In this article, Ziptoss has made an easy guide for you to settle year-end taxes to avoid confusion and for you to properly settle taxes in South Korea.
For residents and non-residents
- Article 1-2, Income Tax Act
- A resident should refer to an address or a person with an address.
- You must reside in Korea for at least 183 days.
- Non-resident means individuals who are not permanently residing in a place or country with a foreign tax ID.
The address is determined based on the objective facts of life relations(such as the existence and property of family members living together and located in South Korea and occupation). A place or residence means a place where a person lives for a long time outside of his/her home.
Calculation of the period of residence
- Article 4, Enforcement Decree of the Income Tax Act
- The period of stay in Korea starts from the next day after his/her arrival in South Korea until the date of his/her departure.
- When a person residing in South Korea returns, after leaving temporarily due to important reasons(such as for tourism or medical purposes), the treatment should be taken into account of the residence of family members making a living. The location of the person and property, along with the period of stay, even when abroad, is still considered the period of time the person has a residence in South Korea.
- The tax period when residing in South Korea is 183 days. Those who have lived in South Korea for at least 183 days should have enough proof to present.
- For overseas Koreans: Under Article 2 of the “Immigration Control Act”, aside from the legal status of overseas Koreans entering South Korea, temporary stay for tourism/medical purposes, financial or entry purposes. The treatment of diseases or purposes prescribed by the ordinance of the Ministry of Health and Welfare and Ministry of Strategy and Finance, the length of stay is not considered as residing in South Korea.
When a Person Becomes a Resident or Nonresident
- Article 2-2, Enforcement Decree of the Income Tax Act
Non-resident to resident
- The day the non-resident acquired home in Korea.
- The date of the event that the non-resident has been deemed to acquire a home in South Korea.
- When a non-resident acquires residence in South Korea on the 183rd day
Resident to non-resident
- The day after he/she leaves South Korea, and moves to a new place of residence outside of South Korea.
- The next day of the date of the event that the resident has been deemed to have no address in South Korea or has acquired to have a place of residence outside of South Korea.
Scope of Taxable Income
- Article 3, Income Tax Act
- Income tax on all types of income is subject when a foreigner is recognized as a resident(within and outside of South Korea). Non-residents are subject to income tax on domestic income.
Special taxation for foreign employees
- Article 18-2, Restriction of Special Taxation Act
- When foreign employees (excluding daily workers) provide services in Korea. For the first time on or before December 31, 2021 (except where services are provided), the amount calculated is multiplied by 19%. The earned income (including non-taxable income) may be imposed as a tax instead of the amount calculated by applying the basic tax rate. In this case, the regulations on income tax(such as non-taxation, restrictions on reductions and exemptions and tax credits and income deductions according to the Income Tax Act) does not apply to the Special Taxation Act, and the resulting earned income is not included in the calculation of the global income tax base.
- The period to which special taxation is applied shall be the taxable period that ends within 5 years from the first day of providing service in South Korea.
- A foreign worker is a person who has not recently acquired South Korean citizenship on the day of the relevant taxable year.
- Foreign workers who wish to apply special taxation must apply and submit it to the taxpayer’s withholding agent, head of the tax office, or association by attaching the tax application form. The tax rates are applied when reporting foreign workers’ income deductions and tax credits for wage and salary income.
Year-end tax settlement for non-residents
Non-residents’ domestic-source wage & salary income
- Article 119 of the Income Tax Act, Article 179 of the Enforcement Decree of the Act
- If salary is received for providing any kind of services in South Korea.
- Salary is offered to employees working in a vessel serving overseas, fishing vessel, or an aircraft operated by a resident or a local company.
- When salary is offered to a non-resident working as an executive of a local corporation in South Korea.
- If a certain amount is given to a non-resident as a bonus under the Corporate Tax Act.
Calculation of year-end tax settlement
- Article 122, Income Tax Act
- In terms of the computation of the tax base and the amount of income tax on domestic-source wage & salary income of non-residents, the provisions concerning the tax base and amount of the tax on the resident’s income should be applied. But the deduction for any person other than the non-resident, among the personal deductions under Article 51, a child tax credit under Article 59-2, and special tax credit under Article 59-4 does not apply to a non-resident.