What is the Exit Tax in Korea? (국외전출세)
When a resident who qualifies as a major shareholder moves abroad (i.e., becomes nonresident by relocating address or place of residence overseas), Korea can trigger an exit tax. That means unrealized gains on certain Korean shares are treated as if sold at the date of departure and made subject to capital gains tax. (nts.go.kr)
Who is a Major Shareholder & What Assets Count?
Major shareholder tests apply based on stock ownership:
- Listed stocks (KOSPI, KOSDAQ, KONEX) or venture / other unlisted stock meet certain percentage ownership or market value thresholds. (nts.go.kr)
- Must have lived in Korea with address or residence** for at least 5 out of the 10 years before departure. (nts.go.kr)
- The stock portfolio can include both domestic and in some cases foreign holdings, but key is domestic exposure.
How the Exit Tax Works
- Upon “departure,” the taxpayer must report shares held as of the day before the move. Those shares are considered to have been “sold” for their fair market value for tax purposes. (nts.go.kr)
- Gains are taxed at either the standard capital gains tax applicable to major shareholders or the specific “exit tax” rate.
- Failure to file accurately can lead to penalties, including an additional 2% of face value for under-reporting. (nts.go.kr)
When & How to File
- Under current rules (effective since January 1, 2018) the exit tax applies. (nts.go.kr)
- The taxpayer must submit:
- A list of domestic shares held at departure date
- Valuation documents
- Statement to be filed at the local tax office or jurisdiction of residence before exit
- Payable in some cases may be deferred under certain treaty or domestic rules, but you must submit documentation and satisfy conditions.
Planning & Risk Management
- Time your exit: If you anticipate leaving Korea, reduce your shareholdings below threshold or postpone move until you no longer meet criteria (e.g. after a shorter residency period).
- Accelerate sales before departure**, to realize gains under more favorable conditions, if your stock market exposure is largely domestic.
- Claim deductions or losses: Losses on foreign shares may be usable to offset domestic gains.
- Residency tie-breakers: Establishing a longer overseas residence, selling family home, divesting domestic assets can help demonstrate nonresident status post-exit.
Examples
- A KOSPI shareholder owning 2% of a company worth ₩20 billion plans to move to Singapore. Because they meet major shareholder criteria and have lived in Korea 7 of past 10 years, when they exit, holding is “deemed sold” at market value, gain taxed accordingly.
- A foreigner who has lived in Korea less than 5 years in past 10 does not trigger exit tax—even if owning enough shares to normally qualify—due to the residency rule.
Bottom line: Exit tax is real for high-net-worth shareholders relocating abroad. Careful recordkeeping, strategic divestments, and understanding trigger tests are essential to avoid large unwelcome tax bills.