Taxation on the Wage and Salary Income for a Foreign Worker

(Comparison between Special Taxation and General Taxation)

1. Fact Relevance

Nationality:       South African

Employed by:     a Profit- making corporation in Korea

Position:           Executive level (annual salary approximately KRW120~130 million)

2. Taxation Review on the Wage and Salary Income (relevant regulations referred)

The salary income paid for the service of an individual is taxable as wage and salary income as per the Article 20 of the Income Tac Act, regardless of nationality as an individual is regarded as a Resident when an individual has an occupation which would normally require an individual to reside in Korea for 183 days or more under the contract, etc.  

3. Special Taxation for Foreign Workers in Restriction of Special Taxation Act <Article 18-2>

(1) Eligibility and Requirements

With respect to income tax on income a foreign executive or employee (excluding daily employed workers) earned by the offer of his/her services until the taxable period that ends within five years (applicable only to December 31, 2016) from the date on which he/she begins to offer his/her services in the Republic of Korea, an amount computed by multiplying the relevant income by 17/100 may be adopted as the amount of wage and salary income tax for foreign worker.

(2) Special Note

The provisions concerning income tax, such as non-taxation, deduction, reduction or exemption, and tax credits under the Income Tax Act as well as Restriction of Special Taxation Act shall not apply, and the special taxation for foreign workers is only applicable to those who do not have the nationality of the Republic of Korea as at the date of filing an application for withholding. 

Also the earned income shall not be added up in the calculation of tax base of global income referred to in Article 14 (2) of the Income Tax Act.

(3) Application and Documents

① When a foreign worker intends to apply every month, a foreign worker shall submit an application of withholding applying single tax rate in the form to the head of a tax office having jurisdiction over withholding by the tenth of the following month of that in which the date on which labor is provided falls.

② When a foreign worker intends to apply in year-end settlement of earned income tax amount, a foreign worker shall submit with an application for withholding applying single tax rate in the form to the withholding agent by filing due date.

③ When a foreign worker intends to apply in final return of global income tax base, a foreign worker shall submit with an application for withholding applying single tax rate in the form to the head of a tax office having jurisdiction over withholding by filing due date.

4. Conclusion and Review on the Tax amount

(1) For Foreign Worker

As described in 3. ① previously, a foreign worker could choose one of the taxation method, special single tax rate as per the Article 18-2 of the Restriction of Special Taxation Act or general tax rate which is being applying to the domestic workers.

(2) In this case, it is judged that the special single rata taxation is advantageous when the large amount of income amount, otherwise the general taxation is better than the other.

(3) Review on the Earned Income Tax amount

(*) calculated on the assumption of the basic deduction for spouse.

(*) the pension deduction is applied for the general taxation case

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