Work-Funneling Deemed Gift Tax Calculator

Estimate Korea’s work-funneling deemed gift tax under Inheritance and Gift Tax Act Article 45-3. When a related company channels sales (work) to a beneficiary company, the controlling shareholder and relatives are deemed to receive the excess profit as a gift. Deemed gift income = after-tax operating profit x (related-party transaction ratio minus 50/20/5% for SME/mid-size/large) x (shareholding ratio minus 10/5/0%), and applies only once the transaction ratio clears the normal-transaction ratio (50/40/30%) and the holding ratio clears the marginal holding ratio (10/10/3%). The tax base has no gift deduction (Article 55(1)2), is taxed at the 10-50% progressive rate (Articles 56 and 26), earns a 3% voluntary-filing credit (Article 69(2)), and otherwise incurs 20/40% non-filing and 0.022%/day late-payment penalties.

Tax scenario inputs

Enter Korea-related tax assumptions in KRW. The model uses a simplified effective-rate estimate.

Taxable transfer value

₩300,000,000

Estimated gross tax

₩120,000,000

Net tax after adjustment

₩120,000,000

After-tax amount

₩180,000,000

Effective rate

40%

This English page is a simplified Korea-related tax planning estimate. It does not reproduce official forms, progressive brackets, exemptions, local surtaxes, filing classifications, or eligibility decisions. Confirm current Korean rules before filing, paying, investing, or restructuring.

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What is the work-funneling deemed gift tax?

The work-funneling deemed gift tax (Korean: ilgam-molajugi) applies when a related company channels a large share of its sales — its “work” — to a beneficiary company, so that the beneficiary’s profit swells. Korean law then treats that excess profit as a gift received by the beneficiary company’s controlling shareholder and their relatives, and charges gift tax.
The basis is Article 45-3 of the Inheritance and Gift Tax Act (deemed gift through transactions with a related corporation). No asset actually changes hands, yet the profit generated by intra-group dealing is deemed a gift in proportion to the controlling shareholder’s stake.

Enter the beneficiary company’s size (SME, mid-size, or large), its after-tax operating profit, the related-party transaction ratio, and the shareholding ratio of the controlling shareholder and relatives. The calculator returns the deemed gift income, the gift tax, the voluntary-filing credit, the non-filing and late-payment penalties, and the total tax due, under 2026 Korean rules.
The rule was introduced at the end of 2011 to block the covert transfer of wealth within large business groups, and later amendments made the tax intensity depend on company size.

Korea-based, 2026 rules. This tool reflects the Inheritance and Gift Tax Act (Article 45-3, Article 55(1)2, Articles 56 and 26, Article 47, Article 69(2)) with Enforcement Decree Article 34-3, and the Framework Act on National Taxes (Articles 47-2 and 47-4). It is a reference estimate that simplifies the excluded-sales, indirect-holding, and dividend-deduction rules; it is not a substitute for advice from a Korean tax professional.

Why is a gift tax charged here?

When company A, controlled by a group owner, funnels work to company B, in which the owner’s child is the major shareholder, company B’s earnings and share value rise and its dividends grow.
This effectively transfers wealth to the child without any direct gift, so the law deems the excess profit a gift and taxes it.

Three key concepts

  • • Beneficiary company: the company that receives work from a related company and earns the profit.
  • • Controlling shareholder and relatives: the individual who controls the beneficiary company and their relatives. Relatives count only if their holding exceeds the marginal holding ratio.
  • • Deemed gift income: after-tax operating profit multiplied by the transaction and holding ratios; this amount becomes the gift-tax base.

The gift date is the last day of the beneficiary company’s fiscal year, and the deemed gift income is aggregation-excluded property, so it is computed separately for each fiscal year (Article 45-3(3) and Article 47).
As earnings and the internal-transaction share change each year, the gift tax must be recomputed annually.

How is the deemed gift income calculated?

1. Formula by company size

The deemed gift income equals after-tax operating profit times the transaction ratio (minus a fixed percentage) times the holding ratio (minus a fixed percentage).
An SME beneficiary gets the most relief; a large company faces the strictest test.

SizeDeemed gift income formula
SMEprofit × (transaction ratio − 50%) × (holding ratio − 10%)
Mid-sizeprofit × (transaction ratio − 20%) × (holding ratio − 5%)
Largeprofit × (transaction ratio − 5%) × holding ratio

💡 After-tax operating profit is operating income adjusted for tax-return adjustments and the taxable-sales ratio (Enforcement Decree Article 34-3(12)).
Enter the already-computed figure into this calculator.

2. The gates — normal-transaction ratio and marginal holding ratio

Not every transaction is taxed. Two gates must both be cleared for deemed gift income to arise.
The transaction ratio must exceed the normal-transaction ratio, and the holding ratio must exceed the marginal holding ratio.

SizeNormal-transaction ratioMarginal holding ratio
SME50%10%
Mid-size40%10%
Large30%3%

⚠️ Note: for mid-size and large companies the gate threshold differs from the amount subtracted in the formula.
A large company, for example, is taxed once the transaction ratio exceeds 30%, but the formula subtracts only 5%.
A large company is also caught when its related-party sales exceed KRW 100 billion and the transaction ratio merely exceeds 20% (two-thirds of the normal-transaction ratio).

3. Rate and filing

The deemed gift income is the tax base, taxed at the 10-50% five-step progressive rate with no gift deduction (Article 55(1)2, Article 56, Article 26).
Filing within 3 months of the month-end containing the fiscal year-end earns a 3% credit on the calculated tax (Article 69(2)).

  • • Calculated tax: tax base × rate − progressive deduction.
  • • Filing credit: 3% of the calculated tax for a voluntary filing.
  • • Non-filing penalty: 20% (general) or 40% (fraudulent) of the calculated tax — Framework Act on National Taxes Article 47-2.
  • • Late-payment penalty: unpaid tax × 0.022% per day (about 8.03% per year) — Article 47-4.

Example: large company, after-tax operating profit KRW 10 billion, transaction ratio 60%, holding ratio 30%, voluntary filing

Deemed gift income = 10bn × (60% − 5%) × 30% = 10bn × 55% × 30% = KRW 1.65 billion
Calculated tax = 1.65bn × 40% − 160m = KRW 500 million
Filing credit = 500m × 3% = KRW 15 million
Total tax due = 500m − 15m = KRW 485 million

How to use the calculator

Step 1: Choose the beneficiary company size

Pick SME, mid-size, or large.
The gates and the formula’s subtracted percentages change automatically with the size.

Step 2: Enter after-tax operating profit

Enter operating income adjusted for tax adjustments and the taxable-sales ratio.
Use the figure confirmed on the corporate tax return and adjustment schedule.

Step 3: Enter the transaction and holding ratios

Enter the share of sales made to related companies and the shareholding of the controlling shareholder and relatives.
For a large company, also indicate whether related-party sales exceed KRW 100 billion.

Step 4: Review the result

See the deemed gift income, the gate check, the calculated tax, penalties, total tax due, and effective rate.
For a non-filing case, it also shows how much a voluntary filing now would save.

Frequently asked questions

Q. Who pays the tax?

A. The beneficiary company’s controlling shareholder and their relatives are each deemed to have received a gift and bear the gift-tax liability (Article 45-3(1)).
Relatives are caught only if their shareholding exceeds the marginal holding ratio.

Q. Can I subtract the KRW 50 million gift deduction?

A. No.
The deemed gift income is itself the tax base, and neither the gift deduction nor the KRW 30 million aggregation-excluded allowance applies (Article 55(1)2).

Q. What if the transaction ratio is below the gate?

A. If the transaction ratio is at or below the normal-transaction ratio (50% SME, 40% mid-size, 30% large), there is no tax.
But a large company can still be taxed at a 20% transaction ratio if its related-party sales exceed KRW 100 billion.

Q. What about dividends already received?

A. Dividends received in the fiscal year from the beneficiary company or an indirectly held company are deducted from the deemed gift income (Enforcement Decree Article 34-3(15)).
The statute uses a proportional formula based on distributable profit and holding ratio; this calculator subtracts the entered dividend as a simplified estimate.

Q. Must I file every year?

A. The deemed gift income is aggregation-excluded and taxed per fiscal year (Article 47).
It must be filed within 3 months of the month-end containing the fiscal year-end, so filing recurs each year the earnings and transaction share persist.

Cautions and saving tips

  • Check excluded sales: sales between SMEs, exports, and legally mandated transactions are excluded from the transaction ratio and lower the deemed gift income.
  • Size classification matters: the SME / mid-size / large decision drives the gates and subtracted percentages, producing large differences in tax. Confirm whether the company belongs to a public-disclosure business group.
  • File early: once detected as non-filing, the 20-40% non-filing penalty and the daily late-payment penalty keep accruing. A voluntary filing also earns the 3% credit.
  • Use dividends: dividends the controlling shareholder receives from the beneficiary company reduce the deemed gift income and ease double taxation.
  • Manage year by year: because the gift date is the fiscal year-end, recompute after-tax operating profit and the transaction ratio each year to decide whether to file.

Estimate the work-funneling gift tax now

Enter the beneficiary company size, after-tax operating profit, and the transaction and holding ratios to see the deemed gift income and gift tax at once.

This is a reference estimate under 2026 Korean rules; consult a Korean tax professional for actual filing or appeals.