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Taxes in Korea

Taxes / Deductions

Please note that we’re not a tax accountant and this page is not an official tax website.
The following information has been given to us from SamBo tax accountant office, located in Jamsil, Seoul Korea. Please read our disclaimer.

Get the official scoop:

One the best places to start looking for Taxes/Deductions-related issues is National Tax Service Guide to Korean Taxes. http://www.nts.go.kr/eng/

Tax Overview:

According to the worldwide tax agreement, “If you become an inhabitant within Korea, the Korean government should levy a tax on your worldwide income.”
An inhabitant of Korea is defined as a “person who needs to stay in Korea more than 1-year, and the reasons for this are 1) job, 2) properties, 3) family in Korea.”
Even if a foreign teacher cannot fulfill his/her 1-year contract, he/she must pay taxes because it is based on the period of the contract. Therefore, for a foreign worker who stays more than one year in Korea, the tax rate should be 17% of the earned monthly income, the same rate as Korean workers, which is around 2% of one’s monthly income.
However, this could change according to international tax treaties. For instance, an American teacher does not have to pay Korean income tax and inhabitants’ tax for 2 years, whereas a Canadian teacher must pay both according to the Korean Income Tax Law.

Tax treaty and tax exemption agreement about teaching:

Objective: Almost all tax treaties that Korea has say that non-Korean teachers can be freed from the Korean income tax for 2 years in order to support teaching. Tax-free conditions: Conditions vary, but generally tax-free conditions are as follows.
If he/she is an inhabitant of a country which has a tax treaty with Korea.
If he/she is invited by a government, university or an authorized educational institution.
If the purpose of inviting is to employ him/her as a teacher or investigator. (Teaching and Investigating should be for the public good) ? This does not apply to private institutions.
This policy is limited to two years.

A taxable country and a tax-free country:

A taxable country: Canada
Tax-free countries: America, England, Australia, New Zealand, Ireland, Germany, France, Russia, Japan, China (3 years)

Foreign employees must pay Korean Income Tax:

For foreign teachers, Income Taxes in Korea are broken up into two major categories:
1) Earned Income Tax and 2) Business Income Tax. This will make the difference of your tax deduction based on how your school signs a contract with the employee and whether they do it with Earned Income Tax or business Income

Tax.
Here are the general deductions:
An Earned Income Tax Type Contract - National pension, Medical Insurance, and Employment Insurance are a must.


- Income tax - approx. 3.3%
To check the tax rate with your monthly salary, View Basic Income Taxation Scale
- National Pension ? approx. 4.5%
- Medical Insurance ? approx. 2.25% for the National plan but if it is private insurance, it varies.
- Employments Insurance ? approx. 0.45%

Business Income Tax Type Contract- National pension and Medical Insurance is optional. (medical insurance may be covered by private medical insurance but not by the National Medical plan)


Here are the general deductions.
-Income tax ? approx. 3.3% (Applying for Medical Insurance and National Pension is not obligatory since each teacher is referring as an independent freelancer under this tax system)

Whether an employer should report income in Korea when going back:

While you stay in Korea, you don’t have to report your income in Korea to your country. However, when you go back to your country, you must report to your country on income in Korea. If you can prove that you have paid taxes in Korea, it will levy taxes on income in Korea except for the amount of tax paid. American teachers do not have to report their income in Korea up to $80,000.00.
For instance, if you have earned 5,000,000 KRW and paid 500,000 KRW - 10 % of the whole income- as income tax, when you go back you will be taxed on 5,000,000 KRW and you should pay that amount of tax less 500,000 KRW.

In the case of receiving a pension or yield interest in your country while staying in Korea:

While you stay in Korea and pay taxes to Korea, you should send the data that show your income outside Korea when you report the whole income tax.
If you don’t file a report and your data that shows your income outside Korea is sent to Korea office of National Tax Administration, they will investigate it and collect taxes.
It sometimes takes 1~2 years for this to be sent to Korea, so it does not cause problems when you stay 1-year in Korea. If you stay 2-4 years in Korea, you must submit the data on your income abroad to the Korea National Tax Administration when you report your income tax.

No ~ Tips in Korea

Welcome to the “Tips Free Country ~!” When you take a taxi, get a haircut, and even at restaurants, you are not expected to leave tips here unless you really appreciate the service.

Consumption Tax

This may sound interesting, but the vast majority of these taxes are already included in the price.

Severance Pay Tax Deduction

If the employee finishes more than one-year contract, they will be paid severance pay, which is equal to one-month’s salary. Therefore, at the end of a one-year contract, you will get your monthly salary + severance pay. Also, you have to pay the appropriate severance payment tax at the end of year.

Taxes in Korea: Other Sources

Links
Ministry of Finance. Information on everything financial in Korea, including details on Korea's tax system.
http://www.nts.go.kr/eng/

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