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Taxes

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

Sections

Key Features of the Tax System

  • Tax Year: The tax year in South Korea is the calendar year, running from January 1 to December 31.
  • Tax Residency: Tax obligations depend on residency status:
    • Residents: Individuals who stay in South Korea for 183 days or more in a tax year are considered residents and are taxed on their worldwide income.
    • Non-Residents: Individuals staying less than 183 days are taxed only on income earned within South Korea.
  • Progressive Tax Rates: South Korea uses a progressive tax system for personal income, meaning higher income levels are taxed at higher rates.

2. Types of Taxes in South Korea

A. Income Tax

Income tax applies to individuals earning income in South Korea. It is divided into several categories:

  • Earned Income: Salaries, wages, bonuses, etc.
  • Global Income: Includes earned income, business income, rental income, and other sources.
  • Capital Gains Tax: Tax on profits from the sale of real estate or securities.
  • Pension Income: Tax on retirement pensions.

Income Tax Rates (2023)

| 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% |

Deductions and Credits

  • Standard Deductions: Available for residents, including deductions for dependents, medical expenses, education, and housing.
  • Tax Credits: Credits for charitable donations, insurance premiums, and certain investments.

B. Corporate Tax

Corporate tax applies to businesses operating in South Korea. Rates are progressive based on taxable income: | Taxable Income (KRW) | Tax Rate | |----------------------------|------------| | Up to 200 million | 10% | | 200 million – 20 billion | 20% | | 20 billion – 300 billion | 22% | | Over 300 billion | 25% |

C. Value-Added Tax (VAT)

  • Rate: 10% on most goods and services.
  • Exemptions: Certain goods and services, such as basic food items, medical services, and education, are exempt from VAT.

D. Local Taxes

  • Property Tax: Levied on property ownership, with rates varying by property type and value.
  • Acquisition Tax: Paid when purchasing real estate or vehicles.
  • Resident Tax: A small annual tax for residents, typically included in utility bills.

3. Filing Taxes in South Korea

A. Personal Income Tax Filing

  • Who Must File: Residents with multiple income sources or non-residents earning income in South Korea.
  • Deadline: May 31 of the following year.
  • How to File:
    1. Online: Through the National Tax Service’s Hometax platform (https://www.hometax.go.kr). The platform supports English and other languages.
    2. In-Person: At local tax offices.
    3. Employer Withholding: For salaried employees, taxes are typically withheld by employers, and an annual settlement is conducted in February.

B. Corporate Tax Filing

  • Deadline: Within three months after the end of the fiscal year.
  • How to File: Businesses must submit tax returns through the Hometax system or via tax professionals.

C. VAT Filing

  • Frequency: Quarterly.
  • Deadline: The 25th of the month following the end of each quarter.

4. Taxation for Foreigners

A. Special Tax Treatment

  • Foreign workers may qualify for a flat tax rate of 19% on earned income for up to five years, instead of the progressive tax rates. This is designed to attract foreign talent.

B. Double Taxation Agreements (DTAs)

  • South Korea has DTAs with many countries to prevent double taxation. Foreigners should check if their home country has an agreement with South Korea to avoid being taxed twice on the same income.

C. Tax Refunds

  • Foreigners leaving South Korea can apply for a tax refund for overpaid taxes. This is done through the Hometax system or at a local tax office.

5. Cultural and Practical Considerations

A. High Compliance Culture

  • South Korea has a strong culture of tax compliance, and the government actively enforces tax laws. Avoiding taxes can lead to severe penalties, including fines and imprisonment.

B. Digitized System

  • The tax system is highly digitized, making it easy to file taxes online. However, navigating the system may require assistance for non-Korean speakers.

C. Professional Assistance

  • Many foreigners hire tax professionals or accountants to handle their taxes, especially for complex cases involving multiple income sources or businesses.

D. Tax Education

  • Employers often provide guidance to foreign employees on tax filing, especially during the annual settlement period in February.

6. General Costs and Tax Burden

  • Income Tax: Progressive rates mean higher earners pay more.
  • VAT: A flat 10% on most purchases.
  • Social Insurance Contributions: Employees and employers contribute to national pension, health insurance, and employment insurance. These contributions are deducted from salaries and are separate from income tax.

7. Tips for Visitors and Immigrants

  1. Keep Records: Maintain records of income, expenses, and tax-related documents.
  2. Learn the Basics of Hometax: Familiarize yourself with the Hometax platform for filing and refunds.
  3. Understand Residency Rules: Your tax obligations depend on your residency status, so track your days in South Korea.
  4. Seek Professional Help: For complex tax situations, consult a tax professional or accountant.
  5. Check for Tax Treaties: If your home country has a DTA with South Korea, you may be eligible for tax relief.

8. Resources

  • National Tax Service (NTS): https://www.nts.go.kr
  • Hometax Platform: https://www.hometax.go.kr
  • Korea Immigration Service: https://www.immigration.go.kr

This guide provides a detailed overview of South Korea’s tax system. For specific cases, it’s always best to consult with a tax professional or the National Tax Service directly.