Although Korea and the United States have an income tax treaty, they do not have an estate and gift tax treaty.
As a result, the same property may be subject to tax in both countries. In such cases, the Foreign Death Tax Credit under Section 2014 of the U.S. Internal Revenue Code may provide partial relief from double taxation, subject to applicable requirements.
How Estate and Inheritance Taxes Are Assessed
Korea
Inheritance tax is calculated on the deceased person’s total estate before the remaining assets are distributed among the heirs. Progressive tax rates therefore apply based on the size of the overall estate, rather than the amount each heir receives.
United States
Like Korea, the United States imposes federal estate tax based on the value of the deceased person’s overall estate. However, some states also impose a separate inheritance tax based on the recipient’s inheritance.
Korean Inheritance Tax: Basic Principles and Taxation Criteria
In Korea, the scope of taxation and available deductions differ significantly depending on whether the deceased was a resident or nonresident.
Residency is determined independently of nationality. A resident is generally defined as a person who maintains a domicile in Korea or has maintained a place of residence in Korea for at least 183 days in aggregate over two years.
- Resident deceased: All assets left by the deceased, both in Korea and abroad, are subject to Korean inheritance tax.
- Nonresident deceased: Only assets situated in Korea are subject to Korean inheritance tax.
U.S. Estate Tax: Basic Principles and Taxation Criteria
For U.S. estate tax purposes, domicile is a key consideration. The applicable exemption can differ substantially depending on the deceased person’s status, including whether they were a U.S. citizen, green card holder, or nonresident foreign national.
- U.S. citizens / green card holders: The deceased person’s worldwide assets are subject to estate tax.
- Nonresident aliens (NRAs): Only U.S.-situs assets are subject to U.S. estate tax. Examples include U.S. real estate and shares in U.S. corporations or U.S.-domiciled ETFs.