Personal Income Tax Exemption for Foreign Employee in Korea

1.     Overview

 If a person is employed & serviced in local company within Korean territory as a foreigner and received the earned income, how to treat and apply under the tax exemption system of “Restriction of Special Taxation Act” (hereinafter “Special Act”).

2.     Review point

(1)   Personal Income Tax reduction or exemption for foreign engineers

< Special Act Article 18 >

(2)   Special Taxation for foreign workers

< Special Act Article 18 – 2 >

3.     Special Taxation for foreign engineers

(1)   The object of and conditions

① A foreign engineer shall be entitled to the exemption from 50 % of income tax on earned income derived from the offer of his services to a national within Korea until the month whereto belongs the date on which two years have passed since the first date on which the foreign engineer concerned offered his services in Korea (limited to a case where services are offered prior to December 31, 2014).

 ② Foreign engineer shall be eligible for the exemption from 50 % of income tax on earned income derived from the offer of his services to a national within Korea under a contract for the introduction of technologies pursuant to the Foreign Investment Promotion Act: Provided, That this shall be limited to the earned income of a foreign engineer derived from the offer of his service connected with such technologies as provided for in the same Act, for which royalties are exempted from income tax or corporate tax, until the month whereto belongs the date on which five years have passed since the date of delivery of the certificate of report (limited to a case where the date of delivery is prior to December 31, 2014) on a contract for the introduction of such technologies.

(2)   Definition of Foreign Engineer

① A person who provides technology in Korea under such engineering technology license agreements prescribed by Ordinance of the Ministry of Strategy and Finance;

② A person who works as a researcher at a specific research institution subject to the support of Specific Research Institutions Act;

③ A person who works as a researcher at research institutions falling under any of the following items among the Government-funded research institutions subject to the Act on the Establishment, Operation and Fostering of Government-Funded Research Institutions or to the Act on the Establishment, Operation and Fostering of Government Funded Science and Technology Research Institutions:

④ A person who serves under a contract of employment with an employer who operates any business falling under the following items, and who has served in the following industrial fields for not less than five years, or who has served in the relevant field for not less than three years with a bachelor's degree or a higher academic degree, in a foreign country:

(a) An industry listed in

(b) Mining business;

(c) Construction business;

(d) Engineering business;

(e) Physical distribution business;

(f) Market survey and public-opinion polling business, operation and management consulting business, technical test, inspection and analysis business, other science and technology service business, and specialized design business;

⑤ A person who serves as a researcher at a research institute that is a nonprofit corporation prescribed by Ordinance of the Ministry of Strategy and Finance.

(3)   Reduction Application and the documents for submission

        ① A written application for tax deduction or exemption to the head of tax office having jurisdiction over withholding taxes through a withholding agent not later than tenth of the month next to the month to which the day on which he/she provided service belongs.

        ② The documents for submission

-       Written documents for the engineer's career

-       Written documents for the engineer's academic background

-       Contract for engineering technology license agreement

-       Service agreement

-       Confirmation letter from Ministry of Education, Science and Technology

4.     Special Taxation for foreign workers

(1)   The object of and conditions

Foreign executives or employees (excluding laborers hired on daily basis; hereinafter referred to as the “foreign workers”) shall be eligible for an exemption from income tax on an amount equivalent to 30/100 of their gross pay referred to in Article 20 (2) of the Income Tax Act which is derived by performing their services in Korea not later than December 31, 2014. 

With respect to income tax on earned income of foreign workers which is derived by the offer of their services in Korea not later than December 31, 2014, an amount computed by multiplying such earned income by 17/ 100 may be adopted as the amount of such income tax, notwithstanding the provisions of Article 55 (1) of the Income Tax Act.

(2)   Matters that require attention

In this case, provisions concerning income taxation, such as tax exemption (including the case as provided in paragraph (1)), deduction, reduction or exemption, and tax credit under the Income Tax Act as well as this Act shall not be applicable.

(3)   Reduction Application and the documents for submission

            A written application for tax deduction or exemption to the head of tax office having jurisdiction over withholding taxes through a withholding agent not later than tenth of the month next to the month to which the day on which he/she provided service belongs.