individual income tax individual income tax individual income tax individual income tax individual income tax individual income tax
Taxpayer - Resident/Non-resident
For tax purposes, all individuals including aliens (foreigners) in Korea are considered to be either residents or non-residents, regardless of nationality.
Under the Individual Income Tax Law of Korea (“IITL”), a resident is a person who has his/her domicile in Korea or a place of residence for 183 days or more in Korea. Generally, residency is determined by a “facts and circumstances” test evaluated on an individual basis. An individual who falls within in the following cases is deemed to have a domicile in Korea and considered as a resident.
Who has an occupation that would customarily require him or her to reside in Korea for 183 days or more; or
Who has his/her family member who makes a living together with him/her in Korea and is deemed to continually reside in Korea for at least 183 days in view of his/her occupation or property status.
A non-resident is an individual who is not deemed to be a resident. For individuals from countries which have tax treaties with Korea, the definition of residency may be governed by the applicable tax treaty.
Korean citizens and foreigners who are considered to be residents for tax purposes are subject to taxation on worldwide income derived from sources both inside and outside of Korea. The income includes global income [employment (earned) income, business profits, real estate rental income, pension, dividend, interest and other income], severance pay, and capital gains.
However, in the case where the period that a foreigner, who is a tax resident of Korea, has his address or abode in Korea does not exceed 5 years in aggregate during the past 10 years from the end of the concerned tax year, his/her foreign source income shall be taxed in Korea only if such income is paid in Korea or such income is remitted into Korea.
A foreigner deemed to be a non-resident is taxed only on income derived from sources within Korea, including wages and salaries earned in Korea, unless a tax treaty to which the individual is subject indicates otherwise.
Annual Taxable Income (KRW)
Up to 12 million
Over 12 million – up to 46 million
Over 46 million – up to 88 million
Over 88 million – up to 150 million
Over 150 million – up to 300 million
Over 300 million – up to 500 million
Over 500 million
In addition to these tax rates, there is a local income tax of 10% on income tax liability.
Application of Flat Tax Rate for Foreign Expatriate
The foreign expatriate officers and employees are eligible to apply a flat income tax rate of 19% (plus local income tax) instead of the progressive income tax rates ranging from 6 to 42% plus local income tax. In order to apply the flat income tax rate, an application must be filed separately. However, when choosing the flat income tax rate, the expatriate officer or employee concerned must give up all the existing available benefits including nontaxable income treatment, tax reduction and tax exemption relating to income taxes.
Generally, earned income consists of all payments that an individual receives as remuneration, regardless of form. Such income includes wages, salaries, bonuses, commissions, and any other allowances of a similar nature received in return for personal services rendered. The IITL identifies earned income as either Class A or Class B depending on the income source.
Class A earned income is wage income received or accrued from a domestic employer, including a branch office or a representative office in Korea. Such income is subject to payroll withholding taxes by the employer or payer on a monthly basis.
Class B earned income is wage income received from a foreign employer outside Korea. Under the Class B payment arrangement, the payments must be borne by the foreign employer outside Korea and should not be charged back to its permanent establishment in Korea. Once charged back and included in P&L of the Korean PE, the payment will be treated as Class A wage income to the employees in Korea. The foreign employer is not required to withhold Korean taxes on Class B income at the time of payment. Instead, the individual is required to declare this income annually and pay income taxes thereon on a voluntary basis. Alternatively, the individual may elect to pay Class B income taxes through a Class B taxpayers’ association, which collects and remits such taxes on a monthly basis. Taxpayers who join such a Class B taxpayers’ association and meet the monthly payment obligations receive a 10% reduction in the amount of income tax payable.
Year-end Tax Settlement for Earned Income
Tax liability of employee’s earned income for the year is settled and finalized through the year-end tax settlement by the withholding agent (employer for Class A income or Class B taxpayers’ association for Class B income) at the end of the year.
In case an employee has both Class A income and Class B income declared to the Class B taxpayers’ association, the employer who pays Class A income may finalize the employee’s tax liability by including Class B income in the year-end tax settlement.
If a taxpayer has only Class A or Class B earned income subject to the year-end tax settlement, the taxpayer is not required to file a global income tax return which is due on or before May 31 of the following year.
Global Income Tax Return
A taxpayer having more than one source of income (Class A or Class B earned income subject to the year-end tax settlement) is required to file a global income tax return for the year and pay taxes due on such income on or before May 31 of the following year or prior to permanently leaving Korea. Under the global income tax return, all global incomes are aggregated and taxed progressively.