Filing your taxes in Korea for Foreigners - A Complete Guide for 2020

Filing your Taxes in Korea for Foreigners – A Complete Guide for 2020

Whether you are starting a company in Korea, teaching English in Korea, or a freelancer, filing your taxes in Korea for foreigners can be complicated, especially if you can’t speak Korean. I have over 20 years of Korean tax accounting and management experience. In addition, I have worked closely with Seoul Global Center doing monthly tax seminars for foreigners in Korea through the OASIS (Overall Assistance for Startup Immigration System program). My clients not only include some of the biggest multinational companies in Korea, but also SMEs and startups, freelancers, and foreign English teachers.

I have helped many foreigners in Korea with their taxes, accounting, and finance in Korea. I am proud that I was able to help many foreigners to extend their visa through my tax return because, as you would already know, tax documents are critical when extending a visa. Currently, I lead the International Taxation Team at Hana Tax Management Corporation which is one of the largest tax and accounting firms in Korea. In addition, I manage taxinkorea.com which is in English. 

Filing taxes in KoreaOver 20 years experience in:

  • Tax Management
  • Business Setup on a most tax-efficient manner
  • Tax Planning and Strategy 
  • Accounting
  • Filing & Reporting 
  • International Tax Advisory 
  • Bookkeeping using an international software program (ERP)
  • Payroll administration
  • Labor Laws related to payroll calculation
  • Cash Management (Performing treasury work for the client company)

5 Tips for Filing your Taxes in Korea for Foreigners

1. Find out whether you even have to file your taxes in Korea.

If you are a salaried employee for a company in Korea, most likely your company will file your taxes on your behalf. Therefore you need to find out if you are a salaried worker or a freelancer (independent contractor). There have been many cases where Korean English teachers who thought they were salary employees ended up being independent contractors. After 2 years, the Korean government contacted them with a huge bill for unpaid taxes. The tax office can impose 5 years of past taxes as the statute of limitations for taxes are 5 years in Korea. Therefore find out if you are an independent contractor. What are some clues that you are an independent contractor in Korea? 

Clues you are an independent contractor in Korea

  1. You are paying only 3.3% in taxes. 
  2. No health insurance coverage. 
  3. You don’t get severance pay.

2. Collect all your payslips.

Now that you know you are an independent contractor or have a company in Korea, the next step is to make sure you keep all your payslips. If you didn’t, don’t worry too much because Korea has a tax platform called HomeTax. There you will find a section called MyNTS which will have all your payslips. If you are an English teacher in Korea, ask your school to give you a Wage Earner Income Statement. This is your end of the year pay stub that will show your gross income and withheld taxes. This document will also show how much money was taken out of your pay for pension and health insurance. Or you can go to a local tax office and request a Certificate of Income.

3. Did you make under 15 million won last year?

If you made under 15 million won the tax process is very easy. Just take your ARC card to any tax office in Korea and they will guide you through your tax process via their stationed computer. There is no reason for you to hire a tax accountant. However, if you made over 15 million won, check out the next steps below. 

4. Did you make over 15 million won last year?

For those that made over 15 million won. Ask yourself, do I have any deductibles? What qualifies as deductibles? Are you single? Do you have dependents? All these will factor into how much taxes you will end up paying. It is up to the employee to provide their own deductions to maximize their refund. Hometax offers a tax refund calculator which shows you how much you will get back on your tax return.

Deductibles could include:

  • Travel expenses
  • vehicle maintenance and fuel cost
  • Supplies 
  • Political donations
  • Meal and beverage

3.3% is taken from your gross income. However, in around 70% of the cases, based on a person’s deductibles, they will get some money back from the tax office. Most English teachers in Korea get money back from the tax office.

5. Do you want to hire a tax accountant or file your own taxes in Korea?

If you want to hire a tax accountant in Korea, do your research. Find a tax accountant that will handle the paperwork for you. Then all you need to do is provide the documents and information and the tax accountant will take care of the rest. Prices can vary but if they are asking for over 1 million won for filing your single income taxes in Korea, you are paying too much.

If you are looking to file your own taxes you will need to go to your nearest NTS (National Tax Service) office with your paystubs from your employer or the tax office. Remember to bring your ARC card. The public official there will take your ARC card and your paystubs and input the information into a computer. They will then let you know how much you owe in taxes. You will be able to pay the amount there.

Special Package for Korean startups! 300,000 won per month

Filing your taxes in KoreaFor companies with under 50 million won in annual sales can buy this package. I take care of the startup’s quarterly VAT filing, yearly income tax return, payroll, and 2 hours of consultation per month. This is the perfect package for a Korean startup with a solo founder or a small team. 

For larger Businesses and Enterprises please check out our site for a detailed description here

For companies, SMEs, and startups in Korea, the tax process works much the same way. However, companies in Korea are required to do 4 VAT returns per year, a monthly payroll return, and an Annual Corporation Income Tax Return.

Doing your Taxes in Korea – Frequently Asked Questions

Can you do your taxes yourself?

Yes! The South Korean National Tax Service offers you to file your tax return online. You will be able to download documents and forms, along with detailed instructions. You can also call them and they will have an English speaker to help you. 

What is the special tax rate for foreign employees working in Korea?

The FLAT TAX rate is 19% and has been extended to the year 2021. 

If you are a foreign employee, you have an option for a progressive tax rate (6-42%) plan or flat tax rate (19%) plan.

This is applicable when you are a foreign employee, and this treatment is only allowed for 5 years. 19% Flat tax rate treatment is favorable when your yearly salary is over KRW 150,000,000 (Around $120,000 USD). 19% tax rate is applied with no deductions.

What is Zero Pay?

Zero Pay is a payment system similar to a credit card. The mobile payment app has a QR code that charges zero fees to shops and vendors. It also gives bigger tax benefits to the customers. The tax reduction rate is 40% compared to 15% with credit cards. However, one must spend at least 25% of their total income with Zero Pay, credit/debit card, prepaid card, and cash receipt for this to qualify. 

When is the last day you can file your taxes without getting a penalty? 

May 31st. This does not include salary employees since the company will take care of your yearly salary income tax settlement. However, if you had salaries from more than two companies (e.g. you moved from one to another), or if you had freelancer income besides your regular salary, then you need to file May’s tax return. 

Do you need to know how to speak Korean when visiting the National Tax Service office in Korea? 

From May 8 to May 31, each tax office has help desk to assist taxpayers to file their own tax returns. You may bring your ARC card to any tax office in Korea and they will guide you through your tax process via their stationed computer. However, the public tax official does not factor in your business expense, which can reduce your taxes. If you have business expenses to claim or wish to find the most tax-efficient manner to file the return, it is best to get advice from tax experts.

If I filed my tax return for my business in May [Global Tax Report:종합소득세신고] last year for my business income. What about this year’s Feb’s tax return, should I be worried about that?

The simple answer is no, you need to file your business income in May. For employees, Feb’s tax return (연말정산 handled by the company) is meaningful. If you are employed by a company (or School), the previous year’s Salary income tax reconciliation is done every year in February. After the year-end (February), 12-month employee’s taxes are re-calculated based on his/her expenses such as credit card, medical expense, insurance payment, donation, tuition fee, etc. In case you had salary income from two places, or if you had freelancer income (independent contractor income) on top of your regular salary, you need to file a Global Tax report in May. Also, if you run a sole-proprietorship company(and have business income), then you need to file tax in May.

Do I have to pay taxes when I leave Korea permanently?

Many might not know this but when foreigners leave Korea permanently must file a final tax return before they depart from Korea. This needs to be based upon the tax year starting from January 1st to the departure date. They can still come back to Korea as a tourist. There will be no tax obligation unless the trip is related to work.

What is considered taxable earned income in Korea?

Here is a basic list of items that can be taxed for foreigners in Korea.

  • Salaries
  • Some allowances
  • Bonuses
  • Severance payments
  • Some reimbursements
  • insurance premiums

Here is a basic list of items that can not be taxed (tax-exempt).

  • Meal allowance (up to 100,000 per month)
  • Reimbursement of vehicle operating expenses ( up to 200,000 per month)
  • Cost of work clothes
  • Reimbursement for social memberships
  • Entertainment expenses incurred for business purposes

Did Americans living in Korea receive the $1,200 Stimulus check (Coronavirus payment)?

Yes. The US Congress passed an economic stimulus plan to help economic hardship felt by many during the COVID 19 pandemic.

  1. The guidelines on receiving the money were:
  2. Having a valid social security number and that no one claims you as a dependent
  3. Individuals making $75,000 or less (and married and jointly make $150,000 or less) received the full benefit.
  4. You must have filed for the 2019 or 2018 US tax return.

*If you have filed your 2019 taxes (or filed in 2018) and your forms include direct deposit information you didn’t have to do anything. So yes, US citizens living in Korea were eligible to receive the 2020 stimulus check.


Christie
Christie

Christie Lee is a contributor at Seoulz and is a US certified public accountant and Korean tax expert with over 19 years of experience. She leads the International Taxation Team at Hana Tax Management Corporation, one of the largest tax and accounting firms in Korea. She has consulted with over 90 multinational corporations and done over 80 seminars regarding accounting and tax-related issues at Seoul Global Center (part of Seoul City), KTVF Technology Venture Foundation), KENCA (Korea Engineering and Consulting Association) and many Embassies. Email her at christie@hanatax.net for a consultation.

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