South Korea Personal Income Tax

Residents are subject to income tax on worldwide income. Nonresidents are subject to income tax on Korean-source income only. A resident is a person who maintains a domicile or residence in Korea for 183 days or longer.

A foreign-national who is tax resident in Korea and who has resided in Korea for 5 years or less during the preceding 10 years as of the end of the tax year is taxed in Korea on foreign-source income if the relevant income is paid in Korea or remitted into Korea.

Income subject to tax. Personal income is divided into the follow­ing categories:

  • Composite Income, which includes employment income (wages, salaries and similar income), interest income, divi­dends, business income (including rental income), pension income and other income
  • Severance income
  • Capital gains

Employment income. Employment income includes the following payments in addition to basic monthly payroll:

  • Reimbursement for personal expenses, entertainment expenses and other allowances provided to the employee that are not considered legitimate business expenses of the employer.
  • Various allowances for family, position, housing, health, over­time and other similar payments made to the employee.
  • Insurance premiums paid by the company on behalf of the employee. However, an exclusion of up to KRW700,000 per year applies to premiums relating to insurance satisfying the following conditions:

— The insurance proceeds are paid as a result of an employee’s death, injury or disease.

— The employee is both the insured party and beneficiary of the insurance contract.

— The paid-in premiums are not refundable at the maturity of the policy or the amounts that are refundable do not exceed the amount of the paid-in premiums at its maturity.

The following are non-taxable items:

  • Automobile allowances up to KRW200,000 a month, paid to employees for business use of their own cars, instead of reim­bursements of actual automobile operating expenses
  • Meal allowances up to KRW100,000 a month, paid to employ­ees who are not provided meals or other food through internal meal services or similar methods

Employment income is classified into two different types; the reporting method differs for each type.

The first type of employment income is the earned income that is paid and deducted by a Korean entity for corporate tax purposes. Salaries paid by a foreign entity but charged back (or to be charged back under a prior agreement) to the Korean entity fall under this category. A Korean entity has monthly income and social tax withholding and reporting obligations with respect to such income.

The second type of income is the earned income that is paid by a foreign entity but not claimed as a corporate deduction in Korea by any Korean entities. The individual recipient, not the payer, is responsible for declaring the income on a Composite Income tax return annually or through a registered taxpayers’ association on a monthly basis. For income declared through a registered tax­payers’ association in a timely manner, the individual taxpayer is entitled to a tax credit of 10% of the adjusted tax liability (see Section D).

Previously, the above types of income were known as Class A income and Class B income, respectively, under the Korea tax law. However, this terminology has been abolished. Other than the terminology change, the reporting method remains the same.

Foreign employees’ employment income earned under the fol­lowing conditions is exempt from personal income taxes:

  • Foreigners assigned to Korea under bilateral agreements between governments are exempt from taxes on employment income received from either government without limitation.
  • Certain foreign technicians who render services to domestic companies or persons are exempt from 50% of taxes on the relevant employment income for two years (from the date on which they began to render employment services in Korea up to the month in which two years have passed). The 50% exemption applies to foreign technicians who render employment services in Korea for the first time on or before 31 December 2018. The following are the technicians who qualify for the 50% exemption:

— A person who provides technology in Korea under engineer­ing technology license agreements prescribed by Ordinance of the Ministry of Strategy and Finance

— A person who works as a researcher at a specified research institution subject to the requirements prescribed by the Ministry of Strategy and Finance

To enjoy the tax exemption mentioned above, foreign engineers must submit an application for the tax exemption to the tax authorities by the 10th day of the month following the month in which the services are first rendered.

Self-employment and business income. Self-employment and business income is income derived from the continuous operation of a business by an individual and includes all income derived from businesses and personal services, including services pro­vided by the following individuals:

  • Entertainers
  • Athletes
  • Lawyers, accountants, architects and other professionals
  • Persons with expert knowledge or skills in science and technol­ogy, business management or other fields

Business income is combined with the taxpayer’s other Com­posite Income and taxed at the progressive tax rates (see Rates).

Financial income. Interest income and dividends are generally categorized as Composite Income and are taxed at the rates set forth in Rates. However, dividends paid by domestic companies to minority shareholders and interest income are subject to a 15.4% (including local income tax) withholding tax. No addi­tional tax reporting is required if the total annual amount of the dividends and interest income is KRW20 million or less.

Korean-source interest income and dividends of nonresidents that are neither substantially related to any domestic place of business nor attributable to such domestic place of business are subject to a 22% (including local income tax) withholding tax, and no addi­tional tax reporting is required regardless of the income amount. However, a reduced rate under a tax treaty between the taxpayer’s tax residency country and Korea may apply if the taxpayer pre­pares an application form for entitlement to the reduced tax rate and submits the form to the withholding agent.

Capital gains and losses. Capital gains are taxed separately from Composite Income.

Preliminary capital gains tax returns must be filed within two months after the end of the month of the sale transaction (or within two months after the end of the quarter during which the transaction took place if the transaction involves sale of shares). Penalties are assessed for a failure to file a preliminary return by the due date. In addition to the preliminary returns, taxpayers must file final annual capital gains tax returns based on the pre­liminary returns filed and pay any additional taxes by 31 May of the year following the tax year during which the capital gains are earned. However, if only a single sales transaction occurs during the tax year, the reporting obligation with respect to the capital gain can be satisfied through the filing of a preliminary return.

Capital gains arising from the sale of foreign shares and desig­nated derivatives are not subject to the capital gains preliminary tax return obligation.

In general, capital gains derived from the transfers of the follow­ing are taxable in Korea:

  • Land
  • Buildings
  • Rights related to real estate
  • Goodwill transferred with fixed assets for business
  • Rights or membership for the exclusive or preferential use of installations (for example, facilities)
  • Transactions or activities involving derivatives prescribed by the Presidential Decree of the IITL
  • Shares of unlisted companies

Although capital gains derived from the transfer of shares in a company listed on the Korean stock market are not taxable, the shareholder of a listed company is subject to capital gains tax on gains derived from the transfer of the shares if the shareholder, together with related parties, owned at least 1% (2% for Korean Securities Dealers Automated Quotations [KOSDAQ]-listed companies and 4% for Korea New Exchange [KONEX]-listed companies and venture companies) of the total outstanding shares or at least KRW2.5 billion (KRW2 billion for KOSDAQ­listed companies, KRW1 billion for KONEX-listed companies and KRW4 billion for venture companies) worth of the shares based on the market value at the end of the preceding year. The transfer of unlisted shares is subject to capital gains tax, regard­less of the quantity or value of the shares.

Capital gains derived from specified assets are taxed at the rates set forth in the table below. If a property is subject to two or more of the tax rates listed in the table, the highest rate among them is applied.

Capital asset                                                              Rate (%) (a)

Land, buildings and rights related to real

estate:

Held by the seller for at least one year, but

less than two years (excluding houses and

association occupation rights)                                                   40
Held by the seller for less than one year

(excluding houses and

association occupation rights)                                                  50
Houses and association occupation

rights held by the seller for less

than one year                                                                                 40
Land not used for business or securities

of a corporation of which more than 50%

of the value of the total assets of the corporation

is attributable to land that is not used for

business

activities                                                                         16 to 48(depending on the tax base)

 

Assets not registered with the

court in the seller’s name                                                  70

 

Others including business rights

transferred with fixed assets for

business and rights or memberships

for the exclusive or preferential

use of installations

 

Progressive rates
listed in Income tax rates Securities or shares

Securities of companies that are

not small or medium-sized and

that are transferred by a majority

shareholder who held the

securities for less than one year                                        30
Securities of small and medium-sized

corporations that are not transferred

by a majority shareholder                                                   10

 

Other securities or shares                                                   20

 

Derivatives prescribed by the Presidential

Decree                                                                                  20 (b)

  • In addition, local income taxes are imposed as surtaxes to the income tax at progressive rates as discussed in Local income tax rates.
  • Capital gains on specific derivatives as prescribed in the Presidential Decree is taxed at an income tax rate of 5% for the 2016 tax year.

Special deductions are generally available to reduce the amount of capital gains. These deductions are designed to eliminate the effects of inflation and to encourage long-term possession.

Capital losses may be offset against capital gains derived from transferring assets within the same categories, which are the fol­lowing:

  • Securities and shares
  • Land, buildings, rights related to real estate, and other assets specified in the IITL
  • Derivatives prescribed by the Presidential Decree

Capital losses may not be carried forward.

Gains derived from the disposal of foreign assets are taxable if the transferor has been a Korean tax resident for five consecutive years or more at the time of sale.

Deductions

Earned income deduction. The following table sets forth the amounts of the earned income deduction.

Gross employment income

Amount of earned income deduction

70% of gross employment income KRW3,500,000 plus 40% of the amount exceeding KRW5,000,000 KRW7,500,000 plus 15% of the amount exceeding KRW15,000,000

Gross employment income

Exceeding       Not exceeding                  Amount of earned

KRW                    KRW                            income deduction

45,000,000        100,000,000                   KRW12,000,000 plus 5%

.                                                                        of the amount exceeding KRW45,000,000

100,000,000            —                                 KRW14,750,000 plus 2%

.                                                                        of the amount exceeding KRW100,000,000

Personal deductions. The personal deductions described below are available in determining the tax base.

Taxpayers receive a basic deduction of KRW1,500,000 each for themselves, their spouses and each eligible dependent who are financially supported by the taxpayer and do not have a certain level of income in the relevant tax year. For purposes of this basic deduction, the following are qualified dependents:

  • Parents and grandparents (aged 60 or older).
  • Children including adopted children (aged 20 or less).
  • Siblings (aged 20 or less or aged 60 or older).
  • Children aged less than 18 who were “raised” for 6 months or more during the tax year (including the immediately preceding year if a basic deduction was not claimed for the children con­cerned in that preceding year) by the authorized taxpayer and who have been financially supported by the taxpayer and have had income less than a certain amount (depending on income type) for the relevant tax year. For this purpose, “raised” means bringing up a child who is not a person’s own child (for exam­ple, a foster child).

Additional deductions. An additional deduction of KRW1 million each is available for persons aged 70 or older. An additional deduction of KRW2 million for disabled persons is available. An additional deduction of KRW500,000 is available for a working woman who has KRW30 million or less of adjusted Composite Income, who is the head of a household with dependents or who has a spouse. For a taxpayer who does not have a spouse but has dependent children, including adopted children, a deduction of KRW1 million is allowed (that is, a single-parent deduction). However, if the taxpayer is simultaneously eligible for both the additional deduction of KRW500,000 available for a working woman with dependents or a spouse and the single-parent deduc­tion of KRW1 million, only the single-parent deduction of KRW1 million can be claimed.

Itemized deductions. A taxpayer who has employment income in the tax year is eligible for the following itemized deductions:

  • Insurance premiums paid according to the National Health Insurance law, Unemployment Law, or Long-Term Care Law are fully deductible from the employment income of the rele­vant tax year.
  • Forty percent of the deposits made to certain housing fund sav­ings by a taxpayer who is the head of household, has taxable employment income of KRW70 million or less and does not own a house is deductible up to KRW2,400,000 per year (hous­ing fund savings deduction).
  • Principal and interest payments made by a taxpayer who obtained a loan to lease a house that is limited to the size defined by the Presidential Decree of the IITL are deductible up to 40% of the amount of the principal and interest payments (house lease deduction). The sum of the housing fund savings deduction and the house lease deduction are deductible up to KRW3 million per year.
  • Interest payments on a long-term (that is, 15 years or longer) housing mortgage to purchase a house that has a standard value announced by the Korean authorities at the time of purchase of no more than KRW400 million are fully deductible if the tax­payer owns no more than one house at the time of purchase and owns one house at the end of the applicable tax year (long-term housing mortgage loan deduction). The sum of the housing fund savings deduction, the house lease deduction and the long­term housing mortgage loan deduction are deductible up to KRW5 million (up to KRW18 million if the interest on the long-term mortgage loan is paid at a fixed interest rate stipu­lated by the Presidential Decree of the IITL and if the principal or principal and interest are repaid in installments without any grace period stipulated by the Presidential Decree of the IITL, or up to KRW15 million if the interest on the long-term mort­gage loan is paid at a fixed interest rate or if the principal or principal and interest are repaid in installments without any grace period). A deduction for a 10-year or longer long-term housing mortgage loan is available up to KRW3 million if the interest is paid at a fixed interest rate or the principal or princi­pal and interest are repaid in installments without any grace period. For the purposes of the above, the grace period is the period during the life cycle of the loan when repayment of the principal amount is not required (that is, only interest is payable during the grace period).

The sum of certain deductions cannot exceed KRW25 million. Those deductions include, but are not limited to, itemized deduc­tions (excluding the social security contribution deductions), housing fund savings deduction, and credit card usage deductions.

Business deductions. Most legitimate business-related expenses are deductible, including depreciation and bad debts, provided that they are booked in a manner stipulated in the law.

In addition to deductions for business expenses, taxpayers engaged in small and medium-sized businesses are allowed an exemption equal to the tax amount computed by applying the following exemption ratios to income tax on income accruing from the relevant business for the tax year:

  • 10% for small enterprises prescribed by the Presidential Decree of the Tax Incentives Limitation Law (TILL) that are engaged in wholesale business, retail business or medical service business
  • 20% for small enterprises located in the Seoul metropolitan area that are engaged in a qualified business stipulated under the TILL, except for businesses listed in the first bullet above
  • 30% for small enterprises located outside of the Seoul metro­politan area that are engaged in a qualified business stipulated under the TILL, except for businesses listed in the first bullet above
  • 5% for medium-sized enterprises located outside the Seoul metropolitan area that are engaged in a business listed in the first bullet above
  • 10% for medium-sized enterprises located in the Seoul metro­politan area that are engaged in a knowledge-based business that is prescribed by the Presidential Decree of the TILL
  • 15% for medium-sized enterprises located outside of the Seoul metropolitan area that are engaged in a qualified business stipulated under the TILL, except for businesses listed in the first bullet above

Rates

Income tax rates. Tax rates applied to Composite Income in 2016 are set forth in the following table.

Tax base Tax rate Tax due Cumulative tax due
KRW % KRW KRW
First 12,000,000 6 720,000 720,000
Next 34,000,000 15 5,100,000 5,820,000
Next 42,000,000 24 10,080,000 15,900,000
Next 62,000,000 35 21,700,000 37,600,000
Above 150,000,000 38

Local income tax rates. In addition, local income tax (replacing the previous resident surtax) are imposed as a surtax to income tax at the following progressive rates.

Tax base Tax rate Tax due Cumulative tax due
KRW % KRW KRW
First 12,000,000 0.6 72,000 72,000
Next 34,000,000 1.5 510,000 582,000
Next 42,000,000 2.4 1,008,000 1,590,000
Next 62,000,000 3.5 2,170,000 3,760,000
Above 150,000,000 3.8

Flat tax rate. Foreign employees and executive officers who do not have a special relation with the company as per the Presidential Decree of the TILL (excluding the case of a tax-exempt foreign-invested company) and who begin working in Korea on or after 1 January 2014 may elect to apply an 18.7% flat tax rate (including local income tax) without any exemptions, deductions or credits with respect to their employment income received for their services in Korea until the end of tax year within the fifth year of their first day of working in Korea, sub­ject to the time limit set by the sunset clause (end of 2016), if this provides a more favorable result than the progressive tax rate system (see Rates). However, for foreign employees and execu­tive officers who began working in Korea before 1 January 2014, the prior year’s flat tax rate clause, without a five-year limitation but with a sunset clause at the end of 2016, is applied. Foreigners who work for a qualified regional headquarters in Korea can apply the flat tax rate until the end of the tax year within five years since the start of Korea assignment or employment regard­less of the sunset expiration date.

To elect the flat rate system, a foreign employee must file an application to apply the flat tax rate. This application must be filed at the time of the year-end true-up settlement of the tax on employment income with the withholding agent by the date on which salaries for the month of February in the following year are paid. Alternatively, he or she can file such application with the competent tax office, together with the Composite Income tax return, in May following the close of the calendar tax year.

The flat tax rate can also be elected for the monthly withholding tax calculation. To elect the flat tax rate system for monthly with­holding tax reporting, an application must be submitted to the tax office by the 10th day of the month following the month of ser­vices rendered.

Severance income tax rates. The income tax on the severance income of resident taxpayer is calculated in accordance with the following steps:

  • Step 1: Apply the progressive income tax rates for Composite Income to the severance income tax base of the relevant tax year.
  • Step 2: Divide the result of Step 1 by 12.
  • Step 3: Multiply the result of Step 2 by the number of years of service.

Credits

Earned income tax credits. The tentative tax calculated on employment income may be reduced by an earned income tax credit of 55% up to the tentative tax of KRW1,300,000 and by 30% on any excess. The tax credit is capped at the following amounts:

  • KRW740,000 if taxable employment income is KRW33 million or less
  • The greater of KRW740,000 less 0.8% of the amount of taxable employment income over KRW33 million, and KRW660,000 if taxable employment income is more than KRW33 million but less than KRW70 million
  • The greater of KRW660,000 less 50% of the amount of taxable employment income over KRW70 million, and KRW500,000 if taxable employment income is more than KRW70 million

Child tax credits. The following are the child tax credits:

  • KRW150,000 for one child
  • KRW300,000 for two children
  • KRW300,000 plus KRW300,000 per each child exceeding two children
  • KRW150,000 multiplied by [(number of children aged 6 or below) – 1]
  • KRW300,000 per each child who was either born or adopted in the tax year

Pension fund tax credits. Twelve percent of pension premiums paid by residents to the pension fund (excluding the income for which taxation was deferred, such as severance income from which tax was not withheld or a payment made as a result of a transfer between pension funds) are creditable up to KRW480,000 (12% of the premium threshold of KRW4 million). Taxpayers who only have employment income of KRW55 million or less or have adjusted Composite Income of KRW40 million or less are allowed to claim up to 15% of the contributions as tax credits, capped at KRW600,000. If the payment for the pension savings account exceeds KRW4 million per year or if the sum of the pay­ments to the personal pension savings account (up to KRW4 million) and company-enrolled retirement pension account exceeds KRW7 million per year, the excess is not eligible for the tax credits.

Special tax credits. A taxpayer who has employment income in the tax year can claim the following special tax credits against the tentative income tax:

  • Tax credit for insurance premiums paid: a tax credit is available for 12% of insurance premiums paid if the refunds of the pre­miums at the maturity of the insurance policy do not exceed the amount of the paid-in premiums. The tax credit for premiums paid for the taxpayer and dependents apply up to KRW120,000 (12% of the premium threshold of KRW1 million). A tax credit for 15% of insurance premiums paid is available to dis­abled individuals, which applies up to KRW150,000 (15% of the premium threshold of KRW1 million).
  • Tax credit for medical expenses: a tax credit is available for 15% of medical expenses paid by the taxpayer for himself or herself or on behalf of qualified dependents (not subject to the limitation of age and income level) in accordance with the fol­lowing rules:

— Medical expenses paid by the taxpayer on behalf of qualified dependents, other than disabled persons and elderly persons aged 65 or older, are eligible for a tax credit. The tax credit is granted to the extent that the expenses exceed 3% of total taxable employment income of the taxpayer and is available up to KRW1,050,000 (15% of the KRW7 million threshold exceeding the 3% of total taxable employment income).

— Medical expenses paid for the taxpayer and on behalf of disabled persons and elderly persons aged 65 or older and for infertility treatment are eligible for a tax credit. If the medical expenses described in the item above are less than 3% of the taxpayer’s taxable employment income, the differ­ence between the two amounts would decrease the total amount of medical expenses eligible for a tax credit.

  • Tax credit for education expenses: a credit is available for 15% of education expenses (primarily tuition, including tuition for graduate school for taxpayers, related registration fees, costs for school meals and textbooks, fees for extracurricular activities and school uniforms [up to KRW500,000 per middle school and high school student]) are available for credit. However, other fees, such as bus fees, do not qualify for the credit. Education expenses (excluding expenses for graduate school) for each qualifying student, which includes the spouse, depen­dent children and siblings, are available for the following cred­its:

— University or college: KRW1,350,000 (15% of the expense threshold of KRW9 million)

— Kindergarten, and elementary, middle and high school: KRW450,000 (15% of the expense threshold of KRW3 mil­lion)

  • Tax credit for donations: A credit is available for 15% of dona­tions (30% of the excess donations over KRW20 million) made to the government and designated schools and organizations (Legal Donations) by the taxpayer, spouse or dependents eligi­ble for the personal deductions. Other specified donations are eligible for tax credit to the extent of 30% of the amount of adjusted Composite Income less Legal Donations. However, if the taxpayer makes donations to religious organizations, the donations are eligible for tax credit to the extent of the sum of the following:

— 10% of the amount of adjusted Composite Income less Legal Donations

— The lesser of non-religious donations and 20% of the amount of adjusted Composite Income less Legal Donations

A taxpayer with employment income who does not claim any special tax credits can apply a standard tax credit of KRW130,000 (KRW120,000 for a good-faith, self-employed taxpayer desig­nated in the tax law) against the tentative income tax for the year, while a taxpayer without employment income can apply a stan­dard tax credit of KRW70,000 against the tentative income tax for the year.

Nonresident taxation. A nonresident with a place of business in, or employment income derived from, Korea is generally taxed at the same rates that apply to a resident. Nonresidents satisfying certain conditions may use a flat tax rate (see Flat tax rate). However, nonresidents are not eligible for personal deductions for the spouse and dependents, itemized deductions, child tax credits and special tax credits.

The Korean-source income of a nonresident without a place of business in Korea is subject to withholding tax at the rates indi­cated in the following table.

Income category                                                                Rate

Business income and income from

leasing ships, airplanes, registered

vehicles, machines,and similar items                                      2%
Income from professional services,

technical services or services of

athletes or entertainers                                                              20%
Interest (excluding the item below),

dividends, royalties and other income                                    20%
Income generated from bonds

issued by governments and

domestic companies                                                                    14%

 

Capital gains                                                                  Lower of 10% of

.                                                                                         sales price or 20% of capital gains

In addition, local income tax is imposed as surtax at a rate of 10% of the above income withholding taxes.

Reduced rates may apply, depending on tax treaty provisions (see Section E).

Relief for losses. Business losses of a self-employed person (including losses arising from a business of renting residential properties) can be used to offset other business income, as well as other sources of Composite Income, such as employment income, pension income, interest income, dividends and other income. However, business losses from rental activities (other than rental losses from residential properties) can be used only to offset other rental income. Business losses can be carried forward for 10 years and can also be carried back to the preceding year if the self-employed person’s business qualifies as a small or medium-sized company.

Inheritance and gift taxes

Inheritors and donees who are Korean tax residents are subject to inheritance and gift taxes on assets acquired worldwide. Nonresident inheritors and donees are subject to inheritance and gift taxes on assets located in Korea only.

The following rates apply after the deduction of exempt amounts (see below) for the purposes of both inheritance and gift taxes.

Tax base Tax rate Tax due Cumulative tax due
KRW % KRW KRW
First 100,000,000 10 10,000,000 10,000,000
Next 400,000,000 20 80,000,000 90,000,000
Next 500,000,000 30 150,000,000 240,000,000
Next 2,000,000,000 40 800,000,000 1,040,000,000
Above 3,000,000,000 50

 

The following amounts are exempt in determining the taxable amount of property for the purposes of inheritance tax.

Type of allowance                                             Exempt amount

Basic deduction                                                     KRW200 million

Family business deduction                              Asset value of family

.                                                                   business inherited, subject to different ceilings,

.                                                                   depending on the number of years of operation

 

Personal deductions:

 

Spouse allowance                                    Minimum KRW500 million, max KRW3 billion

 

Lineal descendant allowance                 KRW50 million per person

 

Allowance for a minor                           KRW10 million x number of years

(younger than 19 years                           before reaching the age of 19

of age)

 

Old age allowance                                 KRW50 million per person
(65 years of age or older)

 

Allowance for the                                  KRW10 million x number of

disabled                                                    years up to the expected remaining years of life

.                                                                  announced by Statistics Korea, considering the

.                                                                 gender and age Financial asset deduction

 

Net value of financial asset is:

 

KRW20 million or less                            Total net value of the asset

 

Net value of asset of more                      Greater of KRW20 million

than KRW 20 million                              and net value of asset

.                                                                     x 20%, up to a maximum of KRW200 million

 

Heirs (except for a spouse who is the sole heir) may deduct the greater of the sum of the above deductions or KRW500 million. The amount of the deduction is KRW500 million if no report is filed.

Donees who acquire property must pay gift tax at the same rates that apply for inheritance tax after deducting the following exempt amounts.

Exempt amount

Type of donation                                               KRW (millions)

Donation from spouse                                                       600

Donation from lineal ascendant                                       50

Donation from lineal ascendant

(if the donee is a minor)                                                      20

Donation from descendant                                                 50

Donation from other relatives                                            10

Social security

National pension. Under the National Pension Law, an ordinary workplace with at least one employee must join the national pen­sion program. The contribution to the national pension fund is 9% of an employee’s salary. The 9% contribution is shared equally at 4.5% between the employee and the employer. The maximum amount for both the employer’s and employee’s share of the monthly premium for the national pension is KRW195,300 per employee from 1 July 2016. This amount is computed based on an average monthly salary of KRW4,340,000. The premium must be paid by the 10th day of the month after the month in which the salary is paid.

National health insurance. Under the National Health Insurance Law, an ordinary workplace with at least one employee must join the national health insurance plan. The rate for the National Health Insurance is 6.52086% (including an additional contribu­tion for long-term care insurance) of an employee’s salary, which is shared equally between the employee and the employer. The maximum amount of the employer’s and employee’s share of the monthly premium for national health insurance is KRW2,546,390 per employee. This amount is computed based on an average monthly salary of KRW78,100,000. The premium must be paid by the 10th day of the month after the month in which the salary is paid. If an employee who is participating in the National Health Insurance scheme through his or her workplace also has additional employment income not subject to payroll withholding and/or has personal income of KRW72 million or more, the employee is subject to an additional contribution for the addi­tional employment income not subject to payroll withholding and pension income at a rate of 0.652086% (20% of 3.26043%), while an additional contribution at a rate of 3.26043% to the National Health Insurance must be made for additional income that is neither employment income nor pension income (for example, investment income). However, the sum of the addi­tional contribution per month is capped at KRW2,546,390 per employee.

Foreigners may be exempt from the mandatory National Health Insurance requirement on application and approval if they are cov­ered by their home country’s statutory insurance or by a company-provided foreign medical insurance program that provides a level of medical coverage equivalent to the coverage provided under the Korean National Health Insurance or if their employer guarantees to pay all medical expenses incurred in Korea. Documents required for the exemption differ according to the types of existing insur­ance plans.

Unemployment insurance. A company with at least one employee must pay unemployment insurance premiums and employee abil­ity development premiums. Annual unemployment insurance pre­miums are payable at a rate of 1.3% of an employee’s salary. These premiums are shared equally at a 0.65% rate by the employer and employee. Employee ability development premiums are payable by employers only at a rate ranging from 0.25% to 0.85%, depend­ing on the number of full-time employees.

Unemployment insurance does not apply to chief executive offi­cers (CEOs) or representatives (in Korean companies, equivalent to CEOs or presidents) of Korean entities. It is optional for for­eign nationals, but foreigners with certain visa types, such as D-7, D-8, D-9, F-2 or F-5, must pay for unemployment insurance.

Accident insurance. Under the Industrial Accident Compensa tion Insurance Law, an ordinary workplace with at least one employee must join the workmen’s accident compensation insurance pro­gram and pay the premium annually. The premium, which is paid by the employer only, is normally calculated at a rate ranging from 0.7% to 34%, depending on the industry.

Social security agreements. Korea has entered into social secu­rity agreements with the following jurisdictions as of 1 July 2016.

Australia                           Germany                   Romania

Austria                              Hungary                    Slovak Republic

Belgium                            India                          Spain

Brazil                                Iran                           Sweden

Bulgaria                            Ireland                       Switzerland

Canada                              Italy                           Turkey

China                                Japan                         United Kingdom

Czech Republic                 Mongolia                  United States

Denmark                           Netherlands               Uzbekistan

France                               Poland

Most of the social security agreements listed above apply to national pensions only.

Tax filing and payment procedures

The income tax year in Korea is the calendar year.

Taxes on employment income eventually borne by a Korean entity and deductible for corporate tax purposes under the Korea tax law are withheld by the employer. Taxpayers who receive other types of income, such as interest, dividends or business income (includ­ing rental income), must file a Composite Income return between 1 May and 31 May of the year following the tax year. Taxes due must be paid when the return is filed. No extensions of time are granted for the filing of Composite Income returns.

Taxpayers reporting employment income eventually borne by a foreign entity have the following options:

  • They may file an annual tax return and pay relevant taxes in the month of May of the year following the income tax year.
  • They may join an authorized taxpayers’ association through which monthly tax payments are made to the tax authorities. In return for timely payments made through a registered taxpayers’ associa­tion, taxpayers receive a 10% credit on the adjusted income tax liability (the adjusted income tax liability is computed based on a complicated formula provided in the law).

A representative office established in Korea has payroll with­holding and reporting obligations if the salaries are paid to employees through a bank account of the representative office.

Married persons are taxed separately, and no joint tax returns are allowed.

In principle, foreign nationals must file returns at least one day before departing from Korea.

Self-employed persons operating certain types of businesses must make interim tax payments during the tax year.

Foreign financial account reporting. Residents, including foreign­ers who have resided in Korea for 5 years or more during the past 10 years as of the year-end, must report their financial assets held in foreign countries (including bank accounts, stock brokerage accounts, derivatives accounts and other accounts) to the Korean tax authorities. This rule applies only if the aggregate value of the foreign financial accounts exceeds KRW1 billion at the end of any month during the calendar year. The report for the preceding cal­endar year must be filed with the relevant tax office during the period of 1 June to 30 June of the year following the calendar year. Failure to file the reporting in a timely or truthful manner or to comply with tax authorities’ requests to submit or supplement the reporting triggers penalties.

Foreign real estate reporting. Residents who have acquired real estate located outside Korea or a right to such real estate must report their foreign real estate acquisition and operation to the competent tax authorities by the statutory deadline of the Composite Income return, which is 31 May in the year following the year of the acquisition. No minimum threshold for reporting exists. Failure to file the reporting in a timely or truthful manner or to comply with tax authorities’ requests to submit or supple­ment the reporting triggers penalties.

Proxy withholding. Effective from July 2016, Korean entities that meet certain revenue- and industry-type conditions must with­hold payroll taxes on the fees paid to foreign entities that hire inbound expatriates to provide services in Korea and pay the taxes withheld to the tax office. Like employment income subject to payroll withholding, the withheld fees must be settled on an annual basis through the year-end payroll true-up settlement under which the obligation to file falls on the foreign entity that hired the inbound expatriates. A Korean entity can also assume this obligation.

Double tax relief and tax treaties

A credit for foreign income taxes paid is available, up to the ratio of foreign-source adjusted taxable income, to worldwide adjusted taxable income.

Korea has entered into double tax treaties with the following 85 jurisdictions as of 1 July 2016.

Albania                          Indonesia                     Peru

Algeria                           Iran                              Philippines

Australia                        Ireland                          Poland

Austria                           Israel                            Portugal

Azerbaijan                     Italy                              Qatar

Bahrain                          Japan                            Romania

Bangladesh                    Jordan                          Russian

Belarus                          Kazakhstan                   Federation

Belgium                         Kuwait                         Saudi Arabia

Brazil                             Kyrgyzstan                   Singapore

Bulgaria                         Laos                             Slovak Republic

Canada                           Latvia                           Slovenia

Cape Verde                    Lithuania                      South Africa

Chile                              Luxembourg                Spain

China                             Malaysia                      Sri Lanka

Colombia                       Malta                            Sweden

Croatia                           Mexico                         Switzerland

Czech Republic              Mongolia                     Thailand

Egypt                             Morocco                      Tunisia

Egypt                             Myanmar                     Turkey

Egypt                             Nepal                           Ukraine

Estonia                           Netherlands                  United Arab

Fiji                                 New Zealand                Emirates

Finland                          Nigeria                         United Kingdom

France                            Norway                        United States

Germany                        Oman                           Uruguay

Greece                           Pakistan                       Uzbekistan

Hungary                        Panama                        Venezuela

Iceland                           Papua New                  Vietnam

India                              Guinea

Temporary visas

To enter Korea, a foreign national must have a valid passport and a visa. Foreign nationals may obtain temporary visas from the local Korean embassy or consulate, allowing them to remain in Korea for up to three months. On application, a foreign national’s sojourn may be extended through a visa conversion process.

Visa waiver agreement. As of October 2015, qualified nationals of the 103 jurisdictions listed below, which have a reciprocal visa exemption agreement with Korea, may enter Korea without visas for, in general, a period of up to 90 days. For some nationals or citizens, this rule applies to diplomatic and official passport hold­ers only. The following are the relevant jurisdictions.

Algeria Gabon Oman
Angola Georgia Pakistan
Antigua Germany Panama
and Barbuda Greece Paraguay
Argentina Grenada Peru
Armenia Guatemala Philippines
Austria Haiti Poland
Azerbaijan Hungary Portugal
Bahamas Iceland Romania

Bangladesh                    India                             Russian

Barbados                       Iran                              Federation

Belarus                          Ireland                          Singapore

Belgium                         Israel                            Slovak Republic

Belize                             Italy                              Spain

Benin                             Jamaica                        St. Kitts and

Bolivia                           Japan                            Nevis

Brazil                             Kazakhstan                   St. Lucia

Bulgaria                         Kuwait                         St. Vincent

Cambodia                      Kyrgyzstan                   and the

Cape Verde                    Laos                             Grenadines

Chile                              Latvia                           Suriname

China                             Lesotho                        Sweden

Colombia                       Liberia                          Switzerland

Costa Rica                     Liechtenstein                Tajikistan

Croatia                           Lithuania                      Thailand

Cyprus                           Luxembourg                Trinidad and

Czech Republic              Malaysia                      Tobago

Denmark                        Malta                            Tunisia

Dominica                       Mexico                         Turkey

Dominican                     Moldova                      Turkmenistan

Republic                        Mongolia                     Ukraine

Ecuador                         Morocco                      United Kingdom

Egypt                             Myanmar                     Uruguay

El Salvador                    Netherlands                  Uzbekistan

Estonia                           New Zealand                Venezuela

Finland                          Nicaragua                     Vietnam

France                            Norway

No visa entry. Most foreigners who want to visit Korea for a short-term tour or are in transit may enter Korea with no visa in accordance with the principles of reciprocity or priority of nationals’ interests with a tourist/transit visa status (B-2: 30 days to six months stay is allowed). Nationals from the 49 jurisdictions listed below may enter Korea without a visa as of July 2015. For some nationals or citizens, this rule applies to diplomatic and official passport holders only. The following are the relevant jurisdictions.

Albania                          Hong Kong                  Qatar

Andorra                         SAR                             Samoa

Argentina                       Indonesia                     San Marino

Australia                        Japan                            Saudi Arabia

Bahrain                          Kiribati                         Serbia

Bosnia and                     Kuwait                         Seychelles

Herzegovina                  Lebanon                       Slovenia

Brunei                            Macau SAR                 Solomon Islands

Darussalam                    Marshall Islands          South Africa

Canada                           Mauritius                     Swaziland

Croatia                           Micronesia                   Taiwan

Cyprus                           Monaco                        Tonga

Ecuador                         Montenegro                 Tuvalu

Egypt                             Nauru                           United Arab

Fiji                                 New Caledonia            Emirates

Guam                             Oman                           United States

Guyana                          Palau                            Vatican City

Honduras                       Paraguay

Work permits and self-employment

Korean authorities are relatively restrictive in granting working rights to foreign nationals. As a result of the degree of difficulty in obtaining permits, readers should obtain appropriate profes­sional assistance.

A foreign national may engage in only those activities relating to the working status of his or her sojourn. A foreign national in Korea who intends to engage in activities other than those relat­ing to his or her status of sojourn must obtain a permit from the Ministry of Justice. A foreign national who does not hold a work­ing status of sojourn may not be employed in Korea.

Categories of working status of sojourn. The maximum sojourn periods for the various categories of working status of sojourn range from six months to five years. However, depending on individual circumstances and the discretion of relevant immi­gration offices, the duration of the period is often one to two years per application for initial sojourn or extension.

As a result of the amendment of the Korean Immigration Act on 10 October 2013, the sojourn period is extended up to five years for various jobs and visa types.

Five years. The following categories of individuals have a maxi­mum five-year period of sojourn:

  • E1 – Professor: foreigners qualified by the Higher Education Act who are seeking to give lectures or conduct studies in edu­cational facilities, and individuals who have expertise in science and high technology
  • E3 – Research: individuals engaged in the fields of natural sci­ence or high technology, scientists that are engaged in a study at an institute that is operated by the Special Treatment Law as to Defense Industry Company, and individuals who have exper­tise in science and high technology
  • E4 – Technological Guidance: individuals who offer special technology or expertise at a public or private organization and individuals who offer special technology or expertise not avail­able in Korea
  • E5 – Professional Employment: aircraft pilots, medical doctors, interns or residents at hospitals, individuals invited by busi­nesses approved for the Geumgang Mountain tourism develop­ment business and individuals seeking work as essential staff of shipping services hired by Korean transportation corporations
  • D8 – Corporate Investment: indispensable professional workers seeking to engage in the administration and/or management of foreign investment companies prescribed by the foreign inves­tor promotion law (excluding workers hired domestically)

Three years. The following categories of individuals have a maximum three-year period of sojourn:

  • E7 – Specially Designated Activities
  • E9 – Non-professional Employment
  • F4 – Overseas Koreans
  • F6 – Spouse of a Korean national
  • H2 – Working Visit

Two years. The following categories of individuals have a maxi­mum two-year period of sojourn:

  • D1 – Cultural Arts: individuals who perform not-for-profit artistic or academic activities.
  • D3 – Industrial Training: individuals fulfilling conditions set by the Minister of Justice and individuals seeking industrial training.
  • D4 – General Training: Individuals who obtain education or training as an intern or engage in research at a foreign-investment company or at a company that made an investment abroad.
  • D5 – Journalism: journalists.
  • D6 – Religious Affairs: individuals who are dispatched to a chapter registered in Korea by a foreign religious body or social welfare organization, individuals who are engaged in mission­ary work or social welfare and are invited by medical or educa­tional facilities operated by their organization, individuals who practice asceticism or train or study at a Korean religious body on the recommendation of that body and individuals who are invited by a Korean religious body or social welfare organiza­tions that are engaged only in social welfare.
  • D7 – Intra-Company Transfer: individuals who have worked for foreign public institutions or the main office, branch office or other establishments of a company for more than a year, and individuals who are dispatched as indispensable professional workers to the branch office, subsidiary, supervising office or an interrelated company established in Korea that is approved and processed by the Minister of Justice.
  • D8 – Corporate Investment: Individuals who wish to invest. They must report in advance to the head of the Korean trade and investment promotion agency or the head of the foreign-exchange bank.
  • D9 – Treaty Trade: individuals who are engaged in company management, trading, or profit-making business, individuals who are engaged in the installation, operation or repair of equipment (machines) to be exported and individuals engaged in the supervision of shipbuilding and the manufacturing of equipment.
  • E2 – Foreign Language Teaching: individuals seeking positions as foreign language instructors at foreign language institutions or educational facilities.
  • E6 – Arts/Entertainment: individuals seeking to profit from performances related to music, fine arts, literature, or similar fields and individuals seeking to profit through performing arts, such as entertainment, music, play, sports, advertisement, fashion modeling and similar activities.
  • F1 – Family Visitation: Sojourn for the purpose of visiting rela­tives, family or dependents, organizing household and other similar activities.

Six months. Individuals in Category D10 – Job Seeking have a maximum six-month period of sojourn. This category consists of individuals seeking jobs or vocational training programs for employment in the relevant field as a professional.

Ninety days. The following categories of individuals have a maximum 90-day period of sojourn:

  • C1 – Temporary Journalism
  • C3 – Short Term General
  • C4 – Short Term Employment

Procedure. In general, Korean immigration law requires a foreign national who wants to obtain a work permit to submit an applica­tion together with a résumé, a copy of his or her passport, an employment agreement or assignment letter, a diploma, and corporate documents of the visa-sponsoring company to the Korean immigration office. However, the supporting documents to obtain a work permit may differ by type of visa. The work permit includes the applicant’s working status and period of sojourn.

Foreign nationals may be self-employed in Korea if they obtain the appropriate trade licenses or registration.

Residence permits

A foreign national who wishes to enter Korea must obtain a per­mit, which specifies the status and period of sojourn, from the Ministry of Justice. A foreign national who plans to stay in Korea for longer than 90 days must apply for an Alien Registration Card at the district immigration office within 90 days after the date of entry. Under the Immigration Control Law, individuals who are aged 17 or older must register their biometric details (fingerprint­ing) to apply for an Alien Registration Card.

Foreign nationals who intend to change their status of sojourn or diplomatic status must obtain permits to change the status of sojourn from the Ministry of Justice.

A foreign national who intends to extend the sojourn period must obtain a permit of extension or a renewal of sojourn from the Ministry of Justice before expiration of the initial permit.

Family and personal considerations

Family members. Family members need separate permits and visas to accompany expatriates. These permits may be applied for jointly with an expatriate’s permits.

A family member of a working expatriate must obtain a separate work permit to be employed legally in Korea. This permit may be applied for either jointly or independently of the working expatriate.

Children of working expatriates do not need student visas to attend schools in Korea.

Driver’s permits. Foreign nationals may not drive legally in Korea with their home country driver’s licenses. However, an expatriate may drive for up to one year in Korea with an international driver’s license. After one year, the expatriate must apply to have the license converted to a Korean license.

If an individual wishes to obtain a Korean driver’s license, he or she must take a written exam and a standard physical exam.