Singapore (File photo)
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 100 billion won ($72.4 million) from Asia’s fourth-largest economy to the city-state were estimated to 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, showed 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.
EMMIGRATIONS TO AVOID TAXES
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 provides excellent security and education services.”
Hong Kong (File photo)
Hong Kong and the United Arab Emirates (UAE) are also their favorite destinations.
The number of South Koreans reporting migrations to Hong Kong to 242 in 2017-January 2024 from only 2 in four years starting from 2013.
South Korean emigrants to the UAE rose to 27 from nil during the period as the Middle Eastern country has no inheritance, gift and transfer income taxes and its corporate tax rate of 9% is lower than 17% of Singapore.
HOME SWEET HOME
Many wealthy South Koreans considering emigrations plan to come back home after transferring their assets to their children.
The local tax authorities impose additional taxes on returning South Koreans from other countries, considering their emigrations as tax evasion. But if those emigrants stay five to ten years abroad, they would not face such punishments, emigration consulting industry sources said.
“Seven or eight wealthy people out of ten who are preparing to emigrate to other countries such as the US plan to come back in years, except for the super-rich people 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 wealthy’s exodus, given their impact on circulating money in the economy through reinvestments in financial and property markets.”
By Gyeong-Jin Min, Lan Heo, Ji-Hye Min and Seo-Woo Jang
min@hankyung.com
Jongwoo Cheon edited this article.
