Incheon

๐Ÿ’ฐ

Taxes

Basic information on local taxation, including income tax, property tax, and the VAT system in South Korea.

Sections

1. Overview of the South Korean Tax System

South Korea operates a centralized tax system, meaning most taxes are collected and managed by the national government through the National Tax Service (NTS). However, local governments, including Incheon, collect certain taxes such as property taxes and local income taxes.

Taxes in South Korea are categorized into national taxes (e.g., income tax, corporate tax, VAT) and local taxes (e.g., property tax, acquisition tax, local income tax). Below is a breakdown of the key taxes you need to know.

2. Types of Taxes in South Korea

A. Income Tax

Income tax applies to individuals earning income in South Korea. It is progressive, meaning higher income levels are taxed at higher rates.

  • Taxable Income Categories:

    1. Earned Income: Salaries, wages, bonuses, etc.
    2. Global Income: Includes earned income, business income, rental income, and other sources.
    3. Capital Gains: Income from selling property or stocks.
    4. Other Income: Royalties, lottery winnings, etc.

  • Income Tax Rates (2023): | Taxable Income (KRW) | Tax Rate | |----------------------------|------------| | Up to 14 million | 6% | | 14 - 50 million | 15% | | 50 - 88 million | 24% | | 88 - 150 million | 35% | | 150 - 300 million | 38% | | 300 - 500 million | 40% | | 500 million - 1 billion | 42% | | Over 1 billion | 45% |

  • Local Income Tax: An additional 10% of your national income tax liability is levied as local income tax, which goes to the Incheon city government.

  • Filing Deadlines:

    • Residents: Annual tax returns must be filed by May 31 of the following year.
    • Expatriates: Same deadline applies, but expatriates may qualify for special tax treatments (see Section 6).

B. Corporate Tax

If you own or operate a business in Incheon, corporate tax applies to your companyโ€™s profits.

  • Corporate Tax Rates (2023): | Taxable Income (KRW) | Tax Rate | |----------------------------|------------| | Up to 200 million | 10% | | 200 million - 20 billion | 20% | | 20 billion - 300 billion | 22% | | Over 300 billion | 25% |

  • Local Corporate Tax: An additional 10% of the corporate tax liability is levied as local corporate tax.

C. Value-Added Tax (VAT)

VAT is a consumption tax applied to goods and services.

  • Standard VAT Rate: 10%

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

  • Filing and Payment:

    • VAT returns are filed quarterly (January, April, July, October).
    • Businesses must register for VAT with the NTS.

D. Property Tax

Property tax is levied on real estate owners in Incheon.

  • Tax Rates:

    • Residential properties: 0.1% to 0.4% (depending on the propertyโ€™s assessed value).
    • Commercial properties: 0.5% to 0.7%.

  • Special Considerations:

    • Incheon is part of the Seoul Capital Area, where property values are high. Owners of multiple properties may face additional taxes under the Comprehensive Real Estate Tax (CRET).

  • Payment Deadlines:

    • Property tax is paid in two installments: July and September.

E. Acquisition Tax

When purchasing property in Incheon, you must pay an acquisition tax.

  • Tax Rates:

    • Standard rate: 1% to 3%.
    • Higher rates (up to 12%) apply to luxury properties or multiple-home owners.

  • Payment Deadline: Within 60 days of the property purchase.

F. Other Taxes

  1. Capital Gains Tax: Applies to profits from selling property or stocks. Rates vary based on the type of asset and holding period.
  2. Inheritance and Gift Tax: Progressive rates ranging from 10% to 50%.
  3. Customs Duties: Levied on imported goods.

3. Tax Filing Procedures

A. For Residents

  1. Registration: Ensure you have a Resident Registration Number (RRN) or Alien Registration Number (ARN) if you are a foreigner.
  2. Filing: Use the NTS online platform, Hometax (www.hometax.go.kr), to file your taxes. The platform is available in English.
  3. Documents Needed:
    • Income statements (issued by your employer).
    • Receipts for deductible expenses (e.g., medical, education, charitable donations).
  4. Payment: Taxes can be paid online, via bank transfer, or at designated tax offices.

B. For Expatriates

Expatriates working in South Korea are subject to the same tax rules as residents but may qualify for:

  • Flat Tax Rate Option: A flat 19% tax rate on gross income (instead of progressive rates) for up to 5 years.
  • Foreign Earned Income Exclusion: The first KRW 1 million per month of foreign-earned income may be tax-exempt.

4. Deadlines

  • Income Tax: May 31 (for the previous yearโ€™s income).
  • VAT: Quarterly (January, April, July, October).
  • Property Tax: July and September.
  • Corporate Tax: Within 3 months of the fiscal year-end.

5. Tax Deductions and Credits

South Korea offers various deductions and credits to reduce your tax liability:

  • Deductions:
    • Medical expenses.
    • Education expenses (for yourself or dependents).
    • Charitable donations.
    • Housing rent or mortgage interest.
  • Tax Credits:
    • Childcare tax credit.
    • Credit for pension contributions.

6. Local Considerations in Incheon

  • Free Economic Zone (IFEZ): Incheon is home to the Incheon Free Economic Zone, which offers tax incentives for foreign investors and businesses, such as reduced corporate tax rates and exemptions from acquisition tax.
  • High Property Values: Incheonโ€™s proximity to Seoul means property taxes and acquisition taxes can be significant for real estate owners.

7. Tips and Resources for Residents and Expatriates

A. Tips

  1. Use Hometax: The NTSโ€™s Hometax platform is user-friendly and supports English, making it easier for expatriates to file taxes.
  2. Hire a Tax Consultant: For complex tax situations, consider hiring a local tax consultant or accountant familiar with South Korean tax laws.
  3. Keep Receipts: Maintain records of deductible expenses throughout the year.
  4. Understand Double Taxation Agreements (DTAs): South Korea has DTAs with many countries to prevent double taxation. Check if your home country has an agreement.

B. Resources

  1. National Tax Service (NTS): www.nts.go.kr
  2. Hometax Portal: www.hometax.go.kr
  3. Incheon Metropolitan Government: www.incheon.go.kr
  4. Korea Immigration Service: www.immigration.go.kr
  5. Expat Tax Advisors: Local firms like Samil PwC or Deloitte Korea offer specialized services for expatriates.

8. Conclusion

Navigating taxes in Incheon, South Korea, requires understanding the national tax framework and local nuances. By staying informed about deadlines, rates, and available deductions, you can ensure compliance and potentially reduce your tax burden. For expatriates, leveraging special tax treatments and professional advice can make the process smoother.