Annual Income Tax Payment
Employees' income tax payments are due on 10 March - this is referred to as the Year-end Tax Settlement. The final calculation is done in February with the total of monthly withholdings (the amount taken out each pay period for income taxes) deducted from the total amount owed.
The employer (or the withholding agent) must calculate the tax amount for the year and collect or refund the balance between what was withheld and what is due. For this reason, February salary payments can end up being less if not enough was withheld during the course of the year.
If a taxpayer has wage & salary income only, he/she is not subject to final global income tax return (self-assessment). However, if he/she has other incomes in or out of Korea, the tax return on those must be completed and submitted by 10 May.
The Special Tax Treatment Control Act was amended on January 1, 2014 and limits the sunset period of the special tax rate for foreign employees for whom the flat rate of 17% is applicable, to “five (5) years from the date of the commencement of work in Korea”. However, for foreign employees who began working in Korea prior to 2013, the special tax rate will continue to be applicable until the end of 2014, even if five years have lapsed from the date of their commencement of work in Korea.
The amended provision is applicable to income arising on or after January 1, 2014.
For workers who are retiring (or in the case of foreign workers leaving the country) the year-end settlement should be completed in the same month as the employee receives her/his last payment. In this situation, the employee should receive her/his year-end settlement receipt the month following receipt of her/his final salary payment. Failure to file can result in a fine based on a percentage of tax amount and in re-entry to the country being denied. It is possible to complete the tax report online or by downloading the form and mailing it in to the tax office after your departure. (A foreign worker who did not file prior to leaving Korea and realises a few years later that this should have been, may still be able to file within 5 years of working in Korea.)
For workers taking a break between jobs, the year-end settlement occurs in February, just as it does for those still working.
Should an employee be entitled to a refund, the employer is required to pay the refund once the year-end settlement is calculated. The employee does not have to apply for the refund.
If an employee has worked in two places during the tax year, the wage and salary incomes of the previous employment are included in the year-end tax settlement. The employee must submit to the new employer the tax withholding receipts from her/his previous employer. If this is not possible or if the employee cannot provide the necessary documentation on time, s/he will have to file a global income tax return for both incomes at the appropriate district tax office by the end of May of the following year.
If a taxpayer has income from both Korea and another country, s/he must report the income from all sources, including those outside Korea, if s/he has spent a total of 5 years or more in Korea over the past 10 years. The taxpayer is entitled to foreign tax credit for the taxes paid outside Korea.
Completion of the Year-end Tax Settlement can be done by one's employer, oneself (online filings available for foreign nationals) or by a paid tax professional. Should the taxpayer wish to submit a detailed report (all deductions entitlements) rather than pay the flat fee, s/he may have to complete the process on her/his own or pay for the services of a tax service provider.
Finding out the outcome of one's Year-end Tax Settlement can be done through the NTS' Hometax Service as of May of the filing year or by obtaining a receipt for wage and salary income tax withholding from one's employer or tax accountant. The receipt should be available by the end of February. Whoever prepares your year-end tax settlement is required by law to make three (3) copies of the receipt for wage & salary income tax withholding and to give a copy to each of the following: tax office, employee while keeping one copy for her/his files.
For the Hometax service: Here you can view your tax return via your statement of wage and salary income payment, if you can read Korean (site in Korean only). Also, best to access the site through Internet Explorer and be prepared to have to download ActiveX.
If claiming deductions, employees must submit the following documents to prove the expenses on which the deductions, tax exemptions and tax credits are being claimed:
1. Report of Exemption & Deduction from Wage & Salary Income (the official form)
2. Certificate of Alien Registration - should reflect any changes in dependents
3. Copy of receipt of insurance payment - issued by the insurance company (life, property loss and accident insurance policies)
4. Medical Expense Receipts - if expenses exceed 3% of annual gross salary
5. Education Expense Receipts - issued by school or vocational training facilities (self or dependents)
6. Donation Receipts - issued by receiving organisations
7. Credit Card Payments receipts - credit or debit or prepaid card statements/receipts
8. Application Report of Flat Tax Rate - 17% flat rate for foreign employees only (18.5% when the 10% Resident tax is included)
9. Tax Credit Report of Foreign Employee's Income - must meet the requirements of the relevant laws
10.Exemption Report - for qualified foreign employees dispatched to Korea via agreement between Korean and her/his government
11. Foreign Tax Credit Report - proof of tax payments in foreign countries.
Receipts of your expenditures for the year are available through the Simplified Year-end Tax Settlement website. This is an Internet-based service that shows the allowable amount of deduction each taxpayer is allowed. A print-out of the screen displaying the records is a valid support document. Note that the taxpayer must register her/his dependents for their tax deduction entitlements/records to show. The site is in Korean only, although if you click on IRS, you will find an English option with some general information available in English (and Chinese).
Getting help from a tax accountant is simple to do whether you are in the country or have already left. If you feel that filling out detailed tax report will result in a higher refund, you will need to take care of it yourself or have an accountant do it for you. Few employers will do so. Service fees vary so shop around. Some accountants will also look over previous years' returns for about 20% or so of the refund or for a flat rate. See the K4E Directory for English-speaking accountants.
Getting help from the National Tax Service:
- International Tax Resource Management Office of the National Tax Service at (82-2-397-1444).
- Foreign taxpayer advocate service - questions asked online (Many government website are still best accessed via Internat Explorer and that you may be required to download ActiveX)
- English 'helpline' - 1588-0560 (82-2-1588-0560)
K4E Note: The above is based on information on the National Tax Service website. It is intended as general information only. For more details, readers should visit the NTS website.
Amendments to the tax laws/rules are often adopted in January of the year in which they will take effect. We do our best at K4E to ensure that the information we provide is accurate and up-to-date. Should you note any errors or omissions, please let us know at email@example.com
Last Updated on 2015-02-03
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