South Korea is the fourth-largest economy in Asia and may have many opportunities for international contractors. The high tax rates for Korean executives have created a demand for skilled foreign professionals, especially in electronics and telecommunications. A foreign contractor will want to have some Korean language ability but will find English is also used in business. This guide will outline the necessary details such as the ways to contract and get paid, the required visas and tax obligations for contractors.
What visas do I need as a contractor in South Korea?
You will need a visa to work while contracting in South Korea, and there are several options. There is no ‘freelancer visa’ but if you can obtain an F-2 resident visa you are free to work as a self-employed. The F-2 uses a points system, based on educational level, income, Korean language ability and bonus points for studying and volunteering abroad.
If you cant qualify for the F-2 you could apply for a visa if you are starting a business. Otherwise, you would have to ask your South Korean client to sponsor your visa as an employer.
How do I get paid as a contractor in South Korea?
Work as a self-employed freelancer
For contractors that qualify for the F-2 visa, you can work as a freelancer for Korean clients. You would contract with and invoice your client directly, and arrange a payment method based on time or project completion.
Set up your own limited company
Contractors with a commitment to South Korea can start their own limited company, which is also a path to a work visa. Your limited company would contract with clients, and you would be leased out as an employee of your company. The cost and complexity of this option make it less attractive than freelancing.
Work with an umbrella company
Contractors who don’t qualify for the F-2 visa and want to work for one or more clients can use a South Korean umbrella company. The umbrella company will facilitate client payments and assure them of contract fulfilment. The umbrella company will also withhold taxes and social contributions for you each month.
How do taxes work while contracting in South Korea?
Income earned in South Korea is subject to income tax, and perhaps corporate tax if you start a company. You will need to file and make payments even if you still file taxes in your home country.
Tax rates on income in Korea range from 6%-45%, plus a 10% local tax. Expats can elect to use a flat 19% tax rate, but only if they are employees and don’t have a controlling business interest in a company.
Tax residency rule in South Korea
South Korea uses the 183-day rule to establish tax residency in a calendar year, but foreign tax residents who have stayed less than five years will only pay tax on Korean income. This saves you the trouble of having to look to a tax treaty to avoid double taxation.
How to file taxes in South Korea
In South Korea, a Year-end Tax Settlement occurs during February. The total amount of monthly withholdings are deducted from the total amount due and the balance is collected or refunded to the employee. This process involves:
- The company provides you with a notice to prepare for the Year-end Tax Settlement during December of the tax year.
- 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
- 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.
- Submit evidence for any deductions that were not provided online, along with your ‘Report of Exemption and Deduction from Wage and Salary Income’.
- 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.
- The employer submits a ‘Statement on Wage and Salary Payment’ to NTS’ Hometax system
- 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.
- In September, the NTS notifies the employee of excessive income deduction or tax credit.
What are the social security contributions in South Korea?
Self-employment social security contributions are 9% of earnings, but you may be exempt if your home country has a tax treaty with South Korea.
Can I work remotely for a company in South Korea from my home country?
If you have been recruited by a South Korean company but don’t want to live there right away you can work remotely from home. This is becoming a more common and accepted option, which is cost-effective for both you and the client. If they are willing and the role is suitable, you would set a remote work system and timetable.
You would invoice the client from your home country and arrange a cross-border payment system. The client has no other obligations and you would handle all of your taxes and contributions just like any self-employed in your country.
How do I stay compliant while contracting in South Korea?
As a foreign contractor, you will be concerned about compliance with South Korean laws and regulations, as you are working and living within its borders. Your primary compliance risks are:
- Meeting tax and social contribution requirements
- Business registration for limited companies
- Work permit validity and sponsorship
That is a lot to overcome, especially for new contractors, and you might need the help of an umbrella company to take over many of these tasks. Contractor Taxation has licensed, verified umbrella companies in South Korea who are ready to assist you with setting up your contract and making sure that your payments are secure. Here are some of the benefits of using an umbrella company:
- Handles all client payments, tax withholding and any social contributions
- Issues you a payslip each month, to a local or foreign account
- Can sponsor work permits
- Helps set up the Korean contract with the client
- Moderates any disputes with your client
- Advises on access to totalization and double taxation treaties
Unless you are prepared to handle all of this on your own, you may find that an umbrella company is a valuable partner in South Korea as you embark on your contracting journey in a new country. Please contact Contractor Taxation with your questions about how an umbrella company can work for you.