Can Dual Nationals Living Abroad for Treatment Qualify for Business Succession Deduction?

It has been interpreted that even dual nationals who have lived abroad for a long time due to illness can qualify for the business inheritance deduction if their living ties are established domestically.

According to a precedent from the Tax Tribunal on the 29th, Mr. A, who died in 2021, passed on assets such as stocks to his children. The children reported inheritance tax after deducting the business inheritance deduction amount from the total inherited assets. The National Tax Service notified them that they had to pay more inheritance tax, claiming that Mr. A was a "non-resident" at the time of inheritance. In response, Mr. A's children filed an appeal with the Tax Tribunal, arguing that the National Tax Service's judgment was unfair.

The business inheritance deduction is a system that reduces the tax burden when inheriting a family business if certain conditions are met. The heir can receive an additional deduction ranging from 30 billion to 60 billion KRW. However, the decedent must be a domestic resident. If the decedent is a non-resident, the business inheritance deduction is not applicable. According to the Inheritance and Gift Tax Act, a resident is defined as "a person who has an address in Korea or has stayed for more than 183 days." In this case, residency is determined not simply by resident registration but by comprehensively considering factors such as family living together, domestic assets, and living relationships.

The customs authorities emphasized that Mr. A did not renounce his foreign citizenship, stayed abroad for about 90 days each year, and was residing overseas at the time of death. They particularly argued that since most of the income generated by the company was remitted abroad, there were no family members or assets related to Mr. A in Korea, and since he had assets and a spouse abroad, he should be considered a non-resident.

On the other hand, Mr. A's children countered that Mr. A had continuously resided in Korea since 2004, had signed lease contracts in his own name, and had continuously reported his domestic residence even before regaining Korean nationality. They also pointed out that the claim that Mr. A had no assets in Korea was not true. Especially, since he had been filing and paying income tax in Korea for decades, he should be regarded as a resident of Korea.

The Tax Tribunal judged that although Mr. A was a foreign citizen, he regained Korean nationality and had lived in Korea for more than 183 days until his departure in 2019, so he should be considered a resident. Although he stayed abroad for a long time after 2019 and died overseas, it was noted that he had left the country unavoidably for pancreatic cancer treatment, so he was not a non-resident. The tribunal stated, "The disposition denying the business inheritance deduction to Mr. A's children was incorrect."