Tax In South Korea

A Contractor's Guide to Taxes : 

One of the most consistently challenging aspects of contracting in South Korea is complying with the country’s tax system. As well as paying tax in South Korea, you might also still be eligible to pay some tax in your home country, and understanding the legislation behind this can be a challenge. 

How do I calculate my taxable income: 

If you’re working in South Korea under a permanent contract, many employers will handle your tax under the PAYE (pay-as-you-earn) system. This means that they calculate and process your taxes in South Korea for you and then send you a net wage. Your income tax, public health insurance, social security and other deductions will all be covered by this payment. This is the easiest way to handle your income tax in South Korea, but contractors may not be offered this service because of their short stay with each employer.

Anybody who can’t pay their tax in South Korea through PAYE is left with the prospect of doing everything themselves.

Do you know much about South Korean Tax Law? Does South Korea have a tax treaty with your home country? You will need to find out or find someone who can help! Income tax in South Korea can range from 1 to 40 percent (not inclusive of the local income tax), and you need to be sure you are placed in the correct tax brackets.

Tax Calculator: 

If you are a contractor and want a calculation on your tax and net retention in South Korea, we can supply it to you free of charge. 

Using an Umbrella Company for Income Tax : 

Contractors in South Korea are faced with masses of paperwork and numerous wasted hours filing a tax return unless they find an alternative option. A South Korean umbrella company can act as your employer during your stay in the country whilst still allowing you the freedom of a contractor. The only difference is that you submit your timesheets to them; they’ll calculate and pay your taxes as you earn, and then you receive a net wage (as well as documentation for your records).

The companies are experts in South Korean taxation, and they’ll ensure that you keep the largest proportion of your earnings whilst complying with local laws. They can deal with any issues with the South Korean tax office or tax department directly including processing your tax refund if you are eligible.

How We Can Help You with Tax: 

We work with numerous umbrella companies in South Korea, many of whom are experts in tax and immigration laws. If you have any questions about tax in South Korea, we’ll get the answers from them directly so you can rest assured you’ll be getting accurate information. We have comprehensive knowledge of the different services they provide, and can help you find the right company to handle your income tax. We help oil and gas workers, software developers, IT project managers, testers, business analysts and telecommunications contractors get tax efficient payments and sponsorship for their South Korean work permit.

Our advice is 100 percent free, and comes with no obligations. You will be paying taxes in South Korea but without the overhead of directly dealing with the South Korean tax authorities. Get in touch with us today for some reliable advice on tax in South Korea!

  

When Do You Need to Lodge Your Tax Return?: 
Income tax year is the calendar year. Tax returns can be filed from 1 May.
Tax Filing Deadline : 
31 May
Can you file it online? : 
Yes, http://www.nts.go.kr/eng
Currency: 
South Korean Won (KRW)
Tax-free Threshold in: 
None
Grossed Income: 
Up to 12,000
Tax Rate: 
1% + 0.6% local income tax
Grossed Income: 
12,001 to 46,000
Tax Rate: 
15% + 1.5%
Grossed Income: 
46,001 to 88,000
Tax Rate: 
24% + 2.4%
Grossed Income: 
88,001 to 150,000
Tax Rate: 
35% + 3.5%
Grossed Income: 
150,001 to 500,000
Tax Rate: 
38% + 3.8%
Grossed Income: 
Above 500,000
Tax Rate: 
40% + 4%
How long does it take to set up: 
4 days
How much does it cost: 
52,000 KRW + 1.2% tax on registration capital + education tax (20% of the registration tax)
Is it easy? : 
Starting a Business Rank: 9. High rank means that setting up a limited company in South Korea is very easy.
How to File Taxes in: 

In South Korea, a Year-end Tax Settlement occurs during February. The total amount of monthly withholdings is deducted from the total amount due and the balance is collected or refunded to the employee. This process involves:

Step 1: Company provides you with a notice to prepare for the Year-end Tax Settlement during December of the tax year.

Step 2: Collect the required documents. This usually includes:

  • Report of Exemption and Deduction from Wage and Salary Income
  • Deduction documents: Receipts for medical expenses, education expenses, insurance payments, donations
  • Certificate of alien registration
  • Foreign Tax Credit Report – proof of tax payments in foreign countries.
  • Credit card payment receipts

Step 3: Access the Simplified Year-end Tax Settlement service on the NTS website to check whether all evidence documents for deductions have been uploaded. This service is available as of 20 January.

Step 4: Submit evidences for any deductions that were not provided online, along with your ‘Report of Exemption and Deduction from Wage and Salary Income’.

Step 5: At the end of February, the employer calculates the tax payable for the Year-end Tax Settlement and issues a ‘Receipt for Wage & Salary Income Taxes Withholding’ form.

Step 6: The employer submits a ‘Statement on Wage and Salary Payment’ to NTS’ Hometax system.

Step 7: At the end of April, the NTS provides data to be reflected in the final tax return such as over-deduction and statement of payment. Check this data and then file a final tax return on global income.

Step 8: In September, the NTS notifies the employee of excessive income deduction or tax credit. 

Notes: 

Personal tax is levied on gross income at progressive rates with a progressive local income tax imposed as a surtax to income tax.

Foreign employees and executive officers who do not have a special relation with the company (who began working after 1 Jan 2014) may elect to apply a 20.9% flat tax rate without any exemptions, deductions or credits if it is more favourable than the progressive rate system.

Does the 183 day rule apply in: 

Yes

When do you become a tax resident in: 

Residency is determined on a ‘facts and circumstances’ test, evaluated on an individual basis.

  • Individuals residing in Korea for 183 days or more in one calendar year.
  • An individual who has family in Korea and is likely to reside in Korea for 183 days or more in view of their occupation or assets held in Korea.
  • Even if a person is employed in a foreign country and stayed there for more than 183 days but their general living relationship (i.e. family and property) is in Korea, they may be regarded as a resident of Korea.
Am I taxed on my global income in: 

Yes, if you are a tax resident. Non-residents are only subject to tax on their Korean-source income.

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