South Korea Tax Laws and Regulations

South Korea Tax Laws

Bradford Jacobs has more than 20 years’ experience in the front line of international payroll providers, and we ensure our clients comply with every aspect of taxation legislation across the globe. Our ‘knowledge’ is vital for international companies expanding into South Korea and then widening their horizons into Asia and the Pacific Rim.

Dealing with tax, payroll, and employment regulations for your staff from overseas is always a potentially troublesome process with complications that demand expert guidance. South Korea is no exception and employers cannot risk mistakes with layers of regulations applying at state and local level both for personal and corporate taxes.

International companies wanting to run payroll to handle their employees’ tax and social insurance payments must open a subsidiary in South Korea. The typical choice is to open a limited liability company, known as a Yuhan Hoesa, under the Foreign Investment Promotion Act (FIPA) and the Foreign Exchange Transaction Act.

Once incorporated, requirements include registering employees with the National Tax Service (NTS) within 15 days of starting work and with the National Health Insurance Service (NHIS) in order to withhold and remit tax and social insurance payments to the authorities.

Overview of Taxes in South Korea

* South Korea uses the ‘won’ (KRW) with an exchange rate of roughly 100 KRW to €.075 or US$.080).

Personal Income Tax (PIT): There are eight progressive tax bands starting at 6% for income up to 12 million KRW (€8,962, US$9,940); including, for example, a fifth band of 150 million KRW (€112,046, US$124,220) at 38% on the excess; a top rate of 45% on excess above one billion KRW (€746,726, US$828,030). PIT is paid to the National Tax Service (NTS).

Local Income Tax: Local taxes are paid to the city or province where the taxpayer lives and are based on 10% of the PIT bands.

Social Insurance Taxes: Employers and employees jointly contribute 9% to the National Pension and approximately 7.8% to National Health. Employers contribute between 1.4% and 2.6% to Employment insurance funds, with employees contributing 0.8%. Employers alone contribute between 0.7% and 18.6% to Workers’ Compensation Insurance, depending on the type of industry.

Corporate Income Tax (CIT): Rates on tax base are 10%, 20%, 22% and 25% ranging from KRW 200 million (€149,590 US$165,654) up to KRW 300 billion (€224,338,934, US$248,800,850). Additional premiums are paid at the 20%, 22% and 25% bands. An Alternative Minimum Tax applies to smaller companies with rates of 10%, 12% and 17%, with SMEs taxed at 7%. Local corporate tax applies at 1%, 2%, 2.2% and 2.5%.

Withholding Tax (WHT): Tax on income sourced in Korea by foreign corporations with Permanent Establishments is 22% for loans’ interest and 15.4% for interest on bonds.

Value Added Tax (VAT): Goods and services are taxed at 10%, with categories such as unprocessed foodstuffs, agricultural products, medical and health, financial and insurance services zero rated. Invoicing must be done electronically.

Companies registered for VAT have two return periods, January 1 – June 30 and July 1 – December 31. In addition, preliminary returns are submitted the National Tax Service at the end of the first and third calendar quarters. The deadline for returns and any due payment is 25 days from the end of the six-month period.

South Korea Individual Tax – Single, Married

The tax year is the calendar year. Returns must be filed between May 1 and May 31 of the following year along with taxes due. Liability depends on residency. Tax residents are those residing in South Korea for more than 183 days in a tax year or spending 183 days or more in-country due to their occupation. Individuals residing with families or having assets in South Korea for more than 183 days or those whose family are in the country for more than 183 days a year even if their job is overseas, are also tax residents. Tax residents are liable for their worldwide income, as are foreign residents who have lived in the country for five years in the most recent 10-year period. Non-residents are taxed on South Korea-sourced income.

* South Korea uses the ‘won’ (KRW) with an exchange rate of roughly 100 KRW to €.075 or US$.080).

Figures in KRW, euros and US dollars

Personal Income Tax (PIT):

From	To	Percentage
0	KRW 12 million (€8,962, US$9,940)	6%
KRW 12 million	KRW 46 million (€34,454, US$38,103)	15%
KRW 46 million	KRW 88 million (€65,913, US$72,877)	24%
KRW 88 million	KRW 150 million (€112,339, US$124,205)	35%
KRW 150 million	KRW 300 million (€224,703, US$248,433)	38%
KRW 300 million	KRW 500 million (€374,371, US$414,070)	40%
KRW 500 million	KRW 1,000 million (€748,743, US$828,020)	42%
Above 1,000 million		45%

Local Income Tax: The same tax bands apply as for PIT, but the tax bands are 10% of the above, from 0.6% to 4.5%. Tax is paid to the province or city where the taxpayer resides.

Social Insurance Taxes: Employers and employees contribute into various funds: the National Pension (where the employee is registered as ‘workplace-insured’); National Health Insurance (assuming employee is registered as ‘workplace-insured’); Employment Insurance; Workers’ Compensation Insurance. Employers contribute an equivalent percentage of their employees’ salaries, while employees contribute from their salary. Amounts are withheld and remitted to the relevant authorities.

• National Pension – capped for employer at monthly salary of KRW 5,240,000 (€3,913, US$4,310); capped for employee at KRW 235,800 (€176, US$194)
• National Health Insurance – capped at monthly salary of KRW 8,203,680 (€6,127, US$6,748)
• Employment Insurance – rates vary for foreigners depending on type of visa. Contributions shown from July 2022
• Workers’ Compensation Insurance – compulsory for employers

Fund	Employer	Employee	Totals
National Pension	4.50%	4.50%	9.0%
National Health Insurance	3.92%	3.92%	7.85% *
Employment Insurance	1.15%-1.75%	0.90%	vary
Workers’ Compensation Ins.	0.70%-18.6%		vary

Additional: Occupational Development Ins. 0.25%-0.85%

* Approximate figure