Value context and insight. lkm@koreatimes.co.kr
Foreign professionals leaving Korea due to hefty taxes
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By Lee Kyung-min
Greater tax incentives needed to attract more skilled foreigners
By Lee Kyung-min
A growing number of foreign professionals are leaving Korea due to hefty taxes on their income and capital gains, which are much higher than in Hong Kong or Singapore.
Heavy taxation aside, frequent policy changes and arbitrary implementation of tax codes are among many reasons why foreigners find Korea increasingly unattractive to work.
The failure to draw and retain competitive foreign human resources adds to the country's “brain drain” concerns, a decades-long problem in high-tech, research-intensive sectors where success is determined by a highly educated workforce.
“Many top executive and foreign employees should make a significant decision after staying here for five years,” American Chamber of Commerce in Korea (AMCHAM) Chairman and CEO James Kim told The Korea Times.
The tax rate on earned income for foreigners stays at 19 percent for the first five years of employment here, a form of tax incentive put in place to attract skilled foreigners.
If they are under contract to introduce engineering technologies or are employed by research institutes that drew foreign equity investment, their tax on the income earned for five years of employment will be cut in half.
But the incentive no longer holds for those whose employment period exceeds five years, meaning they should pay nearly half of their income as tax.
The current ceiling for income tax is 42 percent, but the rate will be raised to 45 percent in 2021 for those whose annual income tops 1 billion won ($916,000).
This is much higher than rates that are capped at 17 percent, or 15 percent of net income, in Hong Kong and 22 percent in Singapore.
According to the Korea Trade-Investment Promotion Agency (KOTRA), the number of highly skilled foreign professionals it secured through overseas recruitment projects has been on steady decline.
The figure was 615 in 2016, but dropped to 483 in 2017, to 362 in 2018 and to 316 in 2019. The number stood at 153 for the first nine months of this year.
According to the Ministry of Justice, the number of work permits issued to foreign professionals also decreased to 44,092 in 2019 from 45,685 in 2017 and 47,922 in 2015.
Korea, Kim said, needs to offer greater tax incentives for more foreigners to choose Korea over other low-tax countries, especially if there are better options elsewhere.
“Korea can become a regional headquarter with commitments from senior executives to stay beyond five years. Many senior-level foreign workers love it here, they do competent work and above all they can sell how Korea can be a solid market to officials back in their headquarters. Korea needs to offer tax policies that can help many of them stay here and not leave for Hong Kong or Singapore,” the AMCHAM leader said.
“I have been here in Korea for over 16 years and have not met any expat who doesn't want to live and work in Korea. It is a great place, even for non-Korean ethic expats. I am sure most will choose to extend their stay if offered by their companies.”
Korea's income tax rate is the 14th-highest among OECD countries, but will jump to the seventh-highest in 2021. The OECD average is 35.7 percent.
Not only foreigners but also highly educated Koreans are leaving the country, mostly due to low monetary compensation.
Data presented by Rep. Lee Hack-young of the ruling Democratic Party of Korea during government audit in October 2019 showed that out of the 7,385 researchers who left such think tanks since 2010, 5,677, or 76 percent, had worked there for less than three years.
Among these, 2,664 worked between one and three years, while 3,013 quit less than a year after joining the institutes.