There are several laws that regulate the creation of a trust in South Korea. The most important one is the Trust Act, that has been last renewed in 2017. Considering there are several ways to set up such an establishment here, we invite you to read below about the opening procedure. Our company formation agents in Korea can help you through the process.
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Procedures to set up a trust in Korea
Here are the main ways to create a Korean trust in accordance with the law:
- a trust agreement or declaration;
- a testament;
- a contract between the settlor and a trustee.
The means of establishment depend on the type of trust to be created.
It is possible for both foreign and Korean citizens to open such establishments here. When it comes to foreigners, the creation through a trust deed resembles Western legislation.
The following types of trusts can be set up in Korea:
- living,
- testamentary,
- charitable,
- family.
You can rely on our company registration consultants or lawyers in Korea to register a trust, in accordance with the type and means of creation.
Trusts from a legal point of view in Korea
The law provides for the following elements of a trust in Korea:
- the trust itself, which is a legal relation through which a person (trustor/settlor) creates it in order to transfer property to another party, called a trustee;
- the settlor who disposes of a property which must be clearly identified in the trust agreement, contract, or testament;
- the trustee who accepts to manage, operate, dispose of, or further develop the respective property in order to fulfil the purpose of the trust;
- the beneficiary or beneficiaries who are parties to enjoy the results after the purpose of the trust is fulfilled.
There are several types of trusts that can be created in Korea. Our local specialists can assist with the selection of the appropriate one.
Types of trusts that can be set up in Korea based on taxation
The Korean tax legislation acknowledges the following types of trusts:
- domestic,
- foreign.
The income and corporate tax laws provide for domestic trusts and their imposition. Specifically, they are not required to file separate income tax returns from their settlors. However, the beneficiaries will be subject to taxation in relation to income generated by the property managed by the trustee.
There is an exception to this rule that applies to qualifying investment trusts registered as investment funds in accordance with the Financial Investment Services and Capital Markets Act. In this case, trusts must pay a withholding tax on the distribution of the profits to the beneficiaries.
Foreign trusts will be treated as qualifying investment trusts in terms of taxation.
We recommend discussing these matters with our accountants in Korea to understand the accounting rules applicable to these entities.
Taxes to be paid in South Korea by trust beneficiaries
When Korean trusts are created through testaments, their beneficiaries are subject to the inheritance tax, which is levied on a tax base. Here are the rates of this levy:
- a 10% rate of the tax base for property worth maximum WON 100 million;
- WON 10 million + 20% of the amount exceeding WON 100 million and below WON 500 million;
- WON 90 million + 30% of the sum surpassing WON 500 million and up to WON 1 billion;
- WON 240 million + 40% of the amount exceeding WON 1 billion and below WON 3 billion;
- WON 1.4 billion + 50% of the sum in excess of WON 3 billion.
If you want to set up a trust in Korea and need assistance, do not hesitate to contact our local consultants.