Tax liabilities for foreigners in Korea
The number of foreigners residing in Korea is soaring every year. The foreign population of 740,000 in 2005 became 1.2 million in 2010, showing a 62 percent increase. Of them, 47.7 percent of this population is Chinese, followed by Americans with 11.7 percent and Vietnamese with 7.9 percent. Forty-two percent of whom have come to Korea to get a job.
Moreover, migrant spouses from international marriages with Koreans reached 136,000 last year, which is almost double that of 2005. All these figures show Korea’s rapid transformation into a “salad bowl” of diverse cultures and nationalities.
With the growing influx of foreigners into Korea, inquiries about their tax liabilities are also increasing. In fact, the decisive factor which determines tax liabilities is residence status rather than the nationality.
In this regard, foreigners working or staying in Korea need to check their residence status first to understand tax duties in Korea.
Then, who are residents of Korea? The Korean tax law stipulates that an individual whose domicile is in Korea or whose place of residence exists in Korea is deemed a resident of Korea, whereas an individual who does not fall under the aforementioned definition of residency is a non-resident of Korea.
If you are a foreign national visiting Korea on a temporary visa, you only need to pay taxes required for a non-resident.
However, if you stay in Korea for a long-term, you are a resident of Korea for tax purposes and therefore subject to income tax on all income derived from sources both within and outside Korea.
On the other hand, non-residents in Korea are not subject to taxation for incomes earned abroad.
Notwithstanding, the National Tax Service (NTS) provides exceptional tax benefits to foreign taxpayers in order to attract highly skilled foreign workers.
First, foreign employees are allowed to choose whichever calculation method they think is more advantageous when settling their taxes at the end of year or filing global income tax returns in May.
Accordingly, they can select either a 15 percent flat tax rate on their gross income ― the income deduction method which Korean nationals take for their tax settlement.
Second, if a foreign resident stays in Korea for a short period, his/her income liabilities are limited to the income earned within Korea.
In other words, a foreign resident having a domicile or a place of residence in Korea for less than five years during the last 10 years has no tax liabilities for his or her overseas source income, unless the income is remitted to Korea or paid in Korea.
Also, foreigners temporarily staying in Korea are not subject to filing of the “Report of Foreign Bank and Financial Accounts,” of which first filing is due this June.
Third, foreign employees under a certain job category are free from income taxation. For instance, foreign teachers from such countries as the U.S. and the U.K. are exempt from income tax for the first two years according to respective tax treaties signed between Korea and their countries.
For foreign engineers who render technological services to Korean companies shall be allowed to be exempted by 50 percent from income tax on employment income for a certain period.
Most foreign residents are challenged while staying in Korea due to different cultures and the language barrier.
To address their difficulties, the NTS provides foreigner-friendly services such as “Helpline for Foreigners” and “Consultation Desk for Foreign Taxpayers” located in district tax offices and publishes various tax guides for foreigners.
The NTS will continue to improve services to help foreigners understand their tax liabilities and to prepare for a multi-cultural society.