Expats feel cheated by stealthy tax rule change

By Kim Da-ye

Expats are either in the dark or angry about the abolition of a preferential 30 percent income tax exemption, a recent survey conducted by The Korea Times and other sources showed Wednesday.

The lack of knowledge obviously stems from the low key approach by the National Tax Service (NTS) and the Ministry of Strategy and Finance back in February when they just posted a small notice on the NTS website.

Although the NTS made an additional announcement about expats’ tax filing, few noticed, judging by their heated reaction to a Korea Times’ front page article and web posting, which prompted informal interviews with 10 foreigners.

One reader commented on The Korea Times’ website, “I am one of those salaried expats who have enjoyed the 30 percent exclusion of our income from being taxed. When was this exclusion abolished? The article is leading me to assume this was not decided upon until not too long ago. This bites.”

The 10 interviewees are all working in Korea, with some of them being executives at foreign companies, although the exact breakdown was not pursued because of the small sample size.

Most of them had little understanding of the complicated method of tax settlement which Koreans call the 13th monthly salary and arduously prepare for to get back as much as possible.

Korea currently employs more than 560,000 foreigners, and in 2009, 365,753 foreign salaried workers filed tax returns — up 6.1 percent from 344,583 in 2008, according to the NTS.

On the basis of their responses and the analysis by this newspaper, the Korean tax system for foreigners does need improvement.

Firstly, foreigners aren’t eligible for housing-related deductions. In order to calculate the final liability — the amount a taxpayer is actually supposed to pay as opposed to what they have paid — various deductions are made from the total income. Making as many deductions as possible is the key to getting back more money.

Korean householders can claim deductions on their principal and interest payments for housing, but foreigners, who are not recognized as householders, cannot.

Rubbing salt into the wound, the government, from this year, introduced up to 3 million won in deductions on monthly rents paid by householders who earn 30 million won or less. Foreigners heavily rely on monthly-rent housing, but won’t benefit from the new tax exemption.

Furthermore, services to help foreign taxpayers are still limited. The NTS publishes the comprehensive Easy Guide in both Korean and English, provides English-language forms and runs automatic calculation services on its website. It also operates a hot line for foreigners, and some district tax offices have multilingual tax officers.

But some key parts of the services are available in Korean only. The “simplified year-end tax settlement website” provides easy access to the documents such as medical bills and cash receipts. Foreigners can access the site with an Internet authentication certificate, but the site is available in Korean only.

The same applies to the cash receipt registration. An alien registration number and Internet authentication certificate are adequate for a foreign taxpayer to have a cash receipt card issued, but the site again is in Korean only.

The following is the checklist that can make expats’ tax filing a more lucrative experience.

1) Find your dependents: When taxpayers’ dependents make 1 million won or less, 1.5 million won will be deducted per dependent. Deduction can be made for employees’ parents who live abroad separately. If they are aged 70 or older or disabled, taxpayers will get extra deductions.

2) Know your debit card, credit card and cash usage: When taxpayers spend more than 25 percent of their total income, they are qualified for deduction of up to 3 million won. The spending needs to be proved with cash receipts, credit card bills and debit card statement.

This year, the changes in the tax law allow a person to get 25 percent of debit card and 20 percent of credit card spending deducted. Foreigners who tend to use check cards rather than credit cards will benefit from the change. Using credit cards and check cards abroad, however, won’t count for deductions.

3) Get your medical bills and receipts for educational expenses: Taxpayers can get up to 7 million won in deductions for medical expenses while up to 3 million won can be deducted for tuition and other educational costs for children in kindergarten and elementary, secondary and high schools, and 9 million won for those in university.

If foreign taxpayers have their children studying abroad, the children’s educational cost can also be excluded from being taxed. In addition, if parents who live separately earn less than 1 million won a year, their medical expenses and credit card spending count for deductions.

But if you think this deduction method is too much a hassle, just take the 15 percent of your total income as the final liability. The government has yet to scrap this special tax treatment for foreign workers.