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Foreign Company Tax Guide

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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.