High-income foreigners face higher tax rate
By Kim Jae-won
High-income foreigners will face a higher tax rate here as the government considers increasing its 17-percent fixed rate levied on non-Korean workers, seeking to raise tax revenue amid low economic growth.
The Ministry of Strategy and Finance said that it was considering changing its tax rule on foreign employees and executives which imposes a 17-percent rate on their income regardless of the amount for the first five years after they started working in the country.
The regulation has been regarded as a special treatment for high-income foreigners as their Korean counterparts pay up to 38 percent in income tax based on their salaries. Reflecting complaints from Korean workers for equal treatment, the country raised the rate to 17 percent from 15 percent in 2012.
“We are considering changing the income tax rules for foreign workers,” said a director at the finance ministry, asking not to be named. “But, nothing has been decided yet.”
The comments came as the government is aiming to increase tax revenue by cutting special benefits given to taxpayers. The finance ministry is also moving to lower its income tax deductions for payments using credit cards.
Foreign executives working in Seoul are complaining about the change. They said that the government needs to offer better conditions for foreign workers, rather than cutting them, if it wants to draw global talent.
“I think the Korean government should approach this matter from a long-term perspective,” said a U.S. citizen working for a financial company in Seoul, asking not to be named.
“The country should extend its exemption period from five years to encourage foreign executives to stay here longer so that they can contribute more to the economy.”
She said that with the regulation, many foreign workers will rush to leave the country when the benefits expire.
The ministry declined to elaborate how much the rate will be hiked. The country has given the special rate to foreign workers here to attract more talents to the country as its rival economies, such as Hong Kong and Singapore, have provided lower income tax rates of 15 to 20 percent.
According to data from the ministry, the aggregate amount of the tax exemptions for non-Korean employees and executives is estimated to be 121.5 billion won ($106.9 million) this year. In 2015, the amount was is estimated at 142.3 billion won.
But, experts said the government should be careful about raising the income tax rate for foreign workers because it can could cause a brain drain. They said that non-Korean high-income earners will be under pressure to move to Hong Kong and other countries with lower tax rates.