Income tax

How is your income taxed in South Korea?

A person is either a resident or a non-resident of Korea depending on residence or domicile. A resident is liable to income tax on items of income derived from sources both within and outside Korea. On the other hand, a non-resident is liable to income tax only on items of income derived from sources within Korea.

The Korean individual income tax system uses the unitary concept where incomes from all sources are aggregated and taxed at progressive rates. Deductions, personal exemptions and tax credits are allowed under certain conditions. A surcharge, inhabitant tax, is added to income tax in computing the total tax liability. Penalties may be assessed for failure of return-filing and tax payment.

Taxation of Foreign Individuals

A non-resident is liable for tax only in respect of income derived from sources within Korea. Two kinds of taxing method, global taxation and separate taxation, are applied in the case of a non-resident. With respect to the non-resident who has a domestic business place and who has real estate income (excluding the case of capital gains from transferring land or building), the global taxation method is applied on the aggregate domestic source income except for the retirement allowance, capital gains and timberland income. The latter incomes of a non-resident are taxed on the same basis as that applied to a resident.

With respect to the income of a non-resident who does not have a domestic business place, the withholding of taxation method is applied on each domestic source of income. A non-resident is required to pay income tax at the domestic business place. In the case of a non-resident who has no domestic business place, income tax has to pay at the place where such income is derived.

Income tax liability

  • Residents
    A person who has a domicile or has resided in Korea for one year or longer is subject to income tax on all income derived from sources both within and outside Korea. Korean public officials, directors and personnel engaged in overseas service on behalf of an employer who is a Korean resident, or a domestic company is deemed to be residents of Korea.
  • Non-residents
    A person who is not a resident of Korea is deemed a non-resident and is subject to income tax only on income derived from sources within Korea.

Taxable Income

Regarding taxation method, income derived by residents and non-residents is subject to global and schedular taxation.

Under global taxation interest, dividend, real estate rental income, business income, wages and salaries, temporary property income, pension income, and other income are aggregated and taxed progressively.

It is notable that interest and dividends were taxed globally until 1997, and then they were temporarily excluded from global taxation. A combined income of dividend and interest exceeding 40 million Won is subject to global taxation, otherwise interests and dividends are subject to withholding tax of 14%.

Under schedular taxation, however, capital gains, retirement income, and timber income are taxed separately at varying tax rates.

Global Income

Global income is the income which is subject to global taxation and includes:

Interest, dividend (including deemed dividend), real estate rental income, business income, wage and salary, temporary property income, pension income and other income (e.g. prize money awards, fees received for use of copyrighted materials, damages or indemnity payments for breach or cancellation of a contract etc.)

Global income tax base

The global income tax base is the amount remaining after deducting personal exemptions from the aggregate of taxable global incomes such as interest income, dividend income, real estate income, business income, wage and salary income, and other income.

The tax amount on global income is the aggregate of amounts calculated by applying each tax rate successively to the income in the relevant tax bracket:

Tax base of global income

Tax rates

0-10 millions Won

8%

10-40 million Won

0.8 million Won + 17% of the amount exceeding 10 million Won

40-80 million Won

5.9 million Won + 26% of the amount exceeding 40 million Won

over 80 million Won

16.3 million Won + 35% of the amount exceeding 80 million Won

Calculation of tax

If your annual tax base is 14,250,000 Won, your income tax is computed as follows:

1) Since your tax base is in the 10,000,000 Won to 40,000,000 Won bracket, the tax rate applied is 17%

2) The amount of your tax due is 1,522,500 Won computed by multiplying the tax base by 17% of the amount exceeding 10 million [4,250,000Won × 17% = 722,500 Won], and by adding 800,000 Won.

Non-global income (Schedular income)

Non-global income denotes the income which is separately taxed from the global income at varying rates. It includes retirement income, capital gains and timber income.

Tax base

Schedular income is subject to separate taxation. The tax base is the amount remaining after deducting personal exemptions from the respective income amount (the personal exemption may be deducted if there is any residual after deducting from global income).

Calculation of tax

  • Retirement income:
    The tax amount of retirement income is calculated by dividing the taxable income by the number of years of service, applying the tax rates, and multiplying the amount by the number of years of service.
  • Timber income:
    Tax rates on timber income are the same as those applied to global income

Non-taxable income: exemptions & deductions

To find out about these tax exemptions in detail, visit the webpage of the Ministry of Finance and Economy (http://english.mofe.go.kr ).

Further reading

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