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Taxation System

Overview of South Korea's tax system, including income tax, VAT, and obligations for residents and non-residents.

Sections

1. National Regulations

Types of Taxes

  1. Income Tax:

    • Levied on individuals and businesses earning income in South Korea.
    • Residents are taxed on their worldwide income, while non-residents are taxed only on income earned within South Korea.

  2. Corporate Tax:

    • Applies to companies operating in South Korea.
    • Tax rates vary depending on the company's taxable income.

  3. Value-Added Tax (VAT):

    • A consumption tax applied to goods and services.
    • The standard VAT rate is 10%.

  4. Inheritance and Gift Tax:

    • Taxes on inherited property or gifts received.
    • Rates range from 10% to 50%, depending on the value.

  5. Capital Gains Tax:

    • Levied on profits from the sale of real estate, stocks, or other assets.
    • Rates vary based on the type of asset and the holding period.

  6. Customs Duties:

    • Taxes on imported goods, with rates depending on the type of product.

Tax Residency

  • Residents: Individuals who have lived in South Korea for 183 days or more in a tax year are considered residents and are subject to taxation on their global income.
  • Non-Residents: Individuals who stay in South Korea for less than 183 days are taxed only on income earned within the country.

Tax Year

  • The tax year in South Korea is the calendar year (January 1 to December 31).

2. General Costs

Income Tax Rates for Individuals

South Korea has a progressive income tax system, meaning higher income levels are taxed at higher rates. The rates for 2023 are as follows:

| Taxable Income (KRW) | Tax Rate | |----------------------------|------------| | Up to 12 million | 6% | | 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% | | Over 500 million | 45% |

Corporate Tax Rates

| Taxable Income (KRW) | Tax Rate | |----------------------------|------------| | Up to 200 million | 10% | | 200 million – 20 billion | 20% | | 20 billion – 300 billion | 22% | | Over 300 billion | 25% |

VAT

  • Standard rate: 10%
  • Some goods and services (e.g., basic food items, medical services) are exempt or zero-rated.

Local Taxes

  • Local governments impose taxes such as property tax, acquisition tax, and automobile tax. Rates vary by region.

3. Standard Procedures for Paying Taxes

Income Tax Filing

  1. Who Needs to File?

    • Residents with income from employment, business, investments, or other sources.
    • Non-residents earning income in South Korea.

  2. Filing Deadlines:

    • Year-End Tax Settlement: For salaried employees, employers typically handle tax filing in January or February of the following year.
    • Self-Employed and Other Income Earners: Must file a tax return by May 31 of the following year.

  3. How to File:

    • Online via the Hometax System (https://www.hometax.go.kr), managed by the National Tax Service.
    • In-person at a local tax office.
    • Through a tax agent or accountant.

  4. Documents Required:

    • Income statements (e.g., salary slips, business income records).
    • Proof of deductions (e.g., medical expenses, education costs, charitable donations).
    • Identification documents (e.g., Alien Registration Card for foreigners).

Corporate Tax Filing

  • Companies must file annual corporate tax returns by March 31 of the following year.
  • Quarterly or semi-annual prepayments may also be required.

VAT Filing

  • Businesses must file VAT returns twice a year (by January 25 and July 25).

Payment Methods

  • Taxes can be paid:
    • Online via the Hometax System.
    • At banks or post offices.
    • Through automatic bank transfers.

4. Country-Specific Considerations for Visitors and Immigrants

Taxation for Foreign Residents

  • Foreigners working in South Korea are subject to the same income tax rates as Korean citizens.
  • However, certain tax treaties between South Korea and other countries may provide exemptions or reduced rates to avoid double taxation. Check with your home country’s tax authority or the NTS for details.

Tax Deductions and Credits

  • South Korea offers various deductions and credits, including:
    • Medical expenses.
    • Education costs.
    • Charitable donations.
    • Housing rent.
    • Pension contributions.
  • Foreigners may also qualify for these deductions if they meet the criteria.

Special Flat Tax Rate for Foreign Workers

  • Foreign employees can opt for a flat tax rate of 19% on their gross income instead of the progressive tax rates. This option is available for up to 5 years from the start of employment in South Korea.

Tax Refunds

  • If you overpay taxes, you can claim a refund during the tax filing process. Refunds are typically processed within a few months.

Departure Tax Clearance

  • Foreigners leaving South Korea permanently must settle any outstanding taxes before departure. This can be done at a local tax office.

Taxation on Overseas Income

  • Residents must report and pay taxes on their global income. However, South Korea has tax treaties with many countries to prevent double taxation.

Property Ownership and Taxes

  • Foreigners can own property in South Korea, but they are subject to property taxes, acquisition taxes, and capital gains taxes upon sale.

5. Resources and Support

  • National Tax Service (NTS):

    • Website: https://www.nts.go.kr
    • English helpline: +82-1588-0560
    • Services include tax consultations, online filing, and information on tax treaties.

  • Hometax System:

    • Online platform for filing and paying taxes.
    • Available in English for foreign residents.

  • Tax Agents and Accountants:

    • Hiring a professional can simplify the process, especially for complex tax situations.

  • Embassies and Consulates:

    • Your home country’s embassy in South Korea may provide guidance on tax treaties and obligations.

6. Key Tips for Visitors and Immigrants

  1. Understand Your Residency Status:

    • Your tax obligations depend on whether you are classified as a resident or non-resident.

  2. Keep Records:

    • Maintain detailed records of your income, expenses, and tax payments to ensure compliance and facilitate refunds.

  3. Check Tax Treaties:

    • Review any tax treaty between South Korea and your home country to avoid double taxation.

  4. Use Online Tools:

    • The Hometax System is user-friendly and supports English, making it easier for foreigners to file taxes.

  5. Seek Professional Help:

    • If you are unsure about your tax obligations, consult a tax professional or the NTS.

By understanding South Korea’s taxation system and following the outlined procedures, visitors and immigrants can ensure compliance and take advantage of available benefits.