In Korea which have super high educational passion (especially for English!), tons of foreign english teachers are working in Korea. They work at Public school, University or Private academy(in Korean, Hagwon).
As they work and get paid in Korea, they should pay taxes in Korea.
However, Compared to the number of foreign english teachers in Korea, professional tax service for the teachers isn't exist.
That's the reason I am writing this article.
I have over 7 years of experiences in Korea tax filing / bookkepping / payroll, and member of foreign coutries commercial chambers.(FKCCI / SKBC /KIWI Chamber)
I'm gonna tell you through a series of article that how the tax process for teachers are working in Korea, and I'm going to help them to pay minumum amounts of taxes through applying deduction part which you can deduct from your tax payable!
So, this is the first article and today I'm going to tell you basic tax calculation of Korea.
Your income you get paid by your work will be one of both 1)Wage&salary incomce or 2)Business income
1.When your income is Wage&salary income
If you work for university or public school, your income will be wage& salary income.
In this case, if you don't have other income except this, you don't have to file your income tax return in May
Your tax will be setttled through the 'year-end tax settlement' which will proceed in your company(university, public school)
When you work at a company(in your case it will be university or public school) and get paid monthly, the company will deduct tax in advance and give you the rest of the money this process is called withholding.
Total amounts of withholding tax is diffirent compared to the total amounts of annual tax.
because withholidng taxes is just a simple calculation according to the tax law.
so, it recalculate the exact amount of tax at the end of the year. than refunds or impose the differences.
We call this process the year-end tax settlement.
For example, if the withholding tax is 600,000 and the final tax after tax deduction is 500,000 you have overpaid 100,000 therefore you get a tax refund of 100,000 after the year end tax settlement.
What’s important for those whom has wage&salary income is, check the deduction part for the year-end tax settlement.
It’s quite different with business income deduction. So I’m going to tell you the deduction parts through my other posting.
2.When your income is business income
If you work for private academy(in Korean Hagwon) your income will be business income.
In this case, you have a obligation to report your income tax return in May.
When you work at a company(in this case, it will be Hagwon) and get paid monthly, the company will deduct tax in advance and give you the rest of the money. Yes. the withholding process is as same as wage&salary income.
The difference is tax rate and social insurance.
Busincess incomer’s withholding tax rate is 3.3% and company don’t withhold social insurance.
(That company don't withhold your soical insuracne don't means you don't have to pay social insurance. still you may have a obligation to pay it. please refer my other posting below)
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In May, when you report your income tax return to NTS(national tax service) you are going to recalculate the exact amount of tax. Then refund or impose the difference.
It’s similirar to the ‘year-end tax settlement’ process of wage&salary incomers. However unlike wage&salary incomers who do the process in company, business incomer should do it by themselves. And if you don’t do that, you can’t get refund your over withholded taxes or you ought to pay additional peanlt taxes for not report and pay income tax return.
There are a couple of ways to report your income tax return. You can choose advantageous way to you following your business amounts.
3.Double entry bookkeeping and Simplified bookkeeping
Some business incomers who have earned quite lots of money, may have to make financial statement to file thier income taxreturn. (like inocme statement and balance sheet).
Others are don't have to financial statement. they can file income tax return with simplified bookkeeping.
Below is the threshold of double entry and simplified bookkeeping. as you can see threshold is different following the industry you work for.
This threshold is only for who already reported income tax return immdiately proceding yeat.
If you are new to repoting income tax in Korea you are correspond to simplified bookkeeping business incomer.
4.Standard expense rate and SImplified expense rate
All business incomers should file thier tax return based on bookeeping record.(it can be both double-entry bookkeeping and simplified bookkeeping) However, because the exact income amount cannot be calculated in the case of self-employed taxpayers who do not keep books, taxable income for such taxpayers is calculated by applying a presumed expense rate.
There are two kind of expense rate. one is simplified expense rate and the other is standard expense rate.
usuaylly simplified expense rate is more advantagerous to taxpayers. that's why the threshold for simplified expense rate is low (for new businesses 75,000,000 / and continuing business 24,000,000)
So if you are continuing business incomers, and your revenues are over 24million KRW( I'm quite sure that your revenue will exceed 24M won) you should use standard expense rate. but standard expens rate is usually disadventagorus to taxpayers. so most of taxpayers choose to book keeping.
5.Examples
Clair (starts work 2021)
2021 business income revenue - 50,000,000
2022 business income revenue - 50,000,000
in 2021, Clair can choose simplified expense rate cause she started her work in 2021, and revenue was below 75mllion.
in 2022, Clair can choose only standard expense rate if she wants to report with expense rate. or she can file her income tax return with simplied bookkeeping.
Steve (starts work 2022)
2022 business income revenue - 80,000,000
in 2022, Steve can choose only standard expense rate if he wants to report with expense rate. because even though he started his business in this year, his revenue exceed the threshold.
6.Please contact us if you belong to below! to save your taxes.
| 1.When you get paid, the company(Hagwon) withhold 3.3% of taxes from your salary |
| 2.Your company don't cover your social insurance (health insurance or national pension) |
| 3.I want to know my income tax payable amounts in advance and wnat to cut my tax down. |
Thank you for read my article! I hope it helps.
If you want to see more information about Korea tax and accounting, please follow us.
And if you need help for your tax filing or accountung or looking for CPA in Korea, don't hesitate to contace us
you can contact us easily through direct message
G-tax / Certified Tax Accountant / Steven Yang
+82 10 9599 7152
steven@g-tax.kr
Linked in www.linkedin.com/in/steven-yang-49416421b
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Instgram : @gttax_steven
Homepage : www.g-tax.kr /
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