makes dealing with inheritance even more overwhelming.

Recognizing this, Korean tax law allows some flexibility. While the original deadline for paying acquisition tax and inheritance tax is 6 months, if any heirs reside abroad, this period is extended to 9 months. The problem, however, is that many heirs living overseas may not be aware of this extended deadline.

Technically, there is no specific deadline for inheritance registration itself. The legal effect of inheriting property occurs even without completing the inheritance registration. In other words, heirs automatically acquire ownership of the deceased’s real estate, even without registering the inheritance.

However, if heirs wish to sell the inherited property to a third party, the inheritance registration must be completed first. For heirs living abroad, preparing the necessary documents and following the required procedures for inheritance registration can be time-consuming and complicated. Failing to handle this in advance can lead to significant difficulties.

The more critical issue is taxes. Not completing the inheritance registration also means that the acquisition tax and inheritance tax on the property have not been paid. Acquisition tax must be paid before applying for inheritance registration, and inheritance tax is generally filed and paid after completing the registration.

Currently, the acquisition tax rate on inherited property is 2.8% of the property’s value, while the inheritance tax rate ranges from 10% to 50%, depending on the value of the estate. These taxes alone can be a substantial financial burden, but the bigger problem arises if the inheritance registration isn’t completed on time — penalties.

Both acquisition tax and inheritance tax come with penalties for late filing and late payment. As of now, the penalty for failing to file is 20% of the unpaid tax, and a late payment penalty of 0.022% is added daily. Over time, these penalties can snowball, leading to a situation where the penalties exceed the original tax amount.

Since it’s difficult for heirs living abroad to understand the intricate details of Korean inheritance taxes, they often end up paying unnecessary penalties, leading to added frustration and financial strain.

The longer you delay, the heavier the burden becomes. Therefore, it’s advisable to consult with a professional as soon as possible to navigate the inheritance process and avoid additional costs.

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Jin Hee Lee/K-Law Consulting Korean Attorney

[Reference link in original Korean] 

https://news.koreadaily.com/2022/12/20/economy/economygeneral/20221220212922023.html