Compare keeping, repaying or converting a shareholder loan
Money an owner lends to a family company in South Korea is a liability in the company accounts and a receivable in the owner’s estate.
An inheritance review must include that receivable, the owner’s shares and any repayment cash still held personally.
This calculator compares three hypothetical positions: keeping the principal outstanding, receiving principal repayments, and exchanging principal for new shares.
It uses Korean rules verified in 2026 and amounts in Korean won, with no currency conversion or foreign inheritance rules.
Follow where the value moves
A smaller loan balance does not automatically produce a smaller taxable estate.
Repayment can replace a receivable with cash, while conversion removes company debt and can increase the value of the shares.
The result separates those assets before comparing calculated Korean inheritance tax.
It is a preparation tool for a Korean tax adviser, with corporate tax, gift tax and transaction costs requiring separate assessment before choosing a course of action.
Check the supported claim and valuation scope first
Ordinary receivables and confirmed supplementary valuation
The supported loan has a recovery period of no more than 5 years and original terms unchanged by rehabilitation, composition or a similar proceeding.
The company must qualify for ordinary supplementary share valuation, with no applicable market value taking priority and a confirmed exemption from the largest-shareholder premium for the relevant small or medium-sized company.
Enter only the owner’s own shares and claim.
Situations needing a separate valuation
Long-term or restructured claims, an available qualifying market value, a largest-shareholder premium, and special net-asset-only valuation cases fall outside this comparison.
These include the relevant Article 54 exceptions for companies before commencement, operating for less than 3 years, suspended, closed or liquidating, and the separate treatment involving property or share assets of 80% or more.
If the scope cannot be confirmed, prepare the valuation documents before using a result.
Understand each input and avoid double counting
- Principal and existing accrued interest: use the owner-specific agreement and ledger balance.
Keep existing accrued interest separate; only principal is repaid or converted in the three scenarios.
- Tax-adjusted assets and liabilities: use values checked for Korean inheritance valuation rather than assuming book values are sufficient.
The liability total must already include the principal and accrued interest entered here, because the model subtracts principal again when constructing the repayment or conversion position.
- Shares outstanding and shares owned: reconcile the shareholder register and company records.
Owned shares cannot exceed outstanding shares, and the model assumes that the owner receives every new share issued on conversion.
- Other estate assets and confirmed deductions: exclude this company’s shares, this loan and new repayment cash from other estate assets.
Deduction eligibility, limits and changes between scenarios are user-confirmed assumptions.
- Issue price and conversion principal: the issue price per share need not equal par value or tax market value.
Conversion cannot exceed principal and must produce a whole number of new shares; preferred shares, conversion of interest and simultaneous participation by other shareholders are excluded.
Value the receivable and verify any unrecoverable amount
Under Article 58(2) of the Inheritance and Gift Tax Act Enforcement Decree and Article 18-2(2) of its Enforcement Rule, an ordinary supported receivable is valued as principal plus interest accrued to the valuation date.
Recovery periods exceeding 5 years, or changes to the original claim through rehabilitation or composition, require a separate present-value calculation of annual principal and interest receipts.
The calculator therefore withholds that unsupported comparison instead of applying face value to those claims.
Losses alone do not establish non-recoverability
A company loss, negative equity or closure does not automatically remove the owner’s receivable from the estate.
Only a properly substantiated amount recognized as unrecoverable at the valuation date may be excluded.
A confirmed exclusion reduces the keep scenario, but repayment or conversion comparisons are withheld while an exclusion is entered.
The calculator cannot infer which claim portion was recovered or whether the same exclusion remains supportable after the transaction.
Recalculate share values before and after conversion
Net assets and earnings value
Net asset value per share = max(tax-adjusted assets − liabilities, 0) ÷ shares outstanding
Earnings value per share = max(confirmed weighted three-year earnings per share, 0) ÷ 10%
These are the ordinary structures in Decree Articles 54 and 55 and Rule Article 17.
Tax adjustments can involve goodwill, tax liabilities, retirement-benefit estimates and provisions, so accounting equity and tax valuation equity are not interchangeable.
Weights and the 80% floor
The ordinary earnings-to-net-assets weighting is 3:2, changing to 2:3 for a confirmed property-heavy company.
The weighted result is subject to a floor of 80% of net asset value per share.
The property-heavy option covers a confirmed proportion from 50% to below 80%, with all special Article 54(4) valuation cases excluded.
The shared engine rounds the resulting per-share value to whole won before multiplying by owned shares.
Use separately verified earnings inputs
Decree Article 56 and Rule Article 17-3 contain adjustments to historical share counts and earnings following capital changes.
The treatment depends on the business year of the capital change and valuation, so the model never automatically dilutes historical earnings merely by adding new shares.
Enter separately confirmed tax-adjusted weighted earnings per share for the before and after positions.
When conversion is zero, the existing earnings input remains applicable.
The sample zero earnings inputs describe a fictional low-earnings situation rather than a valuation of a real company.
Also confirm that the same valuation category remains applicable to keeping, repayment and conversion.
A cash repayment reduces total company assets and can raise the proportion represented by property or share assets, changing the weighting or triggering special valuation.
If the selected ordinary 3:2 or property-heavy 2:3 treatment and absence of exceptions do not remain valid in all three positions, withhold this common-assumption comparison and verify each valuation separately.
How the three estate positions are assembled
Keep the loan
Add the owner’s shares, principal, accrued interest and other estate assets, then subtract any confirmed unrecoverable claim exclusion.
Do not deduct the company’s liability a second time as the owner’s personal estate debt: the company liability is already reflected in its share net assets.
Receive principal repayments
Aggregate repayment equals annual principal repayment multiplied by the chosen 1–5 years, capped at principal.
Company assets and liabilities fall by the same amount, while repayment cash is added to the owner’s remaining receivable.
Without personal consumption, company net assets and the claim-plus-cash total remain unchanged in this model.
The year count sets the aggregate principal assumption; it does not forecast annual share values, taxes, interest or transaction dates.
Convert principal into shares
New shares = conversion principal ÷ issue price per share.
Company liabilities decrease by the converted principal, and both outstanding and owned shares increase by the new share count.
The model recalculates the owner’s share value and adds the remaining principal and existing accrued interest.
The fall in the receivable is therefore never treated in isolation as the reduction in the estate.
Apply progressive inheritance tax to each scenario
Tax base = max(scenario estate total − confirmed deductions, 0).
The calculator applies the progressive schedule in Article 26 separately to each base, truncating fractional won, then subtracts the scenario tax from the keep-scenario tax.
A negative difference means the scenario has a larger calculated inheritance tax.
Multiplying the estate change by one marginal rate can misstate a comparison crossing a bracket boundary.
Korean 2026 inheritance tax brackets, rates and progressive deductions| Tax base in KRW | Rate | Progressive deduction |
|---|
| Up to 100,000,000 | 10% | KRW 0 |
| Over 100,000,000 to 500,000,000 | 20% | KRW 10,000,000 |
| Over 500,000,000 to 1,000,000,000 | 30% | KRW 60,000,000 |
| Over 1,000,000,000 to 3,000,000,000 | 40% | KRW 160,000,000 |
| Over 3,000,000,000 | 50% | KRW 460,000,000 |
The result excludes filing credits, prior gift-tax credits, generation-skipping surcharges, penalties, allocation between heirs and final tax payable.
Deductions are fixed inputs; a transaction changing their eligibility or limit requires a revised calculation.
Work from the ledger to a saved comparison
- Confirm the claim: reconcile principal, interest, recovery period, changed terms and any documented unrecoverable amount.
- Prepare both valuation positions: check tax-adjusted company assets and liabilities against the shareholder register, and verify valuation eligibility and before/after earnings per share.
- Separate other estate assets: remove this company’s shares, the loan and new repayment cash from that input, then enter reviewed deductions.
- Set a feasible principal plan: check company assets and payment capacity, annual repayment and 1–5 planning years, or conversion principal and issue price.
- Read every component: compare estate totals, shares, claims, cash, tax bases and calculated tax differences, then save the review sheet.
After editing inputs, recalculate to match the result to current assumptions.
Worked example: a KRW 300 million shareholder loan
Assume principal of KRW 300,000,000, no existing accrued interest, company assets of KRW 500,000,000 and liabilities of KRW 400,000,000.
The owner holds all 10,000 outstanding shares, with confirmed before and after weighted earnings per share of zero.
Other estate assets are KRW 1,000,000,000 and confirmed deductions KRW 500,000,000; the ordinary 3:2 valuation is subject to the 80% net-assets floor.
Repayment is KRW 50,000,000 a year multiplied by 3 years, with no consumption, while conversion exchanges all principal at KRW 10,000 per new share.
Fictional shareholder-loan estate and Korean calculated inheritance-tax comparison in KRW| Scenario | Owner’s shares | Receivable | Repayment cash | Estate total | Calculated tax |
|---|
| Keep | 80,000,000 | 300,000,000 | 0 | 1,380,000,000 | 204,000,000 |
| Repay principal | 80,000,000 | 150,000,000 | 150,000,000 | 1,380,000,000 | 204,000,000 |
| Convert principal | 320,000,000 | 0 | 0 | 1,320,000,000 | 186,000,000 |
Interpret the KRW 18 million difference
Conversion raises net assets to KRW 400,000,000 and the share count from 10,000 to 40,000.
The floor gives KRW 8,000 per share and increases the owner’s share value from KRW 80,000,000 to KRW 320,000,000.
Removing the KRW 300,000,000 receivable therefore reduces the estate by KRW 60,000,000, producing tax bases of KRW 880,000,000 and KRW 820,000,000.
Their calculated inheritance taxes differ by KRW 18,000,000.
Company debt-discharge tax, gift tax and capital-increase costs remain unassessed, so that difference is not a final economic gain or a recommendation to convert.
Distinguish documented consumption from withdrawals and gifts
If the owner in the example actually consumes KRW 100,000,000 of repayment cash personally, the repayment estate falls to KRW 1,280,000,000.
The tax base is then KRW 780,000,000 and calculated inheritance tax KRW 174,000,000.
Wealth has also fallen by the KRW 100,000,000 spent; the tax reduction is neither a return on investment nor an effect of repayment alone.
Do not use a smaller tax number as a reason to increase consumption.
Exclude gifts, asset purchases and unexplained cash
A payment to a child requires a gift-tax and prior-gift-addback review, while money used to buy another property or financial asset still represents an asset.
Article 15 addresses unexplained dispositions or withdrawals of at least KRW 200,000,000 per asset category within 1 year before death, or KRW 500,000,000 within 2 years, among its statutory conditions.
This calculator does not decide those conditions or exceptions.
Deduct only verified, documented actual personal consumption, and never assume that a bank withdrawal removes property from the estate.
The interest diagnostic is a separate one-year cash flow
Interest received by the owner
The diagnostic multiplies opening principal by the agreed annual interest rate.
Ordinary non-business lending interest has 25% national income-tax withholding, with local income tax equal to 10% of that tax, making 27.5% combined withholding.
KRW 10,000,000 interest therefore gives KRW 2,750,000 withheld and KRW 7,250,000 cash after withholding.
Financial income exceeding KRW 20,000,000 including other interest and dividends needs a comprehensive-income-tax review; withholding does not establish final tax.
Company deduction effect
A supplementary company tax-effect estimate requires confirmation that interest is deductible and a reviewed combined national/local marginal-effect rate.
Loss carryforwards, minimum tax, denied deductions, special small-company rates and tax credits are not automatically assessed.
This diagnostic does not project interest along the repayment schedule or after conversion, and its future interest is not added to the three estate totals.
Review conversion and forgiveness before acting
- A company with other family shareholders: differences between the issue price and statutory market value can transfer benefits and require an Article 39 capital-increase gift review.
A change in someone’s share value is not automatically the statutory gift amount, and recommendations are withheld pending that separate review.
- A wholly owned company: the proviso to Corporate Tax Act Article 17(1)(1) and its Decree Article 11(6) can treat the amount issued above share market value on conversion as taxable company income.
Having a single shareholder does not establish zero corporate tax, loss-offset effects, registration fees or capital-increase costs.
- Forgiving the claim: review company debt-forgiveness income and deemed gifts through a specified company under Inheritance and Gift Tax Act Article 45-5.
The page does not present forgiveness as a zero-tax or recommended alternative.
Related tools cover supplementary unlisted-share valuation, unequal capital-change gift benefits and specified-company transaction deemed gifts.
Reconcile their taxable subjects, timing and assumptions with an adviser before combining any results.
Frequently asked questions
Does receiving a company repayment immediately reduce inheritance tax?
Keeping the cash replaces a receivable with cash and leaves the estate total unchanged in this model.
Only verified actual personal consumption reduces repayment cash; gifts and purchases of other assets are not consumption.
Can I exclude the loan because the company has losses or negative equity?
Those facts do not automatically establish an exclusion.
Verify the amount recognized as unrecoverable at the valuation date and its evidence; repayment or conversion comparisons with an exclusion are withheld until reviewed again.
Can I calculate a loan with a recovery period longer than 5 years?
That falls outside this simplified comparison.
Such claims, and claims whose original terms changed through rehabilitation or composition, need the separate present-value treatment in Rule Article 18-2.
Why must I enter post-conversion earnings per share separately?
Historical share-count and earnings adjustments depend on the business years of the capital change and valuation.
Verify both inputs under Decree Article 56 and Rule Article 17-3; the model does not automatically dilute earnings using the new share count.
Does a large inheritance-tax difference make conversion the best option?
It does not establish that conclusion.
Corporate tax on debt-discharge income, gift tax involving other shareholders, loss-offset treatment and capital-increase costs have not been assessed.
Can I enter a withdrawal or a payment to my child as consumption?
No.
Unexplained withdrawals require a presumed-estate review, and gifts to a child require gift-tax and prior-gift-addback checks.
Enter only documented actual personal consumption.
Is 27.5% withholding the final tax rate on interest?
It combines 25% national withholding with 2.5% local income tax on non-business lending interest.
Comprehensive income taxation, including the KRW 20,000,000 financial-income threshold, can change the final liability.
Does a three-year repayment plan forecast tax and share value three years ahead?
No.
Annual repayment multiplied by years sets an aggregate principal position using verified 2026 rules and the entered valuation assumptions.
Future valuations, interest, deductions and amended law must be reviewed when acting.
Official sources and the 2026 verification date
Current instruments and relevant articles were checked directly through the Korean National Law Information OPEN API on 7 November 2026.
The Inheritance and Gift Tax Act, MST 276123, took effect on 2 January 2026; its Decree, MST 290845, on 1 October 2026; and its Rule, MST 284609, on 20 March 2026.
The current Income Tax Act, MST 280405, and Local Tax Act, MST 282559, have an instrument effective date of 1 July 2026, with the ordinary interest-withholding and local collection provisions checked separately.
The relevant Corporate Tax Act provisions, MST 280349, have an article effective date of 1 January 2026; the Decree, MST 290843, took effect on 1 October 2026.
Recheck annual amendments and their application dates, plus actual recoverability, deductions, conversion market values and company income, before a transaction or filing.
Prepare a comparison for your Korean tax adviser
Gather the loan ledger, agreement, interest records, financial statements, shareholder register, before/after valuations and consumption evidence.
Use the saved review sheet to reconcile the estate difference, then assess company tax, gift tax, deduction changes and capital-increase costs with your adviser.
Only after that review should you settle a repayment plan or the board/shareholder resolutions and registration timetable for conversion.
The starting point is the movement between claims, cash and shares.
Compare the three shareholder-loan positions