30% tax exemption for expats abolished

By Kim Da-ye

The year-end tax settlement, a process that more often than not ends up rewarding a taxpayer with returns, may be little known to the foreigners working here, but is a big deal to Koreans who call it the “13th monthly salary.”

With the soaring number of foreign workers in Korea and the changes in the tax law that increasingly treat Koreans and foreign employees equally, it has become highly important for foreign workers to understand the nitty-gritty details of tax settlement.

Simply put, it is the process of calculating the final tax liability ― the actual amount taxpayers are supposed to pay ― by deducting various items from the total income from employment. If workers have paid more tax than the final liability, they get a refund of that extra amount.

One of the most important changes made in 2010 to the Tax Law was the abolition of the “30 percent exemption method,” a special tax treatment for foreigners.

Until 2009, foreigners could have 30 percent of the total wage deducted and go through a series of further deductions or simply apply the 15 percent flat tax rate to the total income.

Both methods were designed for foreigners only, but from this year, they can choose either the flat tax rate or the normal method used for Korean nationals. They should calculate the final tax liability using both methods and decide which minimizes it. The automatic calculation service will be soon available at the National Tax Service’s English-language website (www.nts.go.kr/eng/).

Foreign engineers are no longer eligible for 100 percent tax exemption during their first five years. This has been reduced to a 50 percent exemption for two years. The new rate is applied to those who enter the country this year or later while others who came before can still enjoy the full exemption for the remaining period.

English teachers from the U.S., the U.K., Australia, New Zealand, Ireland and South Africa are still qualified for the existing tax exemption.

If foreign workers choose to go with the normal method, the amount of deductions varies depending on the total gross earnings.

It is followed by a series of deductions in which salaried workers’ knowledge in tax settlement comes in handy. Here, foreigners must classify themselves correctly either as residents or as non-residents. In order to be a resident, one must live or have a job that requires him or her to stay in Korea at least one year or longer.

Residents have the duty to pay taxes on income earned both in Korea and abroad while non-residents are responsible for their income in Korea only. For a myriad of deductions, however, residents and Korean nationals will be treated equally while non-residents get only a few directly related to themselves.

For instance, foreign workers classified as residents can claim the 1.5-million-won deduction for spouses and dependents if spouses and dependents earn less than 1 million won a year. They can also get a deduction for parents who live abroad. Additional deductions are also applicable if the dependents are disabled or aged.

Such deductions are called “personal deductions” and could help reduce the final liability by a large margin.

The rest of the deductions can be made from credit card spending, insurance payments, educational expenses, medical expenses, housing fund, donations, interest payment for long-term housing mortgage and pension savings.

As the fiscal year ends on Dec. 31, salaried workers are encouraged to study the basics of the year-end tax settlement in early January and collect the necessary documents such as receipts for medical expenses and credit card bills.

The National Tax Service runs a website from which taxpayers can print out various documents. Unfortunately, the website is only available in Korean and requires an authentication certificate for signing in. Foreigners are most likely to have to collect required documents manually.

The form and supplemental papers should be submitted to employers around the end of January, and the tax return will be made in March.

외국인에 대한 30% 세액 공제 폐지

연말 정산 시기가 다가왔다. 연말 세금 환급으로 13번째 월급이라고 불린다. 그런데 한국에서 일하는 외국인들에게는 잘 알려지지 않은 것 같다.

국내에 외국인 수가 급증하고 세법의 변경이 내국인과 외국인 노동자의 대우를 점점 동등하게 하는 가운데 외국인들도 세금 정상의 세세한 부분을 이해하는 게 중요해졌다. 간단히 말해 연말에 평소 낸 세금을 더해 마지막 총 세금액을 정산해 주는 일이다.

2010년 세법 변경 중 가장 중요한 것은 외국인 세금 우대 조치인 “30% 세액 공제 제도”의 폐지이다.

2009년까지 외국인들은 일단 총 임금에서 30%를 공제해 주었다. 그리고 추가적인 공제가 있으면 내국인과 마찬가지로 공제를 하든가 이것이 번거로우면 일률적으로 총 임금에서 15%를 공제하고 세금을 매겼다.