Why an excess dividend can create Korean gift tax
A family-company shareholder may waive a dividend so that a related shareholder receives more than their ownership percentage would normally allow.
Korean income tax withholding does not complete the gift-tax analysis of that transfer.
This calculator compares every shareholder’s pro-rata dividend with the actual distribution, attributes the relevant share of shortfalls to the largest-shareholder group, and separates the initial gift-tax estimate from the later settlement.
Article 41-2 of the Korean Inheritance and Gift Tax Act first deducts a prescribed income-tax equivalent from the statutory excess dividend to determine gift property value.
That value is recalculated after actual income tax is established.
Income tax is deducted from the gift value; it is not deducted again from the resulting gift tax.
Keep prior gifts and deduction assumptions consistent between the two stages to understand the adjustment.
This tool uses Korean 2026 rules for resident individual recipients and equal-right ordinary shares in a domestic company.
It produces a review estimate, not an official return.
Use anonymous shareholder labels; account numbers or personal identification numbers are unnecessary.
Confirm scope before interpreting a pending result
Supported facts
A member of the statutory largest-shareholder group waives all or part of their dividend or receives a non-proportional distribution, benefiting their related shareholder.
Verify equal dividend rights, the complete register and the largest-shareholder classification.
That statutory group can differ from the single person with the most shares.
Individual review required
Preferred shares, foreign companies, nonresident recipients and complex dividend agreements are outside this tool.
A recipient related to only some underpaid largest shareholders is held for review.
Where several largest shareholders are underpaid, the calculator can show an aggregate statutory excess estimate for a recipient related to all of them, but it does not combine different donors into one progressive gift-tax assessment.
Pending review does not mean zero tax.
It means that facts are unconfirmed or the calculation needs separate donor analysis.
Totals remain pending when a required shareholder result is pending, so a partial amount is not presented as the complete tax budget.
After facts are confirmed, a pro-rata distribution or no largest-holder shortfall produces zero excess under this provision.
Inputs: reconcile the complete register and gross dividends
- Enter total ordinary shares and each shareholder’s holding.
All holdings must reconcile to the total because a missing shareholder changes both normal dividends and the allocation denominator.
- Enter the company’s gross dividend total and each actual gross distribution.
Use pre-withholding amounts from the dividend resolution and payment records, rather than the net amount credited to a bank account.
- Enter the actual payment date in 2026 for one distribution.
Under the current rule, payment is the gift date; the resolution date alone does not determine the filing deadline.
- For a beneficiary’s tax estimate, supply verified prior gifts, the total deduction for the aggregated assessment, the tax base of aggregated prior gifts and their gross gift tax.
Relationship-based deduction limits are not automatically inferred.
Include 2–8 shareholders, even those receiving no dividend.
Shares and KRW inputs are nonnegative integers; total shares must be positive and no more than 1 billion, and each monetary input is capped at KRW 1 trillion.
These are tool limits, not legal exemptions.
Adding or removing a holder invalidates the results until both totals reconcile again.
An above-pro-rata payment is not always the statutory excess
Pro-rata dividend = gross total × holder’s shares ÷ total shares
Shortfall = max(0, pro-rata dividend − actual dividend)
Allocation ratio = largest-holder shortfalls ÷ all shareholder shortfalls
Statutory excess E = positive above-pro-rata difference × allocation ratio
Decree Article 31-2(2) includes shortfalls of other shareholders in the denominator.
Treating every above-pro-rata won as a gift can therefore overstate the statutory amount.
The numerator is the shortfall attributable to the verified largest-shareholder group.
The underlying allocation uses the original shares and dividends, not rounded displayed shortfalls.
Another shareholder also waives a dividend
Assume KRW 100 million in total dividends and A/B/C shareholdings of 40%/20%/40%.
A and B receive nothing and C receives all KRW 100 million.
Only A belongs to the largest-shareholder group, and C is related to A.
A’s shortfall is KRW 40 million and B’s is KRW 20 million, giving a ratio of 2/3.
C’s KRW 60 million excess receipt therefore becomes KRW 40 million of statutory excess dividend.
Use the prescribed income-tax equivalent for the initial return
Enforcement Regulation Article 10-3(1) supplies the following schedule.
For each band, add its fixed base to the amount above the lower boundary multiplied by the marginal percentage.
Do not add local income tax or apply the ordinary withholding percentage to every band.
Prescribed income-tax equivalent by statutory excess dividend band in KRW| Excess dividend band (KRW) | Fixed base (KRW) | Rate above lower bound |
|---|
| Up to 57,600,000 | 0 | 14% |
| Over 57,600,000 to 88,000,000 | 8,060,000 | 24% |
| Over 88,000,000 to 150,000,000 | 15,360,000 | 35% |
| Over 150,000,000 to 300,000,000 | 37,060,000 | 38% |
| Over 300,000,000 to 500,000,000 | 94,060,000 | 40% |
| Over 500,000,000 to 1,000,000,000 | 174,060,000 | 42% |
| Over 1,000,000,000 | 384,060,000 | 45% |
The second band’s fixed base is exactly KRW 8,060,000 in the statutory table.
The tool does not change it to KRW 8,064,000 to make the first boundary continuous.
At E = 57,600,000 the first formula gives 8,064,000; just above that boundary the next band starts from its prescribed base.
A small discontinuity at the boundary is therefore retained rather than replaced with an ordinary progressive income-tax schedule.
Three ways to establish actual income tax at settlement
Excluded or exempt
Actual income tax is zero where the relevant excess dividend has been confirmed as excluded from income taxation or exempt.
The tool does not decide eligibility.
Missing records should remain pending rather than being treated as an exemption.
Separate taxation
Enter the confirmed national income tax on this statutory excess dividend.
Do not enter withholding on the full dividend or include local income tax.
The entered amount cannot exceed the statutory excess dividend.
Comprehensive taxation
Enter the confirmed annual comprehensive income tax base P including the excess dividend.
Actual income tax is max(T(P) − T(max(0, P − E)), E × 14%), using Income Tax Act Article 55(1).
Its bands end at KRW 14/50/88/150/300/500 million and 1 billion, with rates of 6/15/24/35/38/40/42/45%.
Revenue, income before deductions and the final tax bill are not the tax base.
Initial gift value is E minus the prescribed income-tax equivalent.
Settled gift value is E minus actual income tax.
Do not deduct income tax again from the gift-tax result.
The side-by-side stages show exactly which gift value and tax base changed.
Prior gifts and prior gift-tax credits are separate inputs
Article 47(2) aggregates gifts from the same donor during the preceding 10 years when their combined value reaches KRW 10 million.
For an ascendant donor, the rule includes that donor’s spouse.
Gather prior returns and gift dates to verify aggregation and deduction usage before entering a total.
Tax base = current gift value + aggregated prior gifts − verified total deduction
Prior credit limit = current gross gift tax × prior aggregated tax base ÷ current total tax base
Estimated gift tax = gross gift tax − prior gift tax credit within that limit
A tax base below KRW 500,000 produces no gift tax under Article 55(2).
At or above that threshold, the bands at KRW 100/500 million and 1/3 billion use rates of 10/20/30/40/50%, with progressive deductions of 0/10/60/160/460 million.
Article 58 uses the gross tax on the prior aggregated gifts, which can differ from the cash paid after credits.
Enter the total deduction applicable to this aggregated assessment, not merely an unused allowance.
The model reconstructs the gift tax base from gift values; it does not simply add a new gift to an old net tax base.
Results exclude the 3% filing credit, generation-skipping surcharge, foreign tax credits and penalties.
The displayed gift tax and settlement difference may therefore differ from the final payment or refund on an official return.
Worked example: distinguish a refund from additional tax
A and B own 60% and 40% and the company pays its entire KRW 200 million dividend to B.
A is the only underpaid largest shareholder, B is related to A, and a single-donor tax unit has been confirmed.
Assume no prior gifts and a verified total deduction of KRW 50,000,000.
Initial estimate
B’s pro-rata dividend is KRW 80,000,000 and statutory excess is 120,000,000.
The prescribed income-tax equivalent is 26,560,000, leaving gift value of 93,440,000.
After the 50,000,000 deduction, the gift tax base is 43,440,000 and the initial gift tax estimate is 4,344,000.
After comprehensive income tax is confirmed
With comprehensive tax base P = 200,000,000, actual income tax under the regulation is 42,620,000.
Settled gift value is 77,380,000 and the gift tax estimate after the deduction is 2,738,000.
The difference is −1,606,000, indicating a potential refund for review.
If instead that same excess dividend is confirmed as excluded from income taxation, actual income tax is zero and settled gift tax is KRW 7,000,000.
That exceeds the initial estimate by 2,656,000, indicating additional tax for review.
Both comparisons hold omitted credits and surcharges constant.
A lower income-tax amount alone does not establish a lower total tax burden.
Step-by-step use and filing dates
- Reconcile all shareholdings and gross distributions, including shareholders receiving nothing.
- Confirm the largest-shareholder group and each beneficiary’s relationships.
Use the allocation ratio to understand the difference between economic excess receipts and statutory excess.
- Confirm the single-donor tax unit and prior-gift records to obtain an initial estimate.
Leave settlement pending while actual income tax remains unknown.
- Once actual income tax is established, select its treatment and review the signed settlement difference.
A positive amount indicates additional tax; a negative amount indicates a potential refund.
Reconcile with the actual return’s other credits and surcharges.
Initial deadline, settlement and the exception
The ordinary initial deadline is three months after the end of the payment month.
The settlement filing period is May 1–May 31 of the following year, extended to June 30 for a qualifying business submitting the prescribed honest tax reporting confirmation.
Displayed dates precede holiday and individual-extension adjustments.
If a separately verified extension makes the initial deadline fall on or after June 1 of the next year, or July 1 for that qualifying business, Decree Article 31-2(3)1 uses actual income tax initially.
Article 31-2(6) then removes the separate settlement.
The exception is not selected simply because actual income tax happens to be known early.
Practical planning scenarios and interpretation limits
Before deciding a distribution
Replace the fictional example with the actual register and compare proposed distributions.
Budget income tax and gift tax alongside the recipient’s intended use of the money.
Whenever a distribution changes, update both the gross total and each shareholder’s payment.
After the income tax return
Use the confirmed tax base or applicable separate-tax amount and retrieve the prior-gift records used in the initial gift-tax return.
If that return included other credits or surcharges, do not treat this tool’s difference as the final refund.
Save the review and reconcile each item with your tax adviser.
Pro-rata dividends display up to two decimal places; statutory excess used in taxation and stage tax calculations are truncated to whole KRW for estimates.
Adding rounded display values can produce small differences from the underlying totals.
Do not reconstruct the allocation ratio from displayed rounded amounts; retain original shares and dividend records.
Repeated distributions or other gifts require a separate review of each payment date and previous returns.
Frequently asked questions
Can gift tax arise after income tax has been withheld?
Yes, where Article 41-2 applies.
Gift tax is calculated on gift value after the prescribed income-tax deduction, so withholding alone does not finish the analysis.
Is the entire above-pro-rata receipt a statutory excess dividend?
The receipt difference is multiplied by the largest-holder share of all dividend shortfalls.
Shortfalls from other shareholders can reduce the statutory amount.
Should I choose unrelated if I do not know the relationship?
Keep the relationship unconfirmed.
A recipient related to only some underpaid largest shareholders also requires review; pending does not mean zero.
Does actual income tax include local income tax?
No.
Use the national income-tax amount required by the regulation, excluding local income tax and withholding attributable to the rest of the dividend.
Where do prior gift tax and this initial return’s tax belong?
Prior gross gift tax supports the Article 58 credit.
This distribution’s initial estimate is calculated separately and subtracted at settlement, so do not enter it again as prior gift tax.
Does a negative adjustment guarantee a refund?
It indicates a refund direction for review.
Reconcile filing credits, surcharges, penalties and the original return, then complete the required settlement filing.
Why is tax pending when several largest shareholders are underpaid?
Different donors can have different prior gifts and progressive assessments.
The tool avoids combining them into a single tax base and leaves donor-level tax to individual review.
What if the initial deadline falls after the income-tax settlement period?
If the precise deadline condition in Decree Article 31-2(3)1 is confirmed, actual income tax applies initially and paragraph (6) removes separate settlement.
If actual income tax is still unknown, the initial estimate also remains pending.
Official sources and the documents to prepare next
The current texts were verified directly through the Korean National Law Information OPEN API on 2026-09-26.
Inheritance and Gift Tax Act MST276123 has a search effective date of 2026-01-02 and relevant article dates of 2025-10-01.
Decree MST288887 is effective 2026-09-18 and Regulation MST284609 is effective 2026-03-20.
Income Tax Act MST280405 Article 55 uses its 2026-01-01 effective rules.
Act Articles 26, 47, 53, 55, 56, 58, 68 and 69 provide the related gift-tax rates, aggregation, deductions, credits and filing rules.
Recheck those provisions, the prescribed table and the actual income-tax treatment after amendments and before each filing period.
Save the input and settlement review, then give your Korean tax adviser the dividend resolution, complete shareholder register, withholding and comprehensive income-tax records, and prior gift-tax returns.