Taxation of international executives
Are there social security/social insurance taxes in Korea? If so, what are the rates for employers and employees?
Employer and employee
|Type of insurance||Paid by employer||Paid by employee||Total|
|Employment insurance||0.90% to 1.55%||0.65%||1.55% to 2.20%
|Industrial accident insurance||0.70% to 34.00%
||0.00%||0.70 % to 34.00%
|National health(*) insurance||3.350256 %
|Total||9.350256 to 43.400256 %
||17.850512 % to 51.900512 %
(*)The rate includes Geriatric Long-Term Care Insurance surcharge, which is assessed at a rate of 7.38 percent of the National Health Insurance contribution.
The current contribution rate for National Pension is 9 percent of an employee’s gross salary, with 4.5 percent being contributed by the employer and 4.5 percent by the employee via payroll withholding. The monthly contributions are capped at KRW 202,050 a month for each. Expatriates employed in businesses with at least one employee are required to join the national pension plan. However, in cases where Korea has a totalization agreement with the expatriate’s home government, the provisions of the totalization agreement will supersede the National Pension Law of Korea.
Expatriates with D-7, D-8, D-9 visa types are required to participate in Employment Insurance unless they are exempt under reciprocity principle (that is the expatriate’s home country does not require participation by Korean nationals in its equivalent social insurance). The percentage for the employee is 0.65 percent whereas the employer’s percentage ranges from 0.9 percent to 1.55 percent depending on the number of employees at the business. The monthly contribution is not capped.
Expatriates are also subject to Industrial Accident Insurance unless exempt under applicable totalization agreements. The required contribution is borne entirely by the employer. The applicable rate ranges from 0.7 percent to 34 percent of an employee’s monthly compensation depending on the type of industry. In the case of a business service industry, the applicable premium rate is 0.7 percent. The monthly contribution is not capped.
Effective 2006, expatriates’ participation in National Health Insurance is mandatory unless they remain on overseas payroll with the associated compensation costs not charged back to Korea (that is Class B income). Exemption is available if expatriates are covered by employer-sponsored foreign medical insurance. The percentages for employer and employee are 3.350256 percent (including geriatric long-term care insurance rate) for each. There is an income ceiling of KRW78.1 million per month for the monthly contributions.
Are there any gift, wealth, estate, and/or inheritance taxes in Korea?
Inheritance and gift tax
A national tax is assessed on the value of property acquired by inheritance or gift, net of certain allowable deductions. The tax rates are progressive, up to a maximum of 50 percent for inheritance and gift tax.
Beneficiaries not domiciled in Korea are subject to tax only if the particular property is located in Korea.
Are there real estate taxes in Korea?
Property tax is imposed on land, buildings, housing, ships, and aircraft by municipal government on such properties located in the cities and counties.
The property assessment date is 1 June of each year, and the payment due date is from 16 July to 30 September. Property tax on residential houses ranges from 0.1 percent to 4 percent. Luxury residences, apartments, and houses may be subject to additional property taxes that are assessed by regional tax offices.
Are there sales and/or value-added taxes in Korea?
Value-added tax rate is 10 percent.
Are there unemployment taxes in Korea?
Are there additional taxes in Korea that may be relevant to the general assignee? For example, customs tax, excise tax, stamp tax, and so on.
Securities transaction tax
A national tax is imposed on the seller of securities, generally, at a rate of 0.5 percent of the value of the securities sold. This tax is payable by the seller.
In general, the national government requires that revenue stamps be affixed to specified documents including property transfer documents, loan contracts, certain receipts, and articles of incorporation. The cost of a revenue stamp ranges from KRW100 to KRW350,000, depending on the type of document and on the amount mentioned therein, if any.
Customs duties may be levied on goods entering Korea. The duty rates vary according to the nature of the goods.
Persons obtaining licenses under local tax law are required to pay an annual license tax for each kind of license. The tax ranges from KRW4,500 to KRW67,500 depending on the type of license and the locality.
Individuals resident in Korea are assessed a per capita resident tax by their local government in the amount of KRW10,000 or less.
Individuals liable for payment of income tax in Korea are assessed an additional resident tax at the rate of 10 percent of the income tax amount.
Report of Foreign Bank and Financial Accounts
According to new tax legislation, if a resident has held foreign financial accounts and the aggregate value of cash and listed stocks held in the accounts exceed KRW1 billion in any one day during the tax year, he/she must report the information of the financial accounts to Korean tax authority.
Tax residents in Korea having financial accounts opened at foreign financial institutions are required to fill out Form 21 (“Report of Foreign Bank and Financial Accounts”) and submit it to the National Tax Service by 30 June of the following year if the aggregate balance exceeds KRW 1 billion for any last day of month of the calendar year.
1National Tax Service
2Classification 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.
3The rate is 20.9 percent including resident tax with the extended sunset clause for another two years.
4Certain 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 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 employer but the employee’s salary and costs are recharged to the host entity, then the host country 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.
5For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.
6According to the amended 2017 Special Tax Treatment Control Law, the sunset clause of the flat tax rate application as of December 31, 2016, is being extended, but the flat tax rate is raised from 17 percent to 19 percent (i.e., 18.7 percent to 20.9 percent including local income tax) effective from January 1, 2017.
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 December 31, 2018, can elect to have the 19-percent flat tax rate (20.9 percent including local income tax) apply for five 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 January 1, 2014, and who are not subject to the five-year limitation according to the pertinent by-laws can elect to have the flat tax rate apply through December 31, 2018.
7In addition to the income tax, taxpayers are also liable for resident 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 January 1, 2018.
8Higher deductions are available for the main home of a taxpayer who owns no other residential property. In such a case, the applicable deduction rates range between 24 percent and 80 percent.
9Earned 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.
10Sample calculation generated by Samjong Accounting Corp., the Korea member firm of KPMG International, based on the Ibid.
11Flat tax rates are applied since it resulted in lower tax liability.
12It is calculated based on the assumption that the flat tax rule is available to the individual.