Heavy inheritance, gift taxes spur rich Koreans to emigrate to Singapore

A South Korean co-CEO of a blockchain investment firm with hundreds of millions of dollars in assets moved to Singapore last year to avoid the Northeast Asian country’s heavy inheritance and gift taxes.

The cases of South Korean emigrants with assets of at least 100 billion won ($72.4 million) from Asia’s fourth-largest economy to the city-state were estimated to have hit a record high last year, indicating Seoul’s high inheritance and gift taxes may have accelerated the exodus of the local rich, lawyers said.

The number of locals who renounced their citizenship to become Singaporeans nearly doubled to an all-time high of 204 last year from 106 in 2022, according to The Korea Economic Daily’s analysis of data from the South Korean Ministry of Justice on Monday.

Many of them were super-rich people, who wanted to move to Singapore as the city-state does not impose taxes on inherited wealth, gifts and dividend income, according to lawyers in Seoul.

South Korea levies up to 50% taxes on inheritance, the second highest rate among members of the Organization for Economic Cooperation and Development. The rate rises further to the world’s top 60% with additional taxes of 20% applied to the largest shareholders of corporate stocks.

“The government needs to revise taxes including inheritance taxes to an affordable level for the local wealthy to reduce capital outflows,” said Chang Jae Young, a partner at Shin & Kim LLC, a major South Korean law firm.

TAX AVOIDANCE VIA EMIGRATION

A South Korean retired businessman with 120 billion won in cash has been preparing for emigration to Singapore since spring.

The 65-year-old entrepreneur sold his company to a private equity firm instead of turning over it to his son due to the inheritance taxes.

“Why should I pay half of my hard-earned money in taxes, even after I’ve paid all my taxes while running the company,” the retiree said.

Only six South Koreans left for Singapore from 2013 to 2016, according to the Overseas Koreans Agency. The number surged by 42.5 times to 255 from 2017 to January this year.

That compared with the 12.3 times increase in the total South Korean emigrant number to 23,639 during the period.

Most emigrants to Singapore are wealthy with more than 100 billion won in assets and nouveau riche, according to South Korean law firm sources.

Those rich emigrants usually open family offices and hire experts to boost their assets in the Southeast Asian country, those sources said.

“Singapore is popular as the regulations on family offices are not that strict,” said a lawyer specializing in South Korean inheritance laws. “The city-state also has excellent security and education services.”

Hong Kong and the United Arab Emirates (UAE) are also favorite destinations for Koreans wishing to avoid high taxes.

The number of South Koreans reporting migration to Hong Kong rose to 242 from 2017 to January 2024 from only two in the four years from 2013.

South Korean emigrants to the UAE rose to 27 from nil during the respective periods as the Middle Eastern country has no inheritance, gift or transfer income taxes and its corporate tax rate of 9% is lower than 17% of Singapore.

HOME SWEET HOME

Many wealthy South Koreans considering emigration plan to return home after transferring their assets to their children.

The local tax authorities impose additional taxes on South Koreans returning from other countries, considering their emigration a form of tax evasion. But if those emigrants stay five to 10 years abroad, they would not face such punishment, emigration consulting industry sources said.

“Seven or eight of 10 wealthy people preparing to emigrate to other countries such as the US plan to come back in some years, except for the super-rich who have enough money to set up a company in Singapore,” said Law Firm Trinity Managing Partner Kim Sang Hoon in Seoul.

“It is urgent to improve social conditions such as reforming the inheritance tax system to prevent the exodus of the wealthy, given their impact on circulating money in the economy through reinvestment in financial and property markets.”

Write to Gyeong-Jin Min, Lan Heo, Ji-Hye Min and Seo-Woo Jang at min@hankyung.com
 
Jongwoo Cheon edited this article.