BDO Sunghyun Accounting Firm provided consultation on July 12 regarding stock gift tax valuation timing after a 60-year-old asset holder inquired about how valuation dates affect tax liability. The firm explained that both listed and unlisted stocks are valued at market price on the gift date, but calculation methods differ significantly between the two categories. Under Korean gift tax law, listed stocks use a 4-month trading average while unlisted stocks require supplementary evaluation formulas when market transactions are unavailable, making timing selection critical for tax optimization.
Listed Stocks Use 4-Month Trading Average for Valuation
Listed stocks are valued using the average closing price over a 4-month period: 2 months before and 2 months after the gift date. According to BDO Sunghyun Accounting Firm, if Mr. A gifts his listed stocks to his children on July 1 this year, the valuation would use the average closing price from May 1 to August 31. Because stock markets fluctuate daily, the same shares can have different valuations depending on when the gift date is set.
Unlisted Stocks Apply Weighted Formula of Profit and Asset Values
Unlisted stocks typically cannot be valued at market price due to the absence of a trading market. The firm stated that if a normal transaction price exists within 6 months before to 3 months after the gift date, that price is recognized as market value. Otherwise, Korean inheritance and gift tax law applies a supplementary evaluation method.
Under this method, per-share value equals 3/5 of net profit value plus 2/5 of net asset value. For corporations where real estate exceeds 50% of assets, the ratio reverses to 2/5 profit and 3/5 assets. If the weighted average falls below 80% of net asset value, the minimum valuation is set at 80% of net asset value. When real estate or stock holdings exceed 80% of total assets, valuation uses the greater of 100% net asset value or the weighted average.
Net asset value is calculated by evaluating the corporation's net assets (assets minus liabilities) according to tax law methods on the valuation date, then dividing by total issued shares. Net profit value is calculated by taking the weighted average of per-share net profit from the most recent 3 fiscal years (weighted 3:2:1) and converting it at the statutory interest rate of 10%.
In a hypothetical example, if Mr. A gifts his unlisted corporation this year with 10,000 total shares, 5 billion won in net assets, and annual net profit of 400 million won for each year from 2023 to 2025, the per-share net asset value would be 500,000 won (5 billion won divided by 10,000 shares). Per-share net profit value would be 400,000 won ((400 million × 3 + 400 million × 2 + 400 million × 1) / 6 / 10% interest rate). The weighted average per share would be 440,000 won (500,000 won × 2/5 + 400,000 won × 3/5), resulting in a total valuation of 4.4 billion won.
Valuation Period Selection Determines Which Fiscal Years Are Included
Profit and loss from the fiscal year containing the valuation date is not reflected in the calculation. However, if December 31 is the valuation date, that year's results are included.
BDO Sunghyun Accounting Firm Partner Kim Hyo-young stated, "Ultimately, depending on when the gift timing is set, the scope of 'the most recent 3 fiscal years' reflected in the calculation changes, so net profit value varies depending on whether years with good performance are included." Kim added, "For both listed and unlisted stocks, 'when the gift occurs' affects the gift value, and valuation methods for unlisted corporations are complex. If someone like Mr. A holds both types of stocks, it is necessary to review the valuation methods for each stock and timing-related variables, and prepare with an expert if needed."
FAQ
How is the valuation period determined for listed stock gifts in Korea?
Listed stocks are valued using the average closing price over a 4-month period: 2 months before and 2 months after the gift date. For example, a gift on July 1 would use the average from May 1 to August 31.
What formula is used to value unlisted stocks when market prices are unavailable?
Unlisted stocks are valued using 3/5 of net profit value plus 2/5 of net asset value. For corporations where real estate exceeds 50% of assets, the ratio reverses to 2/5 profit and 3/5 assets. The weighted average cannot fall below 80% of net asset value.
