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Foreign Company Tax Guide
FDI InformationForeign Company Tax GuideGift tax in the U.S.Gift tax in the U.S.
Gift tax in the U.S.
Written Date: 04/25/2018
Written By: Hyun Seon Ki
Translated by: Jooyeon Han
1. Taxpayer
In the U.S., the donor who is transferring ownership of property free of charge or at a lower price under Donation Agreement is the taxpayer of a gift tax. If a donor is an American (citizen, resident), the one is under a gift tax obligation for a worldwide bestowal.
(1) In case a donor is the U.S. resident under a gift tax law
|
Donor residence |
Devisee residence |
Property location |
The U.S. gift tax |
Korea gift tax |
|
The U.S |
The U.S |
The U.S |
Taxation |
Tax exemption |
|
The U.S |
The U.S |
Korea |
Taxation |
Taxation |
|
The U.S |
Korea |
The U.S |
Taxation |
Taxation |
|
The U.S |
Korea |
Korea |
Taxation |
Taxation |
|
Korea |
The U.S |
The U.S |
Taxation |
Tax exemption |
|
Korea |
The U.S |
Korea |
Taxation |
Taxation |
|
Korea |
Korea |
The U.S |
Taxation |
Taxation |
|
Korea |
Korea |
Korea |
Taxation |
Taxation |
* The above table assumes that there is only tangible assets in the property
** A 'taxation' stated in the above table includes cases where gift tax is not necessarily be paid, due to applying various deductions such as Deduction of Donation Property in Korea, and Unified Tax Credit(UTTC) in the U.S. Even if tax is levied in both countries, double taxation does not actually occur in many cases.
2. Taxation structure for a gift tax
|
Type |
Item |
Note |
|
Value of gift property (Gross Gifts) |
· Cash · Fair value of property(FMV of Property) |
Gift deliver date |
|
(+)(-)Spousal gift splitting |
(+)50% of one's spouse's third-party (-)50% of one's third party gift |
If gift splitting is elected, |
|
(-)Non-taxable item (Exclusion) |
· Annual Exclusion* |
Up to $15,000 |
|
(-)Deduction items |
· Charitable Gifts · Marital Deduction |
Full deduction ( Unlimited) |
|
Taxable Gifts |
Taxable Gifts for current year (A) (+)Taxable Gifts for prior years (B) = Total Taxable Gifts (C) |
|
|
(×) Unified Transfer Tax Rate(D) |
Total gift tax amount(C×D) (-)Prior year tax amount (B×D) |
Current Rate |
|
Total gift tax amount |
= Total gift tax amount for current year |
|
|
(-)Tax exemption items |
(-)Unified Tax Credit (UTTC, available) {=(Current year UTTC-Used UTTC of prior year)} (-)Foreign Gift Tax Credit |
Unified Transfer Tax Credit |
|
Gift tax paid amount |
= Gift Tax Payable for current year |
|
(1) Tax exemption
When calculating annual tax exemption amount, present interest of gift amount made to receiver for 1 year can be deductible up to $15,000 and there is no obligation to report. If gift amount exceeds the annual tax exemption limit, it should be reported, even if there is no gift to be paid.
(2) Spousal gift splitting
Spousal gift splitting refers to the assumption that each spouse gives 50% of the gift that one spouse has made to a third party. When one choose spousal gift splitting, each party's annual tax exemption and UTTC can be combined and used accordingly. However, in case of spousal gift splitting, even if gift amount is less than the annual tax exemption limit, the donation itself has to be reported. r
(3) Tax base and tax calculation
The gift tax base is calculated by deducting annual tax exemption, spousal deduction, charitable donation deduction from the total annual gift property amount. Lifetime taxable gift amount can be calculated by adding prior accumulated taxable amount.
(4) Gift tax rate
|
Column A |
Column B |
Column c |
Column D |
|
Taxable amount over |
Taxable amount Not over |
Tax on amount In Column A |
Rate of Tax on excess over amount in Column A |
|
---- |
$10,000 |
---- |
18% |
|
$10,000 |
20,000 |
$1,800 |
20% |
|
20,000 |
40,000 |
3,800 |
22% |
|
40,000 |
60,000 |
8,200 |
24% |
|
60,000 |
80,000 |
13,000 |
26% |
|
80,000 |
100,000 |
18,200 |
28% |
|
100,000 |
150,000 |
23,800 |
30% |
|
150,000 |
250,000 |
38,800 |
32% |
|
250,000 |
500,000 |
70,800 |
34% |
|
500,000 |
750,000 |
155,800 |
37% |
|
750,000 |
1,000,000 |
243,800 |
39% |
|
1,000,000 |
---- |
345,800 |
40% |
(5) Unified Tax Credit (UTTC)
Unified Tax Credit refers to the amount that a US citizen or US taxpayer under the U.S. Gift Tax Act can deduct from a lifetime gift amount or inheritance value. Due to Tax Reform 2018, the deductible amount has risen to $11.2million from $5.49million. In case, a spouse decease before receiving all exemption amount, UTTC allows unused amount to be succeed to another spouse. Therefore, a couple can transfer property without paying any gift tax or succession tax up to $22.4million. However, the period for which the limit is increased is from Jan 1st, 2018 to Dec. 31th 2025.