Entity Setup
Entity Setup for Undistributed Family-Owned Business and Exit Tax Efficiency
How family businesses and high net worth individuals in Korea can structure entities and succession plans to reduce exit tax and domestic stock exposure risks.
By NomadicTax Research Team • 5-8 min read • September 10, 2026
## Best Practices When Setting Up Family-Owned Business Entities in Korea
### Legal Structures and Succession Planning
- Use **Family Business / 가업승계 공제 (business succession tax relief)**: provides favorable tax rates and deferral options for a business transferred across generations. Ensure that ownership, business activity, and continuing management requirements are met. ([nts.go.kr](https://www.nts.go.kr/webtv/na/ntt/selectNttInfo.do?nttSn=1340093&utm_source=openai))
- Consider setting up a **holding company** if multiple business ventures are involved; equity held through the holding company might be easier to manage for exit taxation purposes or stock dispositions.
## Exit Tax Planning for Entities & Shareholders
- For major shareholders (대주주) contemplating exit or permanent departure from Korea, assess the **국외전출세** exposure on domestic stock holdings. Deemed disposal rules may trigger large tax liabilities. If possible, explore options such as gradual exit or restructuring share ownership through foreign entities prior to becoming a nonresident.
- Evaluate **tax deferral or 유예** via 납세관리인 reporting or providing guarantee—this can help manage cash flow upon exit. ([nts.go.kr](https://www.nts.go.kr/nts/cm/cntnts/cntntsView.do?cntntsId=7821&utm_source=openai))
## Real-World Example
Kim family owns a corporation where Alice holds 60% voting shares and Bob holds 40%. They expect Alice to relocate abroad permanently.
- Under exit tax rules, Alice’s shareholding qualifies as 대주주, so her domestic stock gets taxed as if sold upon her departure.
- If the shares were instead owned via a foreign holding entity or transferred to other family members before exit, this might lower taxable base or shift tax jurisdiction.
## Actionable Steps for Setup & Risk Mitigation
1. Audit all equity holdings: list domestic vs foreign, size, cost basis.
2. Check ownership threshold so you know who is a 대주주.
3. Plan succession early: explore business transfer reliefs before exit triggers.
4. Consult professionals to deploy entity structures that align with law and minimize cross-border tax burdens.
5. Keep detailed records in case of audits or treaty benefit claims.
Leveraging Korea’s business succession rules and carefully structuring equity can help high net worth individuals face exit events more efficiently and with lower tax friction.
**Author**: NomadicTax Research Team