[Tax benefit]Tax Benefits Available to foreign employees in Korea - Part 1 (Special tax rate)

Korea's tax rates follow a progressive tax system, which means that the more income you earn, the higher the percentage of your income you pay in taxes. Below is the Korean tax rate table.

As you can see, the tax rate can increase to approximately 50% when your tax base reaches 1,000,000,000 KRW, which means you would pay half of your earnings in taxes. This can be a significant tax burden.

However, there are special tax provisions for foreigners, and one of these provisions is the application of a flat tax rate of 20.9%. This flat rate can offer a more favorable tax situation for foreign individuals.

 

1. Special 19% flat tax rate for Foreigners

If you are foreigner who are working in Korea for Korean company,  You have the option to benefit from a 19% flat tax rate (20.9% inclusive of local tax) in Korea. When compared to the general progressive tax rate, where the maximum tax rate is 49.5%, the flat tax rate of 20.9% may seem reasonable and more affordable.

However, it's important to note that whether the flat tax rate is a favorable choice depends on your individual circumstances. If your tax base (which is usually slightly lower than your salary) is not very high, the flat tax rate may not offer significant advantages over the progressive tax rate. Therefore, it's essential to carefully evaluate your specific financial situation and consult with a tax advisor to determine the most advantageous tax approach for your circumstances.

 

2. 20-Year Flat Tax Rate Benefit

Starting in 2023, individuals have the opportunity to benefit from the flat tax rate for an extended period, spanning a remarkable 20 years. Previously, individuals were eligible for the flat tax rate for a period of 5 years from the date they commenced work in Korea. However, a significant change in the law now allows individuals to enjoy the flat tax rate for the entire 20-year duration.

Even if you were already benefiting from the flat tax rate before this legal revision, you can continue to do so for the remaining years within the 20-year duration. 

 

3. Application Process for the Flat Tax Rate

As an employee in Korea, you are required to complete year-end tax settlement every February or file your income tax return in May. If you wish to benefit from the flat tax rate, you should follow these steps:

1.Complete the Necessary Documents: Fill out the required application documents to request the flat tax rate.

2.Submit to the Korea Tax Office: Submit the completed application documents to the Korea Tax Office. This step is essential to initiate the process of obtaining the flat tax rate.

By following this process, you can take advantage of the flat tax rate.

If you encounter difficulties in applying for the flat tax rate or if you were unable to secure the flat tax rate in your previous tax filings, please do not hesitate to contact us. Our tax firm specializes in assisting foreigners and foreign corporations in Korea. We have the expertise and experience to help you navigate the tax regulations and optimize your tax situation. Feel free to reach out to us for expert guidance and support.

 

 

 

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