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South Korea - Taxation

Individuals are categorised either as residents or non-residents for the purposes of taxation. A resident will pay taxes on income that comes from either inside or outside Korea. A non-resident will only pay on income that they earn inside the country. A non-resident may be subject to the same taxation rates as a resident if they have income from real estate in Korea and a domestic business place.

A resident is considered to be a person who has lived in Korea for a period of one year or who has a permanent home in the country. Non-residents are those who do not have a permanent home in the country and who do not spend the majority of their time there. Global income is taxed at a rate of 8% if the amount is less than 10 million Won. Up to 40 million Won is a fixed fee of 0.8 million Won and 17% of anything over 10 million. The next bracket is up to 80 million Won which is a fixed fee of 5.9 million Won and 26% of anything over the 40 million Won limit. The final bracket applies to anything over 80 million Won, which is a fixed fee of 16.3 million Won and 35% of the amount which exceeds the 80 million Won limit.

Those who are taxed on non-global income will find it is taxed at various rates. This includes capital gains and pension payments. This is also known as schedular income. The tax base of this is the amount which remains after personal deductions have been taken into consideration. Pension income is taxed by dividing the taxable income by the number of years that the worker was in service and then applying the tax rates. This figure is then multiplied by the number of years of service.

All tax rates include a 10% local surtax which is paid to the local authorities. Inheritance tax is also applicable to any property or assets which are inherited within 10 years of the death of the benefactor. After funeral expenses and any debt have been deducted from the amount the inheritance tax is calculated. There are varying rates as with income tax. A bequest of up to 100 million Won is taxed at 10%, then there are progressive rates of 20, 30, 40 and 50%, which is applied to anything over 3000 million Won. There are also variations in place for bequests to family, which take into account the relationship between the benefactor and the beneficiary.

The taxation system in Korea uses what is known as a ‘unitary concept’ which means that all income is added together and taxed at progressive rates. Deductions and some exemptions are permitted if certain conditions are met. Taxable income is considered to be salaries, interest and income from real estate. Pensions and capital gains are taxed separately and at different rates. VAT is applied to goods and services as are duties on items which are imported. These rates vary although a standard VAT rate of 10% is used for many items.

Tax returns that are not filed or which are late are subject to fines. Most workers will have their tax deducted at source, so there is no need to file a return. Anybody who has additional income or who is self employed will need to do this themselves. Many expats in this position hire the services of a local accountant who can make the process simpler and ensure that all the relevant deductions are taken into consideration.

The tax year is the calendar year and returns must be filed with documentation that proves a person’s right to any exemptions and deductions, such as work related expenses. Those who have their own businesses must also provide details of accounts. Any queries can be directed to the South Korean National Tax Service. Tax returns can be completed online and instructions on how to do so can be downloaded. There is a customer service department which has both English and Korean speaking operators who can help with any queries that you may have. The website also contains information in English.

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