South Korea’s open market economy and policies that encourage domestic and foreign investment has established the country as a major business hub in East Asia. According to the World Bank’s Doing Business 2019, Korea is ranked 5th among 190 countries in the ease of doing business ranking.
It is of fundamental importance for an employer to understand the tax obligations and taxation system where the business is. To help employers and HR leaders grasp the basics of taxation in Korea, Links has put together some essentials of what you need to know about Korea’s tax rates, corporate taxes and income taxes.
Please note that this page serves as a general guide only, for more details on Korea’s taxation system, please visit the official government website:
Tax Obligations as As Employer in Korea
Employers in Korea are required to withhold taxes on salary paid to employees. Please refer to “Employees’ Income Tax in Korea” below for personal income tax rates. The employers are obliged to collect, file and remit the taxes to the tax authority.
Social Security Taxes in Korea
In Korea, there are four types of compulsory social insurance contributions employers must be aware of: Health Insurance, National Pension, Unemployment Insurance and Industrial Accident Compensation Insurance.
Employers with one or more employees are obligated to contribute to the National Pension. It covers employees from the age of 18 to 59. Foreign workers are covered under that condition their home country’s national pension scheme mandatorily covers Korean nationals. Expatriates holding D-1, D-2, D-3, D-4, D-6, F-1, F-3, or G-1 visa are also excluded from the National Pension coverage. Employers are responsible for deducting the employees’ contribution amount from their monthly income and remit to the authority along with the employers’ contribution.
National Pension contribution rates:
- Employer contribution: 4.5% of basic monthly income
- Employee contribution: 4.5% of basic monthly income
Visit National Pension Service for more information.
Employers with one or more employees are obligated to contribute to the Health Insurance and Long-term Care Insurance. From 16 July 2019 onwards, any foreigners or overseas Korean who have stayed in Korea for six months or more (as of 16 July 2019) are subject to the country’s compulsory statutory health insurance, which was voluntary before. Expatriates are not required to participate in the scheme if their home countries do not require Korean nationals to contribute to an equivalent insurance scheme.
National Health Insurance contribution rate:
- As of 2019, the contribution rate is a total of 6.46% of the monthly employee’s salary
- The 6.46% is equally shared by the employer and the employee (i.e. 3.23% of the monthly salary)
Long-term Care Insurance contribution rate:
- As of 2019, the contribution rate is 8.51% of the National Health Insurance contribution
- The employee and employer each share 50% of the contribution amount
Visit National Health Insurance Corporation for more information.
Industrial Accident Compensation Insurance
Employers with one or more employees are obligated to contribute to the Industrial Accident Compensation Insurance and it provides coverage for employees of all ages as well as foreigners. This is only paid by the employer with the rate varying from 0.75% to 22.65% of the monthly salary, depending on the industry.
Visit Korea Workers’ Compensation & Welfare Service for more information
Employers with one or more employees are obligated to subscribe to the Unemployment Insurance in Korea, with the exception for:
- Family-owned businesses in the agriculture, forestry and fishery industry with four or fewer employees
- Household service businesses
- Construction companies paying a construction fee less than the annual threshold and whose total ground area is less than 200 square meters
The contribution amount varies depending on the number of employees in the business and the rates vary from 1.55% to 2.15%. Foreigners from countries where it is not mandatory for Korean nationals to participate in an equivalent scheme are exempted from the Unemployment Insurance. Generally, foreigners holding D-7, D-8 and D-9 visas are required to take part in the scheme.
Korea Corporate Tax Rates
Corporations that have their head office, principal office or business management in Korea are considered domestic corporations. Branch or business offices of an overseas company that is headquartered and with business management carried out in a foreign country are considered a foreign corporation. Both types of corporations are liable for corporate tax. Corporate income tax rates range from 10% to 25%.
In addition to the corporate income tax which is a national tax, corporates are also subject to a local income tax rate which is imposed at a 10% rate of the CIT rate. For example, the first KRW 200 million is subject to a 1% local income tax.
Employees’ Income Tax in Korea
As an employer, it is important, and a responsibility, to understand and facilitate your employee’s tax obligations in addition to your own.
According to Korea’s Income Tax Act, individuals are categorized into resident and non-resident taxpayers. A person is considered a resident for tax purposes if he or she has a domicile or has resided in Korea for 183 days or longer during one taxable period. Resident taxpayers are taxed on their global income whereas non-resident taxpayers are taxed only on income derived from Korea.
Korea’s National Tax Service provides an online tool for tax calculation to help taxpayers with their year-end settlement.
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