Taxation of international executives
When are tax returns due? That is, what is the tax return due date?
31 May of the year following the tax year.
What is the tax year-end?
What are the compliance requirements for tax returns in Korea?
Taxpayers who receive only Class A income may not be required to file an annual tax return since their employer is required to withhold payroll taxes monthly, finalize their tax liability, and issue a tax settlement certificate at the end of the tax period. Class A income earners who receive income from other sources, such as Class B income, business income, and rents, must file a tax return of their composite income on or before 31 May of the year following the tax year. There are no official procedures for obtaining extensions of time to file tax returns.
Class B income earners can pay their taxes by either of the following two methods.
If the taxpayer fails to file within the statutory period, then a late filing penalty of 20 percent of tax amount due is assessed. If tax due is paid past the due date, a late payment penalty is assessed. The late payment penalty is calculated in the following way: tax amount due x [0.025 percent (0.03 percent until 11 February 2019) x number of days past due date].
In case of residents, salaries received outside of Korea as well as those received within Korea will be taxed in Korea.
However, as for a foreign resident who has had a domicile or place of residence in Korea for 5 years or less in aggregate in the previous 10 years ending on the last date of the tax year concerned, will not be subject to Korean income tax on the foreign-source income attributable to that tax year unless the income is paid or remitted to Korea.
In case of non-residents, salaries received outside of Korea as well as those received within Korea will be taxed in Korea as long as they relate to services performed in Korea.
What are the current income tax rates for residents and non-residents in Korea?
The following graduated income tax rates are applied separately to taxable composite income and retirement income to calculate the tax amount from each source of income. In addition, resident tax of 10 percent of the total income tax amount is assessed.
Income tax table for 2020
|Taxable income bracket||Total tax on income below bracket||Tax rate on income in bracket|
|From KRW||To KRW||KRW||Percent|
However, foreign expatriates can elect to apply a 19 percent flat tax rate3 to total Korea-sourced employment income.
Tax rate for non-residents is the same as that for residents.
For the purposes of taxation, how is an individual defined as a resident of Korea?
For income tax purposes, a resident is an individual who is domiciled or resident in Korea for 183 days or more. Thus, an individual will be deemed a resident if their occupation requires them to reside in Korea for 183 days or more, or if it appears that residence is their intent in view of their family, financial, and occupational status in Korea. Temporary absences from Korea are considered an integral part of the period of residence.
A non-resident is simply an individual other than a resident.
Is there, a de minimus number of days rule when it comes to residency start and end date?For example, a taxpayer can’t come back to the host country/jurisdiction for more than 10 days after their assignment is over and they repatriate.
There is not such a specific rule in Korea when it comes to the definition of residents.
What if the assignee enters the country/jurisdiction before their assignment begins?
Even if the assignee enters Korea before their assignment begins, the tax obligation for Korean-sourced income does not occur as long as they do not start to work until the actual date of assignment. The tax on the income earned is assessed at the actual starting date of assignment.
Are there any tax compliance requirements when leaving Korea?
Taxpayers who leave Korea permanently must file a final tax return prior to their departure, based upon a tax year starting from 1 January to the date of departure.
What if the assignee comes back for a trip after residency has terminated?
In a case the former assignee comes back to Korea for a trip, there is no tax obligation for the assignee unless the trip is work-related.
Do the immigration authorities in Korea provide information to the local taxation authorities regarding when a person enters or leaves Korea?
No. Generally the immigration authorities do not provide any information to the tax authorities unless required.
Will an assignee have a filing requirement in the host country/jurisdiction after they leave the country/jurisdiction and repatriate?
Yes, if there is any Korea-sourced taxable income.
Do the taxation authorities in Korea adopt the economic employer approach to interpreting Article 15 of the Organisation for Economic Co-operation and Development (OECD) treaty? If no, are the taxation authorities in Korea considering the adoption of this interpretation of economic employer in the future?4
Yes. If the remuneration paid to the expatriate worker stationed less than 183 days in the host country/jurisdiction (that is Korea) is borne by the host entity as a result of the recharge from the home entity, the host entity should withhold income tax and file withholding tax return with the Korean tax authority.
Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?
What categories are subject to income tax in general situations?
The following is a brief listing of items that may form part of an expatriate’s compensation package that are considered taxable earned income. This listing is not intended to be comprehensive:
Intra-group statutory directors
Will a non-resident of Korea who, as part of their employment within a group company, is also appointed as a statutory director (i.e. member of the Board of Directors in a group company situated in Korea) trigger a personal tax liability in Korea, even though no separate director's fee/remuneration is paid for their duties as a board member?
Any director’s fee/remuneration received by a non-resident in consideration of their duties as a board member of a Korean entity shall be subject to Korean income tax as Korea sourced income.
a) Will the taxation be triggered irrespective of whether or not the board member is physically present at the board meetings in Korea?
Yes. Any remuneration received as a board member of a Korean entity shall be regarded as Korea sourced income irrespective of where the board member performs their duties.
b) Will the answer be different if the cost directly or indirectly is charged to/allocated to the company situated in Korea (i.e. as a general management fee where the duties rendered as a board member is included)?
No, it will still be taxable in Korea based on the substance of the payment regardless of the form of cost recharge/allocation.
c) In the case that a tax liability is triggered, how will the taxable income be determined?
The taxable income will be determined based on relevant facts and circumstances.
Are there any areas of income that are exempt from taxation in Korea? If so, please provide a general definition of these areas.
The following items generally are considered to be either non-taxable reimbursements or tax- exempt earned income. This listing is not intended to be comprehensive:
Are there any concessions made for expatriates in Korea?
The following special rules are available to expatriates.5
In order to make the election for the 19 percent flat rate, taxpayers should file an application when the monthly payroll withholding tax return or year-end payroll tax reconciliation is performed or when the annual composite income tax return is filed. The monthly payroll withholding tax return, year-end tax reconciliation and the annual composite income tax return are due 10th day of the following month, 10 March and 31 May of the year following the tax year, respectively.
Is salary earned from working abroad taxed in Korea? If so, how?
Where days worked outside Korea are considered to be an integral part of the period of residence for an expatriate, the taxable salary of the expatriate may not be reduced by allocating income to working days spent abroad on business trips.
Are investment income and capital gains taxed in Korea? If so, how?
Capital gains from the sale or transfer of land, buildings, or rights thereto, and stocks and other assets specifically listed in the pertinent Presidential Enforcement Decree, are subject to capital gains tax at a 6 percent to 42 percent graduated rates or flat rates depending on the category and holding period. Taxpayers subject to forced property sales under legal or bankruptcy proceedings may obtain tax relief under certain conditions, and capital gains arising from certain transfers, exchange, and government appropriation of farmland are tax exempt. Gains from the sale of one residence per household are generally exempt from capital gains tax if the taxpayer who owns only one residence has held the residence for 3 years or more. Owners of luxury residences are required to pay taxes on gain related to excess space deemed luxurious under relevant law. Luxury residences are houses or apartments that have a value of at least KRW900 million.
Capital gains are calculated by deducting the original purchase price, capital improvements, a basic deduction of KRW2.5 million, special deductions, and other necessary expenses from the sales price.
Special deductions are available to encourage long-term holding of properties for holding period of 3 years or more at 6 to 30 percent (Applicable only to transfer of real estate).
Gains from the transfer of securities by a non-resident are subject to a withholding tax of 10 percent of the sales proceeds. However, where the acquisition value of securities can be confirmed obviously, the amount of tax withheld is the lower of the following two amounts: 10 percent of the sales proceeds or 20 percent of the gain on the sale.
Capital gains tax is charged using either flat rates or a progressive schedule, depending on the category of assets. The rates for tax year 2020 are as follows.
|Sale of real property (commercial or residential) held less than 1 year||50|
|Sale of real property (commercial or residential) held for 1 year or more but less than 2 years||40|
|Sale of purchase right for residential property sold in lots||50 percent for certain areas|
|Residential property of a taxpayer whose household owns two or more residential properties||Progressive rate or tax rate increased by 10 percent from the progressive rate for certain areas|
|Residential property of a taxpayer whose household owns three or more residential properties||Progressive rate or tax rate increased by 20 percent from the progressive rate for certain areas|
|Sale of real property (commercial or residential) owned by the taxpayer but not registered||70|
|Capital gains arising from sale of shares in unlisted companies|
|SMEs||10 (up to 25 if sale by a major shareholder)|
|Other||20 (30 if sale by a major shareholder)|
For real property other than the ones described earlier that is registered in the taxpayer’s name and has been held for 2 years or more, the following rates apply.
|Capital gains||Tax rate||2020|
|Over KRW||Under KRW||Percent|
|12 million||46 million||15|
|46 million||88 million||24|
|88 million||150 million||35|
|150 million||300 million||38|
|300 million||500 million||40|
Expatriates deemed residents are subject to Korean tax on their worldwide income, including their investment income. However, tax residents in Korea of foreign nationality who have had domicile or place of residence in Korea for 5 years or less in aggregate in the previous 10 years ending on the last date of the tax year concerned, are not subject to Korean income tax in relation to their foreign-sourced income attributable to that tax year unless the income is paid in or remitted to Korea. Interest income paid by financial institutions and dividend income paid by public companies, not exceeding KRW20 million per year, generally are subject to the separate taxation rule (that is taxes due on these sources of income are calculated separately from those for composite income). The tax on the interest and dividend income subject to separate taxation is withheld at the source at a rate of 15.4 percent (inclusive of the local income tax), which is a final tax. Interest and dividends paid to non-residents are subject to a 22 percent withholding tax (inclusive of the local income tax). However, interest income arising from bond issued by the government or local authority and local company is subject to a 15.4 percent withholding tax including local income tax. Withholding tax rates may be reduced under the provision of double taxation treaties.
When stock option is exercised, income tax and social taxes will be imposed.
The gain on exercise (difference between the exercise price and the fair market value of the stock on the date of exercise) will be treated as earned income and subject to income tax.
The income will normally be classified as Class B income. However, if certain conditions set forth in Article 19 of the Presidential Enforcement Decree to the Corporate Income Tax Law are satisfied, the associated costs recharged to a local company can be deducted on its corporate income tax return; in such a case (i.e. corporate tax deduction is claimed by the local company), the income will be re characterized as Class A income.
|Residency status||Taxable at:|
|Other (if applicable)||N/A||N/A||N/A|
Income denominated in foreign currency should be converted into Korean Won at the standard exchange rate of the date the income is received. Foreign exchange gains or losses are not separately considered as income or loss.
Gains from the sale of one residence per household generally are exempt from capital gains tax if the taxpayer who owns only one residence has held the residence for 2 years or more.
Owners of luxury residences are required to pay taxes on gain related to excess space deemed luxurious under relevant law. Luxury residences are houses or apartments that have a value of at least KRW900 million.
Not applicable. Even if any capital losses occur as a result of investment in the properties or stocks subject to capital gains tax, the related tax return should be filed with the tax authority. Capital gain/loss is taxed separately from the other two types of income (that is composite income and retirement income).
In general, personal use items are not subject to income tax.
Property acquired in a manner of donation or gift are subject to gift tax. The applicable tax rate is 10 percent to 50 percent by taxable income bracket.
Residents or non-residents who acquire gift properties are required to file a tax return within 3 months from the end of the month in which the gift is received.
Are there additional capital gains tax (CGT) issues in Korea? If so, please discuss?
What are the general deductions from income allowed in Korea?
A number of deductions are available to a resident depending upon the type of income and their family status.
Every resident and non-resident is entitled to a deduction from their wage and salary income. The amount of the deduction depends on the amount of wages or salaries earned. The deduction is computed as follows. However, please note that the amount exceeding KRW 20 million is not deductible as earned income deduction effective from 1 January 2020.
|Wages||Cumulative on lower limit||Total deduction below bracket|
|From KRW||But not over KRW||KRW||Percent|
A resident may qualify for personal deductions depending on their personal status such as “basic deductions” and “additional deductions”.
|Female head of household or dual income earner||500,000|
The spouse deduction may be claimed provided that the spouse’s income is less than KRW1,000,000 in aggregate.
The dependents deductions may be claimed if the taxpayer’s dependents including brother/sister who is 20 years old or younger or 60 years old or older who are lineal family member with annual income of less than KRW1,000,000 or less than KRW5,000,000 if wage & salary income is their only income source living in the same household supported by the taxpayer.
A basic deductions may be claimed for a fostered child under 18 years old with annual income of less than KRW1,000,000 under the resident’s foster care for 6 months or more in the tax year.
An additional elderly dependent exemption may be claimed if the resident, spouse, or a dependent living with and supported by the resident is 70 or older. An additional disabled exemption may be claimed if the resident, spouse, or a dependent living with and supported by the resident is a handicapped person.
Female head of household or dual income earner deductions may be claimed if the composite income of the female is less than KRW30,000,000.
For a single-parent employee (without spouse) having lineal descendants or adoptees who are subject to basic deduction, an annual deduction of KRW1,000,000 is available with no double deduction with female head of household deduction.
Retirement income received from an employer is reduced by the following deductions to arrive at the taxable retirement income:
|Service years (SY)||Basic deduction (KRW)||Additional deduction (KRW)|
|Less than 5 years||300,000 x SY||None|
|5 to 10 years||1,500,000||500,000 x (SY minus 5 years)|
|10 to 20 years||4,000,000||800,000 x (SY minus 10 years)|
|More than 20 years||12,000,000||1,200,000 x (SY minus 20 years)|
Severance tax base per annum should be calculated and gradual deduction is applied as the below:
Tax base per annum: (Taxable retirement income X 12) / Service years
|Tax base per annum||Deduction|
|Less than KRW8 million||100 percent|
|KRW8 million to 70 million||KRW8 million +(60% exceeding KRW8 million)|
|KRW70 million to 100 million||KRW45.2 million +(55% exceeding KRW70 million)|
|KRW100 million to 300 million||KRW61.7 million +(45% exceeding KRW100 million)|
|Over KRW300 million||KRW151.7 million +(35% exceeding KRW300 million)|
The tax rates applied in the earlier formula are the same as the graduated rates applied to the taxable composite income. Total tax amount is determined by multiplying the number of service years by 12.
The following deductions are allowed to a resident with earned income.
And if the amount spent on credit cards or similar exceed the immediate preceding year, 20 percent of the increased amount is eligible for additional deduction.
The deduction limit is the lesser amount between the 20 percent of gross wage & salary income and KRW3 million. But in case of the amount exceeding the deduction limit, the lesser amount between the excess and the amount spent in traditional markets and the amount spent on public transportation shall be additionally deducted (within limits of KRW1 million per annum respectively.) (Maximum limits of KRW5 million).
What are the tax reimbursement methods generally used by employers in Korea?
Current year gross-up.
How are estimates/prepayments/withholding of tax handled in Korea? For example, Pay-As- You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.
If the compensation is paid out or borne by the Korean entity, the employment income is classified as “Class A income”. In this case, the employer of Korea is obligated to withhold appropriate income taxes. The monthly withholding tax filing and remittance of the taxes are due by 10th day of the following month in which the compensation is paid. They are also required to perform and file the year-end tax reconciliation by 10 March of the following year in relation to their employee’s monthly tax filing.
If the compensation is not paid nor borne by the Korean entity, the employment income is classified as “Class B income”. In this case, the employer has no withholding or filing obligation. However, the employee has an obligation to report income tax due on their Class B income by either of the following two methods:
When are estimates/prepayments/withholding of tax due in Korea? For example: monthly, annually, both, and so on.
If Class A income, the withholding taxes should be remitted to the tax office by the 10th day of the month following the month in which the compensation is paid out. If Class B income, there is no estimated tax or withholding tax requirement.
Is there any Relief for Foreign Taxes in Korea? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?
For those residents who are liable for non-Korean income taxes, a credit for tax paid abroad is available. However, the credit may not exceed the amount derived from multiplying the Korean income tax due by the following ratio: taxable income on which foreign tax credit is claimed divided by the total amount of taxable income.
Certain tax credits may be claimed for the taxpayer’s regular tax liability. The following are examples of commonly claimed credits:
Limits of tax credit for wage & salary income are as follows.
|Wage & salary income||Limits|
|Up to KRW33,000,000||KRW740,000|
|KRW33,000,000 ~ KRW70,000,000||Max[KRW740,000 – (Gross wage & salary income – KRW33,000,000)×0.8%, KRW660,000]|
|Over KRW 70,000,000||Max[KRW660,000 – (Gross wage & salary income – KRW70,000,000)×50%, KRW500,000]|
|Type of expense||Total amount|
|For children not-yet-enrolled in elementary schools and students enrolled in elementary schools, middle schools, high schools||Up to KRW3 million|
|For college/university||Up to KRW9 million|
|For graduate school||Total amount spent for taxpayer only|
Standard tax credit: all employment income earners are eligible to claim tax credit amounting to KRW130,000, if they do not claim any above special deduction or special tax credit.
This calculation10 assumes a married taxpayer (a foreigner) resident in Korea with two children whose 3-year assignment begins 1 January 2015 and ends 31 December 2017. The taxpayer’s base salary is 100,000 US dollars (USD) and the calculation covers 3 years.
|Moving expense reimbursement||20,000||-||20,000|
|Interest income from non-local sources||6,000||6,000||6,000|
Calculation of taxable income
||2018 USD||2019 USD||2020 USD|
|Days in Korea during year||365||365||365|
|Earned income subject to income tax|
|Net housing allowance||12,000||12,000||12,000|
|Moving expense reimbursement||20,000||-||20,000|
|Total earned income||171,000||156,000||171,000|
|Total taxable income||171,000||156,000||171,000|
Calculation of tax liability
|2018 USD||2019 USD||2020 USD|
|Taxable income as above||171,000||156,000||171,000|
|Korean tax thereon||35,739||32,604||35,739|
|Earned income tax credit||-||-||-|
|Foreign tax credits||-||-||-|
|Total Korean tax||35,739||32,604||35,739|
2. Classification of class A earned income and class B earned income is abolished, and the earned income which fell into class B earned income is prescribed in Liability for Withholding, Article 127-1(4) of the Income Tax Act. Despite the invalidity of the terms, the same process for calculation of tax and the annual tax return is applied continuously. As a result, we keep maintaining and using those terms, Class A and B.
3. The rate is 20.9 percent including local income tax with the extended sunset clause for another 2 years.
4. Certain tax authorities adopt an ‘economic employer’ approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country/jurisdiction for a period of less than 183 days in the fiscal year (or a calendar year of a 12-month period), the employee remains employed by the home country/jurisdiction employer but the employee’s salary and costs are recharged to the host entity, then the host country/jurisdiction tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country/jurisdiction.
5. For example, an employee can be physically present in the country/jurisdiction for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.
6. According to the amended 2018 Special Tax Treatment Control Law, the sunset clause of the flat tax rate application as of 31 December 2018, has been extended.
Under the new changes, foreign workers (except for foreign workers who have a “special relationship” with the employing entity) initially starting work in South Korea before 31 December 2021, can elect to have the 19-percent flat tax rate (20.9 percent including local income tax) apply for 5 consecutive tax years from the initial commencement of employment/assignment in Korea on the income earned while working in South Korea.
Foreign workers who started working in South Korea before 1 January 2014, and who are not subject to the 5-year limitation according to the pertinent by-laws can elect to have the flat tax rate apply through 31 December 2018.
7. In addition to the income tax, taxpayers are also liable for local income tax. Therefore, the overall flat rate will be 20.9 percent inclusive of local income tax. For the same reason, the overall graduated rates range between 6.6 percent and 46.2 percent under the regular method of tax calculation effective from 1 January 2018.
9. Earned income derived from an equity-based compensation plan of a foreign related company used to be classified as Class B income regardless of the costs being recharged to the local entity. The reason for this was the corporate tax deduction was not allowed for such recharged costs at the local company. Under the terms of the revised corporate income tax regulations dated 18 February 2010, such recharged costs can be deducted from the local entity’s taxable income if the conditions set forth in Article 19 of the Presidential Enforcement Decree to the Corporate Income Tax Law are satisfied. Class B income is not subject to payroll tax withholding whereas Class A income is subject to the mandatory income tax and social securities withholding. The withholding and reporting obligation is imposed on the local employer who needs to report and remit the taxes by the 10th day of the month following the month in which the taxable event occurs.
10. Sample calculation generated by Samjong Accounting Corp., the Korea member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on the Ibid.
11. Flat tax rates are applied since it resulted in lower tax liability.
All information contained in this publication is summarized by Samjong Accounting Corp, the Korean member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on the relevant Korean tax laws and its enforcement decrees; the Web site of the Korean Social Security administration.
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