Income Taxes Overview
Taxation rules are complicated in most countries, and Korea is no exception. The Taxation Office does maintain a website that answers some questions. It also publishes an English language Income Tax Guide for Foreigners that comes out in April of each year and is available free from any tax office. There is also an on-line the ‘Easy Guide for Foreigners’ Year-end Tax Settlement’. (Go to http://www.nts.go.kr/eng/ and click on 'current year' Easy Guide Year-end Tax Settlement) to download it.
For more details on income taxes,
NB: there are new tax rules that apply to foreign residents for the tax year 2010. Foreign employees will beging to see the effect of these at the beginning of the year.
Most foreign employees are required to pay Korean income taxes, which are generally withheld and paid by the employer. Teachers (from certain countries with tax agreements with Korea) working for colleges or universities are sometimes entitled to an exemption from paying Korean taxes for a limited number of years. (You’ll need to check with your own embassy to find out if your country is one of them and to confirm how the wording of that particular agreement affects your tax situation.) This provision does not apply to teachers working for hagwons or private companies.
According to the Korean tax code: An individual who is a resident of a contracting State, and who at the invitation of any university, college, or other recognized educational institution, visits the other contracting State for a period not exceeding two years solely for the purpose of teaching, or research or both at such educational institution shall be taxable only in the first mentioned State on his remuneration for such teaching or research.
If your employer is one of the tax-empted institutions and has wrongly withheld taxes, it (the employer)is required to reimburse the teacher for the amount paid. The Korean Tax Office will help. There are apparently also special provisions in Korean tax law for foreign teachers working for the EPIK program.
Calculating your taxes as a foreign employee works much the same as for a Korean employee, except for a few important differences.
Individual Income Tax Regime:
- Korea has a progressive tax rate, which in 2009 was as follows:
o Earnings up to W12million Tax Rate is 6%
o Earnings from W12 million to W46 million Tax Rate is 16%
o Earnings from W46 million to W88 million Tax Rate is 25%
o Earnings over W88 million Tax Rate is 35%
Flat Tax: Foreign residents can choose to pay a flat tax at 17.5% instead of the progressive tax as described above
- All residents (Korean and Foreign) pay a resident surtax, which is 10% of their taxable income.
- Foreign employees who chose the flat rate option, would then pay 18.5% when the resident surtax is added.
- Foreign employees who chose the progressive rate would pay 6%, 17%, 26% or 35% when the resident surtax is added.
- As of 2010, the 30% exclusion for foreign taxpayers no longer exists. Foreign employees can opt to pay the flat tax rate of 17.5% or choose the progressive rate calculation. (Flat tax rate increased from 15.5% to 17.5% in January 2013).
- Deductions for all taxpayers include:
(NB for foreign residents in Korea: if you are calculating your taxes based on the progressive rate. If you opt for the flat rate, these deductions do not apply).
o Automobile allowance (up to about W200,000/month)
o Meal allowance (up to W100,000/month)
o Insurance premium paid by employer on behalf of employee
(up to W700,000/year subject to conditions)
o Medical expenses can also be deducted – need submit receipts
o Taxpayers receive a rebate of payments made via credit card
Also applies to designated cash receipts
o Deductions on 15% to 100% of charitable donations
(applies to Korean charities and to a limited number of foreign ones)
o Education expenses:
100% taxpayer's own graduate school expenses,
W7million/year per person for university/college expenses
W2million/year per child for kindergarten/elementary/middle/high school
o Deduction of W1million for each: taxpayer, spouse and dependents
20y-o-a or younger)
o Deductions up to W1.5million for dependents over 65
o Deductions up to W2million for disabled dependent
o Additional deductions for large households:
W0.5million 2 children/W1million for 3+
- Note for foreign employees:.
o Employers not likely to sort through your medical receipts for you.
o Itemized deductions apply to payments made in Korea.
o If you wish to claim all your deductions, you may need to hire a tax expert just as you would do in your home country to get all deductions due you.
Income subject to Korean Income Tax includes
- the foreign employee’s world wide income, including that from her/his home country unless s/he has non-resident status. Taxable income categories include: composite income, employment income, interest, dividends, rental, business, pension, and other income….
- any severance pay received
- capital gains, including gains from the sale of overseas assets.
Year-end tax settlement:
This is the period where you reconcile what you have paid and what you should pay in taxes. Thee are two dates when income tax payments are due - which date applies to you depends on your employment situation: Employees 10 March / Business Owners, Freelancers 31 May.
Employees: Employers submit the tax settlement documents on behalf of their emplyees by 10 March. The employer will generally ask for documents, etc in January. This is the time foreign employees should indicate if they want to pay the flat 16.5% rate or for 2009, use the progressiver rate based on 70% of their income. (Note that some employers may not be willing to do this and you'll have to get an accountant to do it for you.) Often, if the taxes were underpaid, employers may take extra out of the February pay. The employer usually files the appropriate tax forms, but if not, it is up to do the employee, including the foreign employee, to do so.
Self-Employed settled their taxes on 31 May - that means that's the date by which they must pay taxes outstanding. Self-employed (owners of business registered in Korea) can opt for the progressive rate or the flat rate. Note that itemized deductions including credit card rebates, etc are only available if you chose the progressive rate option.
Failure to file/pay: Those who fail to file are subject to legal penalties. Non-payment of taxes or other tax violations are considered criminal offenses in Korea.
Monthly Witholding: If not enough taxes have been withheld monthly, the employee will face an additional tax liability at the end of the year. (Note: small private language institutes sometimes incorrectly withhold only a flat 3%. You can calculate your own Monthly Withholding Tax if you click on the box with that name on http://www.nts.go.kr and click on English (editor's note: the NTS website is more or less helpful)
Every employer has to submit a ‘Receipt for Wage & Salary Income Taxes Withholding’ form every February. At that time, or if you are leaving your employ (for whatever the reason), ask for a copy of the form. This document is proof of the taxes paid. (Some employers have been known to deduct the amount owed for taxes from their employees’ salaries, while forgetting to remit the sum to the Tax Office.)
Monthly Report:Employers are required to report on the 10th of each month regarding each employee's income and withholdings of the previous month. For example, the employer will report on 10 February regarding January's income/withholding.
Annual Reconciliation is done for the previous tax year during the month of January and reports must be submitted by 10 February.
If you believe that your employer is not complying with Korean tax laws, your first step should be to discuss the matter with him or her. If that does not work:
- You should discuss the matter with the Korean Tax Office, International Taxation Division, 02-1588-0560 or 02-2076-5711- the nearest Korean Tax Office (go to http://www.nts.go.kr and click on English, then on Help Desk and Contact Your District Office. You'll see a map of Korea, click on your area....and so on.
Tax accountants can be helpful in working out your taxes. To contact English-speaking tax accounts, see the K4E Directory.
For answers to some Frequently Asked Questions, check out K4E’s Q&A section. You can also post your question on the K4E Forum and get answers from members of the foreign community and others.
Editor's Note: The information above is based on the information K4E has available at the time of writing. Given how difficult it is to obtain clear and complete information in Korea as well as how quickly rules can change, please see this as a guide and do follow-up with the appropriate Korean government bodies to confirm its accuracy and/or to get the most current answers. K4E would appreciate your feedback should you find out that our information is out-of-date.
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