2010_Easy_Guide for Foreigner's Year-End Tax Settlement

Easy Guide for Foreigners' Year-endTax Settlement

2010. 12

National Tax Service

PREFACE

To our taxpayers,

With a growing number of influx of foreign workers, Korea is transforming into a multi-cultural nation. This year over 360 thousands of foreign workers are expected to conduct year-end settlement. The National Tax Service of Korea would like to express our gratitude to your contribution to the development of the Korean economy and tax compliance.

The wage and salary income tax attributable to the year 2010 is finalized through the Year-end Tax Settlement in February, 2011.

Specially, this year there are important changes in non-taxation and tax exemption treatment for foreign workers that require careful attention of foreign tax payers.

The NTS has been publishing this booklet to help foreigners who want to finalize their tax obligation through the Year-end Tax Settlement. It contains relevant tax laws, guides for foreign taxpayers, as well as major legislative changes of the tax law.

To help understand the guide more easily, the NTS supplemented the contents with such tips as summaries and examples. In addition, some guides of how to calculate and to fill in related forms are added for foreign teachers and engineers who are liable to special tax treatments.

In addition to this book, the NTS has implemented various customized services such as Help-line for Foreign Taxpayers (1588-0560), Foreign Taxpayer Service Desk installed in 57 district tax offices, Q&A section by E-mail at our English web-site and Interpretation Service available for foreigners.

We sincerely hope all these measures will be a useful guidance to help you better understand the Korean tax law and to provide answers to your questions.

Thank you.

Yun Jun Park

Assistant Commissioner for International TaxationNational Tax Service

Flowchart of Year-end Tax Settlement of Wage & Salary Income Tax

2 Easy Guide for Foreigners' Year-end Tax Settlement

Total Income from Employments

Refers to all forms of compensation received in exchange for provision of employment (not including compensation for employment received on a daily basis)

( - ) Non-taxable Income

Compensation of Actual Expenses compensation for driving one's own car, research subsidies for qualified teachers,

reporting allowances for reporters: limit is 200,000 per month Salary derived from overseas: limit is 1,000,000(1,500,000) per month Allowance for Night Duty received by manufacturing employees: limit is 2,400,000

per annum Meal costs up to 100,000 per month Allowance for childbirth or childcare of children at the age of 6 years or younger: up to

100,000 per month, etc.

Gross Wage & Salary Income

( - ) D eduction for W age & Salary Income

up to 5,000,000 : over 5,000,000~ up to 15,000,000 : over 15,000,000~ up to 30,000,000 : over 30,000,000~ up to 45,000,000 : over 45,000,000~ :

80% of the Total amount 4,000,000 + 50% of over 5,000,000 9,000,000 + 15% of over 15,000,00011,250,000 + 10% of over 30,000,00012,750,000 + 5% of over 45,000,000

Adjusted Wage & Salary Income

( - ) Personal Deduction Basic Deduction: 1,500,000 per capita Taxpayer himself, Spouse and dependents with annual income of less than 1,000,000 Additional Deduction The Handicapped, New BornNew Adopted : 2,000,000 per capita The Aged(70 years old or more), Child under 6 years old : 1,000,000 per capita Qualified Female Taxpayer : 500,000 Additional Deduction for Households with Multiple Children With two eligible children 500,000 plus 1,000,000 per child after the first two children

( - ) Pension Contribution Deduction

( - ) Special Deduction

Insurance Premium National Health Insurance, Employment Insurance, Long-term Senior Nursing Insurance Premium

: Total amount, Qualified Insurance(ex. automobile insurance) : Limit is 1,000,000 Insurance for the handicapped : Limit is 1,000,000 Medical Expenses : Up to 7,000,000 Taxpayer himself, The Aged(65 years old or more) and The handicapped: No limit Deductible Amount : Medical Expenses - (Gross Wage & Salary Income 3%) Education Expenses Taxpayer himself : No limit Kindergarten, Elementary, Secondary, High school : limit is 3,000,000 per capita University or College : limit is 9,000,000 per capita

Pre-paid Tax

Payable/Refundable Tax

Easy Guide for Foreigners' Year-end Tax Settlement 3

Qualified DonationCategory Deduction Ceiling Carry-over Political Fund donation, Statutory donation Amount of Adjusted Wage & Salary Income 1 Year Special Donation of 50% (Adjusted Wage & Salary Income-)50% 2 Years Contribution to Employee Stock Ownership Association (Adjusted Wage & Salary Income--)30% Donation to religious groups (Adjusted Wage & Salary Income---)10% 5 Years Specified donation (Adjusted Wage & Salary Income---)20% 5 Years Standard Deduction: 1,000,000 If the total amount of Special Deduction is less than 1,000,000

( - ) Other Deduction Personal Pension Savings: 40% of deposit amount (limit is 720,000) Pension Savings: Total deposit amount Limit is 3,000,000 per annum including retirement pension deduction Deduction for contribution of Small-sized company and Self-employed Mutual aid association The lesser amount between contribution amount and 3,000,000 Investment Association Deduction Investment during 2007 ~ 2008: 10% of investment amount(limit is 50% of Income) Investment during 2009 ~ 2010: 10% of investment amount(limit is 30% of Income) Credit Card Usage Deduction Usage Amount = Credit Card + Debit Card + Tuition through Giro + Prepaid Card + Cash Receipt Deductible Amount = [-(Gross Wage & Salary Income25%)] 20%(25%) Deduction Limit = the lesser of (20% of Gross Wage & Salary Income) or 3,000,000 Employee Stock Ownership Association Contribution Deduction The lesser amount between contribution amount and 4,000,000 Long-term stock-invested savings deduction 1st year20% of payment, 2nd year10% of payment, 3rd year5% of payment Employees of small-to-mid sized companies that have maintained the size of employment : 50%

of the reduced amount in wage payment (up to 10M per year) Tax Base (Taxable Income)

( ) Tax Rate (635%) up to 12,000,000 : 6% over 12,000,000~ up to 46,000,000 : 720,000+15% of the amount over 12M Won over 46,000,000~ up to 88,000,000 : 5,820,000+24% of the amount over 46M Won over 88,000,000 : 15,900,000+35% of the amount over 88M Won

Calculated Income Tax

( - ) Tax Credit and Exemption

Tax Credit for Wage & Salary Income: limit is 500,000 Up to 500,000: 55% of calculated income tax Over 500,000: 275,000 + 30% of over 500,000 Taxpayer Association Credit(TAC): 10% of income tax withheld by Taxpayer Association Foreign Tax Credit: Foreign income tax amount paid or payable in a foreign country Credit Amount = Calculated income tax (foreign source income / gross income)

Final Tax Liability

( - )


Summary of Changes to Tax Laws for 2010 Year-end Tax Settlement

Changes 2009 2010

Tax rate

Up to 12 million KRW : 6%Up to 46 million KRW : 16%Up to 88 million KRW : 25%Over 88 million KRW : 35%

Up to 12 million KRW : 6%(no changes)Up to 46 million KRW : 15% (1%p )Up to 88 million KRW : 24% (1%p )Over 88 million KRW : 35% (no changes)

Carry-over deduction for donated amount

Donations made in excess of the maximum deductible amount are carried over Statutory donation : 1 yr Special donationa : 2 yrs. Specified donation : 5yrs

Credit card deduction

Threshold Excess of 20% of total wage Excess of 25% of total wage

Ceiling Min[5M KRW, 20% of total wage] Min[300M KRW, 20% of total wage]

Deductible rate Flat rate of 20%

Credit card & cash receipts : 20%Debit and check cards : 25%

Aesthetic/Cosmetic surgery and health

supplement medicationDeductible for medical expenses Non-deductible for medical expenses

Long-term stock- invested savings

deduction

Deposit amount(up to 3million KRW) 1st year 20% of payment2nd year 10% of payment3rd year 5% of payment

A Resident who subscribed to long-term stock-invested fund for more than 3 years on or before Dec. 31, 2009

Non-taxation benefits for foreign employees

Election between non-taxation for 30% of total wages and salaries; or taxation of total wages and salaries at a flat rate of 15% (Applicable to taxpayers with a permanent residency in a foreign country)

Flat 15% taxation on total wages and salaries(Not applicable to persons holding Korean citizenship as of the final day of the relevant tax year)

Income tax reduction

for foreign technical engineers

Eligibility

Foreign technical engineers who are non-Korean citizens and provide advanced technology through an advanced technology project

Deductibility 100% exemption from income tax for 5 years

50% exemption from income tax for 2 years (Foreign employers who have come to Korea on or before Dec. 31 2009 will be applied previous provision)

Non-taxation on child care allowance

Child aged 6 or under as of the month in which the payment is made

Child aged 6 or under as of the first date of the taxable period


Summary of Deductibility of Residents and non-residents

TypeDeductibility

NoteResident Non-resident

Total wage & salary incomeIncluding

foreign-source income

Domestic-source income

Deductions for wage and salary income

Personal deductions

Basic deductions(Self, spouse, dependent family) Self only

Additional deductions (The aged, physically disabled, qualified

female taxpayer, etc.) Self only

Additional deductions for multiple children X

Pension contribution deduction Deductible, if participant of pension plan

Special deductions

Insurance premium XEducational expenses X

Medical expenses X

Housing fund X X A foreigner is not deemed a householder

Donations XInterest payment of loans for long-term housing mortgage X X

A foreigner is not deemed a householder

Standard deduction X

Other income

deductions

Pension savings XMembership fees for Small enterprises/small and micro

businessmen association X

Home purchase savings X X A foreigner is not deemed a householder

Investment association X

Credit card usage X

Long-term stock-invested savings XWorkers in S/M enterprises which

maintain the same employment level

X

Employee stock ownership association contribution

Deductible if joined in the association

Tax credits, etc.

Tax credit for wage & salary income

Political funds X

Taxpayer association credit When joined and withheld by the association Foreign tax credit X


Schedule for the Year-end Tax Settlement attributable to 2010

CatetorySchedule

Contents NoteSujects

Check information on the Year-end

Tax Settlement

Beginning of January Notice on NTS websitePress release

Easy Guide for Foreigners' Year-end Tax Settlement

The company announces the schedule and information on the Year-end Tax Settlement.Company/

Employee

Collect evidence for

income deduction

Jan.1127 Get receipts which are not provided in the Simplified Year-end Tax Settlement web-site Purchase of glasses, uniforms, etc. Simplified Year-end Tax Settlement service

enabled (Jan.15)

The website for the Simplified Year-end Tax Settlement service is busy on the first day. Visit the site 2 or 3 days later.Employee

Submit Report of

Exemption & Deduction

from Wage & Salary

Income

Jan.25Feb.5

Submit evidences for income deduction Additional documentsDonation Statement of donationsMedical expenses Statement of medical

expensesCredit card usage Application for income

deduction for credit card usage

Wage & Salary Income earners subject to income deduction for donation and credit card usage submit evidence.

Employee

Company

Review documents and

make correction

Jan.25Feb.20

The company checks Report of Exemption & Deduction from Wage & Salary Income which employees have submitted and evidences

Employees submits additional documents to the company if there are missing documents.

The company notifies any missing evidence to employees.Company

Employee

Receive Receipt for

Wage & Salary Income

Tax Withholindg

End of Feb. The company calculates the tax payable for the

Year-end Tax SettlementEmployees check contents of Receipt for

Wage & Salary Income Tax Withholindg.

Employees make corrections in the Receipt for Wage & Salary Income Tax Withholindg if errors are found.

Company

Employee

Submit Statement on

Wage & Salary

Payment

Mar.10

The company submits Statement on Wage & Salary Payment to the NTS by March 10.

Transfer Statement of Donations andStatement of medical expenses electronically

Statement of Donations : for Wage & Salary Income earners who are entitled to Donations Deduction

Statement of medical expenses : for Wage & Salary Income earners whose medical expenses amount is 2 million won or more

Company

NTS

Get refunds

End of Mar.

The company selects a refund method, either adjustment refund or refund application.

If the company chooses the refund application method, it should also submit an application form for refund by March 10 when it submits Report on Fulfillment of Withholding for Februrary.

The company gives refunds to employees. Refunds for the Year-end Tax

Settlement is not made from the tax office directly.

(Tax office)

Company

Employee

The schedule for the Year-end Tax Settlement may by adjusted subject to the company's business schedule.


Simplified Year-end Tax Settlement(www.yesone.go.kr)

Simplified Year-end Tax Settlement (www.yesone.go.kr) is a one-stop channel for collecting the receipts you need for claiming your income deduction.

Simplified Year-end Tax Settlement is an internet-based service that shows the allowable amount of deduction that you can take for yourself and your dependents. A print-out of the screen displaying such records is used as a valid supporting document that you can submit to your withholding agent. You would need to register your dependents in the website first in order to view their deductibility records (such as their medical and insurance fees).

Simplified Year-end Tax Settlement will save you time and trouble of going to each issuer of receipts (such as banks and hospitals) to obtain the necessary documents.

You will need to have a Public Internet Certificate to gain an access to data required for claiming income deductions. Public Internet Certificates are issued at banks or district tax offices.

How to issue a public internet certificate from the Hometax website1. Log in Hometax website with an ID and password created at your district tax office

(www.hometax.go.kr)2. Change the given password by the district tax office and confirm3. Click "Go to issue the Public Internet Certificate"4. Issue the Public Internet Certificate for Hometax5. Choose the storage disk where you wish to store the Public Internet Certificate6. Create a password for Public Internet Certificate (an 8 or more digit long password

combined with numbers and English Characters)7. Click "Confirm"


Simplified Year-end Tax Settlement Web-site


Simplified Year-end Tax Settlement Web-site

Simplified Year-end Tax Settlement is available in Korean language only.

Table of Contents 11

Flowchart of Year-end Tax Settlement of Wage & Salary Income Tax Summary of Changes to Tax Laws for 2010 Year-end Tax Settlement Summary of Deductibility of Residents and Non residents Schedule for the Year-end Tax Settlement attributable to 2010 Simplified Year-end Tax Settlement (www.yesone.go.kr)

. Introduction 15

A. Taxpayer 17 1) Resident 2) Non-resident 3) Difference in Tax Treatment

B. Global and Separate Income Taxation 18

C. Monthly Tax Withholding 18

D. Year-end Tax Settlement 20 1) Employee who has worked for two different companies in 2010 2) Employee who changes its workplace in 2010 3) Year-end Tax Settlement by Taxpayers' Associations 4) In case of not conducting the Year-end Tax Settlement 5) Employee who retires during the year

E. Things To Prepare for the Year-end Tax Settlement 23 1) Proof of documents for Deductions 2) Certificate of the Facts of Alien Registration Summary of evidence and documentation for income deduction

. Year-end Tax Settlement for Wage and Salary Income 25

A. Scope of Wage & Salary Income 27 1) What is Wage & Salary Income 2) Income That Is Not Regarded As Employment Income 3) Non-taxable Wage & Salary Income

Table of Contents

12 Table of Contents

B. Deduction for Wage & Salary Income 29

C. Personal Deduction 30 1) Basic Deduction 2) Additional Deduction 3) Additional Deduction for Households with Multiple Children 4) Timing of Determination for Eligibility 5) Maximum Deductibility for Personal Deductions

D. Pension Contribution Deduction 35

E. Special Deduction 35 1) Insurance Premiums 2) Medical Expenses 3) Education Expenses 4) Donations

F. Other Deduction 40 1) Personal Pension Saving Deduction 2) Credit Card Usage Deduction 3) Deduction of Long-term stock-invested savings

G. Calculated Income Tax 44 1) Tax Base (Taxable Income) 2) Tax Rates and Tax Amount

H. Tax Exemption & Tax Credit 44 1) Tax Credit for Wage & Salary Income 2) Taxpayers' Association Credit 3) Foreign Tax Credit 4) Tax Exemption for Foreign Engineers 5) Tax Exemption for Teachers and Professors

I. Taxes Due 48 1) Calculation of Payable / Refundable Tax 2) Special Tax for Rural Development 3) Local Income Tax

Table of Contents 13

. Examples of Income Tax Calculation 51

Case 1. Workers receiving wage & salary income from a single workplace (1) Case 2. Workers receiving wage & salary income from a single workplace (2) Case 3. Workers receiving wage & salary income from two or more workplaces Case 4. Foreign teachers whose entire wage & salary income is eligible for income tax

exemption Case 5. Foreign engineers receiving wage & salary income eligible for tax exemption and

start to work from 2010

. Examples of Actual Q&A on NTS website 71 1. Tax Liabilities of Wage & Salary Workers 2. Calculating Taxes on Income from Employment 3. Question on taxes deducted from salary by employer 4. Question on tax return of a taxpayer who has income(s) other than earned income 5. Simplified Year-end Tax Settlement 6. Difference in tax treatment between resident and non-resident 8. Other Frequently Asked Questions

. Tax Forms 83

. Appendix 95 1. Major Changes in the Tax Law for 2010 2. Foreign Taxpayer Services 3. Taxpayers' Associations

The explanations and examples in this publication reflect the interpretation by the National Tax Service of Tax Laws. However, the information given does not cover every situation and is not intended to replace the law and change its meaning.

Introduction

. Introduction 17

A. Taxpayer

Taxpayer, who is liable to pay the income tax on his/her income, is classified into resident and non-resident in terms of whether a country has the taxing right on his/her worldwide income or just domestic source income.

1 Resident

Principally, a resident is any individual who has his/her domicile in Korea or a place of residence for 1 year or more in Korea. The domicile shall be judged by the objective facts of living relationship, such as the existence of a family living together in Korea and of the property located in Korea. And, the 'place of residence' means the place where a person has dwelt for a long time and his address in which no close general living relationship is formed as the domicile.

A taxpayer who falls under the following cases is deemed to have a domicile in Korea.

Who has an occupation which would require him to reside in Korea for 1 year or more; orWho has his family in Korea and is likely to reside in Korea for 1 year or more in view

of his occupation or assets held in Korea.

On the other hand, according to the general provision 1-4 of Income Tax Law, if he/she has his/her general living relationship including his/her family and property at home, he/she shall be regarded as a resident of Korea, even a person has a job overseas and stayed there for more than 1 year.A resident is subject to income tax on all incomes derived from sources both within and outside the country.

For a foreign resident whose combined period of domicile or residence in Korea for the ten years immediately preceding the end of the relevant taxable period is five years or less, he/she will be taxed on his/her foreign-source income only if the foreign-source income has been paid in Korea or remitted to Korea.


2 Non-resident

A person who is not a resident of Korea is deemed a non-resident and is subject to income tax only on income derived from sources within Korea.

3 Difference in Tax Treatment

When a non-resident who does not have a domestic place of business has earned income from employment in Korea, most of the provisions concerning the tax base and tax amount of residents shall apply to him/her. However, in calculating tax base and tax amount, a non-resident is not entitled to basic deduction(except for him/herself), additional deduction (except for him/herself), special deduction and other deductions, etc.

B. Global and Separate Income Taxation

Income derived by residents and non-residents is subject to global or separate taxation respectively.Under global taxation, Real Estate Rental Income, Business Income, Wages & Salary Income, Pension Income, and Other Income are aggregated and taxed progressively. Interest and dividend are also taxed globally with some exceptions. Retirement Income, Capital Gains are items subject to separate taxation and thus taxed separately at varying rates.

Tax withholding is applied to each domestic source item of income of non-residents who do not have a place of business in Korea and do not have income from real estate located in Korea.

C. Monthly Tax Withholding

Regardless of whether an employee is resident or non-resident, when he/she is paid wage and salary income, his/her personal income tax is monthly withheld by his/her withholding agent(employer, taxpayer association) and deducted from his/her salary every month. That is, an

. Introduction 19

employer paying wage & salary income must deduct income tax monthly from the earnings of their employees based on Simplified Tax Withholding Tableissued by National Tax Service (NTS) and the total of these deductions has to be paid over the NTS (district tax office concerned) by the tenth day of the following month. However, a person who has no more than twenty employees on average from January to December of the preceding year may pay taxes withheld to the government every half-year, after obtaining an approval by the head of the tax office concerned.

In the case of paying independent service income to a non-resident, which is different from Dependent Wage & Salary Income, 20% of the amount payable(paid) is withheld at the time of such payment by the person paying the amount of income from domestic sources to a non-resident who has no domestic place of business, unless otherwise provided in an applicable tax treaty. The withholding agent has to pay it to the government by the 10th of the following month.

TIP

What is the rate of w ithholding tax on wage and salary income?

Wage and salary income of daily workers : 8% Wage and salary income of workers other than daily workers

- On the day of monthly payment : withheld by the "Simplified Tax Table" - Year-end tax settlement : calculated by the basic tax rate of 6%~35%

How to pay w ithheld income tax The withholding agent shall (1) withhold the income tax at the time of wage/salary

payment, (2) file a report on the status of withholding to the competent tax office, and (3) pay the amount through financial institutions, by the 10th day of the following month in which such tax is withheld with a statement of payment.


D. Year-end Tax Settlement

Taxpayer's Wage & Salary income tax liability for the year is settled and finalized in February of the next year through year-end tax exact computation as we call "Year-end Tax Settlement". Then, the total of monthly withholding(the amount withheld) taken off an employee's earnings is treated as a credit against the overall amount of tax payable by the employee for the tax year in question.

To sum up, a withholding tax agent, who is liable for tax withholding, must calculate the tax amount for the year at the time of the second payment of wage and salary income of the next year and collect or refund the balance between the tax amount payable calculated by applying the tax rates and the tax amount withheld according to the Simplified Tax Withholding Table.

If a taxpayer has wage & salary income only, he/she is not subject to final global income tax return(self-assessment). If he/she has other incomes in addition to wage & salary income, he/she should file final global income tax return in total of the incomes by the end of May of the next year.

Once the Year-end Tax Settlement is complete, the withholding agent shall make 3 copies of the receipt for wage & salary income tax withholding and give an each copy of the receipt to the tax office and employee.

1) Employee who has worked for two different companies in 2010

Where a person receives employment income from two or more employers, he/she shall submit a report of workplace change to the withholding agent of the main workplace before he/she receives wage and salary income.

Once the withholding agent of the main workplace receives the report of workplace change, the withholding agent should submit the report to the competent tax office and notify it to the withholding agent of the worker's minor workplace.

Then, the wage and salary income earner should get a receipt for tax withholding for the wage & salary income from the withholding agent of the minor workplace and submit it to the withholding agent of the major workplace before he/she receives wage & salary income for the following year's February.

. Introduction 21

withholding agent of the major workplace conducts the year-end settlement for the aggregate of wage & salary income from the major and minor workplace.

If the person receives employment income from two or more employers does not submit a report of workplace change or does not submit a Receipt for Wage & Salary Income Tax Withholding from the minor workplace to the major workplace, each withholding agent should conduct the Year-end Tax Settlement separately only for the income it pays.

2 Employee who changes its workplace in 2010

In case where an employee who has retired halfway in the current year is newly employed at another work place, the withholding agent of such new work place shall have the relevant employee submit the receipts for tax withholding for the wage & salary incomes at the former work place, and a copy of the book for tax withholding for wage & salary incomes, and conduct the year-end settlement including the aggregate of wage & salary incomes at the former work place.

3 Year-end Tax Settlement by the Taxpayers' Associations

The person who has joined a taxpayer association and who has one of the followings can conduct the Year-end Tax Settlement through the taxpayer association. Wage & salary income received from a foreign organization or the UN forces stationed in

Korea (Except US army) Wage & salary income received from a non-resident living in a foreign country or a foreign

corporation (Except domestic branches or domestic places of business)

4 In case of not conducting the Year-end Tax Settlement

If a withholding agent is not available for the bankruptcy or missing, etc., the employee shall file a final tax return for the wage & salary income at the district tax office concerned from May 1st to May 31st of next year.

5 Employee who retires during the year

In case where an employee retires during the year, the withholding agent must conduct year-end settlement when he/she pays the earning of retiring month and issue the receipt for the wage & salary income taxes withholding.


TIP Is the year-end tax settlement applicable to daily workers?

It is not applicable to daily workers.

When is the year-end tax settlement for workers having temporary rest?

For the workers having temporary rest, the year-end tax settlement is to be completed at the time of payment of the February of the following year, same as workers on continuous employment.

When is the year-end tax settlement for workers on continuous employment?

Their year-end tax settlement should be completed at the time of payment for the work provided in February in the following year is paid. If payment for the work provided in February is not paid by the end of February or there is no payment for the work provided in February, then the settlement should be completed by the end of February.

When a wage and salary w orker has received payment from two different working places, what happens if the wage and salary w orker does not present the receipt for wage and income tax w ithholding of the former workplace to the latter w ithholding agent?

If the wage and salary worker does not present the receipt for wage and salary income tax withholding of the former workplace to the latter withholding agent, the latter withholding agent of the current workplace cannot complete the year-end tax settlement for the entire taxable period (The latter can only conduct the year-end tax settlement for the period the worker has worked for the latter company). In this case, the worker is subject to filing a global income tax return for both incomes at the appropriate district tax office by the end of May of the following year.

How do I claim for a refund when my year-end tax settlement tells me that I am applicable for the refund?

When a refund occurs, your employer will directly refund the difference to you. No application for a claim is required.

What should I do if I receive additional wage & salary income after conducting the Y ear-end tax settlement?

If you get additional wage & salary income for your work made in the attributable tax period after conducting the Year-end tax settlement, the Year-end tax settlement should be conducted again at the time you receive the additional income.

I have employment income from both Korea and another country. Do I need to report the income that I earned from another country when filing my year-end tax settlement return?

Yes. When filing your year-end tax settlement return with the Korean tax office, you will need to report all of the employment income you have earned for that tax year, If you have stayed in Korea for more than 5 years during past 10 years. You are entitled to foreign tax credits for the taxes that you have already paid in another country.

. Introduction 23

E. Things to Prepare for the Year-end Tax Settlem ent

1 Proof of Documents for Deductions

Employees shall submit the documents required for deductions, tax exemptions and tax credits by the law to prove the expenses within the period of year-end settlement to the withholding agent. If an employee fails to submit the required documents within the period, the withholding agent conducts the year-end tax settlement by applying basic deduction and standard deduction only. Therefore, he/she must file the final composite income tax return not later than May 31st to the district tax office concerned to enjoy the benefits of deductions.In case where an employee who applies incorrect amount of deductions by submitting false or fake receipts, he/she shall be imposed the tax for the incorrect deductions and penalties later by the law.

2 Certificate of the Facts of Alien Registration

As an alternative to the Resident Registration Certificate that Korean citizens are required to submit, a foreign resident shall attach a Certificate of the Fact of Alien Registration(issued by the head of the Immigration District Office or its operating branch, Mayor of the City, Head of the County, or Head of the District) to the Report of Exemption and Deduction from Wage & Salary Income for submission to the withholding agent.

TIP How do I find out the outcome of the year-end tax settlement?

You can check the outcome of the year-end tax settlement as follows;You can ask for a receipt for wage and salary income tax withholding from your withholding agent. The withholding agent should present a receipt for wage and salary income tax withholding by the end of February of the following year. The receipt contains information on the final tax liability including details of your income and taxes.If the withholding agent submits the statement on wage and salary income payment to the NTS by the 10th day of March next year, you can check the statement on wage and salary income payment via the Hometax service starting from following May.

* Hometax service is available in Korean only.


Summary of evidence and documentation for income deduction

Document Eligibility Prepared by

Report of Exemption & Deduction from Wage & Salary Income

All wage and salary income earners subject to the year-end tax settlement

Taxpayer

Certificate of the facts of Alien Registration

Employees hired in 2010Employees with changes in dependents

Immigration office or city, county, or district office

Copy of Receipt for Insurance Payment

Employees who bought a policy of life, property loss, and accident insurance

Insurance company

Copy of Receipt for Medical Expenses

Employees who paid more than 3% of Gross wage & salary income as medical payments

Hospitals, pharmacies, etc.

Copy of Receipt for Education Expenses

Employees whose dependents or him/ herself are students

School or vocational training facilities

Copy of Receipt for DonationWage and salary income earners who made donations to charitable foundations

Organizations who received donations

Report for Deduction of Credit Card Usage, etc.

Wage and salary income earners subject to deduction for credit card usage

Taxpayer

Receipt of Credit card paymentsWage and salary income earners subject to deduction for credit card usage

Credit card, debit card, prepaid card companies, etc.

Application Report of Flat Tax Rate for Foreign Employees

Taxpayer who chooses separate taxation method with 15% flat rate Taxpayer

Application for foreign engineers' tax reduction

Foreign employees who meet the requirements under the relevant law Taxpayer

Exemption Report of Foreigner's Employment Income

Qualified foreign employees who was dispatched to Korea by the agreement b/w the governments

Taxpayer

Foreign Tax Credit Report Taxpayer who worked and paid the income tax in foreign countries Taxpayer

Year-end Tax Settlement

for Wage & Salary Income

. Year-end Tax Settlement for Wage & Salary Income 27

A. Scope of Wage & Salary Income

1 What is Wage & Salary Income

At the first stage, as seen in the flow chart(page 2), to get the amount of gross wage & salary income, the amount of non-taxable income is deducted from the total income from employment, which includes all kinds of salary, bonus and allowances.

An employee's wage & salary income subject to Korean income taxation is the amount received as payment for labor performed in Korea.

For examples : ) Wage, salary, remuneration, allowance, bonus and any other allowance of a similar

nature received in return for services ) Income received as a bonus by a resolution at the stockholders or partners general

meeting of a corporation, or a similar deliberative organ ) Amount treated as bonus under the Corporation Tax Law ) Income other than retirement income, received due to retirement ) Income such as labor allowance, family allowance, duty allowance, etc. ) Income such as meal allowance, housing allowance, uniform allowance, etc. ) Income such as rewards, compensation, scholarship, etc. ) Benefits incurred by getting housing ) The insurance premium, trust installment or mutual aids installment imposed on the

employer in connection with the insurance, trust or mutual aids whose contractor is an employee and whose beneficiary is an employee, his spouse, or other family member.

) Wages and salaries received from a non-resident or foreign corporation outside Korea ) Income incurred from exercise of stock options granted by foreign associated company

2 Income That Is Not Regarded As Employment Income

Any income accruing from the difference between the acquisition value of such stocks that is acquired by a member of employee stockholders association determined by the law and decree and the market value on the acquisition date.


Benefits obtained from a house provision which is provided to an executive who is neither a stockholder nor a contributor, an employee who is not an executive and the person who is paid the earned income by the State or local governments.

3 Non-taxable Wage & Salary Income

Non-taxable income is the income for which the Korea government waives its taxing rights. Whether an application for non-taxation is made or not, such income is not taxable, some of which are as follows :

) Up to 200,000 per month of research subsidies or research activity expenses received by the following persons will be exempt from taxes:

Faculties employed in schools as covered by education laws governing early education and primary, intermediary, and secondary schools; or educational

The tax exemption does not apply to the following: (1) Persons directly involved in research activity (provided that they are university or

college faculties or of equivalent status) (2) Persons engaged in the routine management of the building, e.g., security,

maintenance, repair, cleaning, etc. (3) Persons involved in the provision of meals or driving of vehicles Persons directly involved in research activities at a small and mid-sized company or

venture startup as prescribed by Article 15 (1) 1 and 3 of the Enforcement Decree of the Technology Development Promotion Act.

) Pensions or payments of a consolation nature receivable by a person injured while working) Education fees prescribed by Presidential decree) Compensation for actual expenses such as ; wages that are received by a worker due to natural disasters and other calamities, pays

for day duty, night watch, or business travel compensation for driving one's own car for business purpose : limit is 200,000 per month) Wages receivable by persons serving with a foreign government or the U.N. and

organizations thereof; in the case of a foreign government, the principle of reciprocity shall be applied.

) Wages receivable by furnishing work or services overseas as follows: Payment of up to 1,000,000 per month receivable from furnishing service overseas Payment of up to 1,500,000 per month receivable for deep-sea fishery outbound ship workers

and an overseas construction workers


Overseas service allowance of public officials, etc.) Expense reimbursement, such as travel expense reimbursement) Allowance for Night Duty received by manufacturing employees : up to 2,400,000 per annum) Meal costs of up to 100,000 per month, Qualified School Expenses, etc.) Payment receivable by an enlisted person in the armed forces or a person mobilized under

law) Allowance for childbirth or childcare of children at the age of 6 years or younger : limit is

100,000 per month) Childcare leave allowances received under the relevant Acts and subordinate statutes by a public

official under the State Public Officials Act or the Local Public Officials Act,

TIP

Which category does remuneration for giving lectures fall into among wage & salary income, other income, and business income?

If there is an employment contract, then the remuneration is categorized as a wage & salary income. Remuneration for the lecture in a temporary period is categorized as other income. If the employment status of the lecturer is independent contractor ("free-lancer") and the lecture is given repeatedly and continuously, then the remuneration is categorized as a business income.

Are foreign executives' meal expenses not more than 100 thousand w on and corporate subsidy for car-driving not more than 200 thousand w on eligible for tax exemption?

Yes. Meal expenses and corporate subsidy for car-driving are treated as the cost-compensatory pay. Therefore, tax exemption for meal expenses and corporate subsidy for car-driving is applicable to corporate executives.

B. Deduction for Wage & Salary Income

In respect of a resident (or non-resident) having any wage & salary income, the following amount shall be deducted from the amount of gross wage & salary income in the current year to work out the adjusted wage & salary income.


Amount of Gross Wage & Salary Income Deduction Amount

up to 5,000,000 80% of the total amount

over 5,000,000up to 15,000,000 4,000,000 + 50% of the excess over 5,000,000



over 45,000,000 12,750,000 + 5% of the excess over 45,000,000

C. Personal Deduction

With respect to Personal Deduction, a taxpayer is qualified for the income allowance such as Basic Deduction", "Additional Deduction", "Additional Deduction for Households with Multiple Children".

Regarding the eligibility for Personal Deductions, persons eligible for spouse deduction, dependents deduction, or exemption for handicapped or aged persons must be family members who are listed on the Registration Card and actually living at the same domicile or residence with the taxpayer. A person who has temporarily left the taxpayer's domicile or residence for reasons of schooling, medical treatment, business, or work may still be entitled to the deduction. The determination of eligibility shall be made based on the existing conditions at the close of the tax period in question.

A Wage & Salary Income earner, whose family status already declared to NTS is changed, has to submit an application for personal deductions with documentary evidences before receiving Wage & Salary Income for January of each year.

1 Basic Deduction

A resident with Wage & Salary Income is entitled to an annual deduction for an amount calculated by multiplying the number of family members falling under any of the following sub-paragraphs by 1,500,000 per capita.


) a resident taxpayer him/herself ) a person who is the spouse of the taxpayer and lives with the taxpayer, and has no

annual income, or whose annual income (total amount of aggregate income, retirement income, and transfer income) is not more than 1,000,000 in the aggregate.

) dependents living in the same household with the taxpayer. A dependent means a lineal family member or a brother/sister who is 20 years or under or 60 years old or more supported by the taxpayer and who has no income or whose annual income (total amount of aggregate income, retirement income, and transfer income) is not more than 1,000,000

) the handicapped spouse of a handicapped person who is a linear descendant of the taxpayer is eligible for basic deduction.

) Children under 18 years old under foster care for the relevant taxable period of more than 6 months according to the Infant Care Act

Tax Exemption Subjects

Condition AgeIncome Amount

Taxpayer himself/herself Regardless of living together in the same house

N/A N/A

Spouse N/A

Annual Income

amount of one million won or less

Linear Ascendant

Dependant family

members living

together

Living together on the resident registration(including living separately under residential situation)

60 or older (Before birth of Dec. 31, 1950)

Linear Descendant/ adopted Living together on

the resident registration(excluding linear descendant and the adopted)- a temporal leave

due to school attendance, illness, medical treatment, etc. is permitted.

20 or less(After birth of Jan. 1,

1990)

Brother / sister20 or less

OR60 or older

Individuals in need supported by the

National Basic Living Security Act

N/A

Children under foster care

Less than 18(After birth of Jan. 1,

1993)

* In the case of a foreign taxpayer, a Certificate of the Facts of Alien Registration is required for Basic Deduction.


2 Additional Deduction

When a person who is qualified for Basic Deduction (oneself, his/her spouse, dependents) falls under any of the following situation, the amount calculated by multiplying the number of persons by the amount below, shall be deducted each year from the taxpayer's income under each case.

) where the person is 70 years old or more: 1,000,000 per capita ) where the person is handicapped : 2,000,000 per capita ) where the person is a married woman having her spouse, or a spouseless female head of

family having dependents : 500,000 per capita ) where the person who has a lineal descendant or an adoptee or foster child at the age of

6 years or less : 1,000,000 per capita ) where the person has a linear descendant born or an adoptee who he/she reported for

adoption2,000,000 per capita

3 Additional Deduction for Households with Multiple Children

An additional deduction is allowed for residents with wage and salary income or business income (provided the resident is not a daily or temporary worker) at amounts that vary depending on the number of child/children with eligibility for basic deduction. An additional deduction is allowed at 500,000 per year where the number of children is two, and at 1,000,000 per child after the first two children. (Grandchildren are not eligible for Additional Deduction for Households with Multiple Children.)

Calculation Table With 2 eligible children : 500,000 With 3 eligible children : 1,500,000 With 4 eligible children : 2,500,000 With 5 eligible children : 3,500,000

4 Timing of Determination for Eligibility

Determination of eligibility for deductions as a spouse, dependent, handicapped, or the aged is made in consideration of the factual circumstances as of December 31, the final day of the current tax year.


However, in cases of death or recovery from the physical handicap, determination of eligibility is made in consideration of the factual circumstances as of the date coming one day before the date of the death or recovery.

Where the dependent has to be within a certain age range to obtain eligibility, the dependent will be deemed eligible if he or she falls within that age range for any one day during the taxable year. Spouse deduction is not available in cases where the filer had divorced his/her spouse during the current tax year.

5 Maximum Deductibility for Personal Deductions

When the combined amount of personal deductions exceeds global income (or for wage and salary income, the amount of total wage and salary income less income deductions), the excess amount is non-deductible.

If the taxation period or period supporting dependents is less than one year, the applicable basic deductions or additional deductions are not calculated in proportion to the applicable period, but the entire year's worth of deduction is taken from the tax base.

TIP Can I claim basic deductions for my parents whom I do not live w ith?

Yes, as long as your parents meet the income and age requirement, if you are effectively supporting them, and if your siblings have not already claimed basic deduction for your parents.

Persons qualifying for basic deduction are dependents whom the family register shows as living together with the filer, and whom live together in the address (or domicile) of the filer.

However, you may receive basic deductions for linear ascendants even if they do not live with you (1) if you support them financially, (2) if they meet age and income requirements, and (3) if your other siblings have not already claimed basic deductions.


TIP

If I'm a non-resident, can I take basic deductions for dependent family members?

When a wage and salary earner is a non-resident, he/she cannot take personal deductions for dependent family members other than the filer him/herself, nor take special deductions.

Non-residents are applied the same provisions on the calculation of the taxable income base and payable tax amount as they are applied to residents, but cannot claim special deductions and personal deductions (i.e., basic deductions, additional deductions, additional deductions for multiple children) for persons other than their own selves.

Therefore, non-residents are not eligible for special deductions, basic deductions for spouse and dependent family members, additional deductions, or special deductions for multiple children.

Can I take deductions for dependent family members w ho reside back in my home country?

Yes, a foreign resident with wage and salary income may take basic deductions, additional deductions and special deductions for qualifying spouse and dependent family members as long as they are supported by the foreign resident. To take the deduction, you are required to submit documentation proving your relationship with your spouse or dependent family members.

One requirement for basic deductions is "1 million KRW or less in combined annual income." What exactly are included in "combined annual income"?

Combined annual income refers to the combined amount of global income (i.e., wage and salary income, business income, interest income, dividend, pension benefits, and other income. However it does not include non-taxable income or income subject to separate taxation), retirement income, and capital gains income.


TIP

If I w as employed in the middle of the tax year, how do I claim my basic/additional/special/credit card, etc. deductions? Do I divide the amount on a monthly basis?

No. Even if you were employed only a number of months out of a year, you are allowed to take the entire yearly-deductions.

However, certain special deductions (e.g., insurance premium deductions, medical expenses deductions, educational expenses deductions, and housing fund deductions), deductions for credit card, etc., deductions for Home Purchase Savings, and other applicable deductions are allowed only for residents with wage and salary income, and therefore can be taken only for the expenses incurred during employment.

D. Pension Contribution Deduction

The total of the following pension contribution paid for pension insurance in the name of the taxpayer him/herself is deducted. a. Pension insurance contribution paid by the taxpayer him/herself based on National Pension Law b. Contribution paid by the taxpayer him/herself based on Soldier Pension Law, Civil Service

Pension Law etc. c. Contribution paid by the taxpayer under the Employee Retirement Security Law

E. Special Deduction

Special deduction is allowed from a resident's wage and salary income earned during the current year for expenses paid during the current year, where those expenses fall under the category as prescribed by the law.

To claim special deductions, a taxpayer must submit necessary supporting documents when filing an application for income deduction. Where the deductible amount exceeds the taxpayer's income, the exceeding amount will be counted as zero.

Under the provision of the third clause of the Article 216 of the Enforcement Decree of the Income Tax Act, where the taxpayer submits documentary evidence of income deduction to the


Commissioner of the National Tax Service, he/she can use documents issued in the Simplified Year-end Tax Settlement Service

A taxpayer who has not submitted supporting documents for deduction or has a special deduction amount under 1,000,000 may receive 1,000,000 deduction a year without submission of the supporting documents(standard deduction).

1 Insurance Premiums

Qualified insurance premiums include those paid by a Wage & Salary income earners to Korean insurance companies (including Korean branches of foreign insurance companies) located in Korea relative to the following types of insurance (beneficiary can be either the taxpayer or the dependents who have no income for the year): Life insurance, Life insurance for the handicapped, Damage & Accident Insurance, Fire and Burglary Insurance and insurance similar thereto.

Types of Insurance Deduction Amount

National Health Insurance Premium total amount

Employment Insurance Premium total amount

Long-term Senior Nursing Insurance Premium total amount

Other Security Insurance up to 1,000,000

Handicapped Only Security Insurance up to 1,000,000

To apply for the deduction, supporting documents (e.g., original insurance premium receipts, not copies) must be attached to the Report of Exemption and Deduction from Wage & Salary Income. Insurance premium receipts issued by the insurance company will indicate whether or not such insurance premiums qualify for an income tax deduction. If supporting documents are not readily available, then a certificate of payment of insurance premium issued by the concerned insurance company must be attached to the Report.

2 Medical Expenses

Qualified medical expenses are those paid out to hospitals or drug stores in Korea for the taxpayer him/herself and his/her dependents who live in Korea with him/her. Eligibility for medical expense deduction will not be limited by age or income.


Expenses paid for aesthetic or cosmetic surgery, and cost of purchasing pharmaceutical or medical products for the purpose of maintaining good health which were deductible in 2009 are not deductible from this year.

Deduction for qualified medical expenses are allowed up to a maximum of 7,000,000 to the extent that such expenses exceed 3% of gross wage & salary income. However, 7,000,000 ceiling does not apply to the deduction for medical expenses where those expenses are paid for the medical treatment of the filer or dependents who are senior citizens(65 years or more) or are handicapped. For deduction, supporting documents (e.g., original receipts) must be attached to the report.

3 Education Expenses

Qualified education expenses are those expenses, such as school entrance fees, tuition and any other qualified school payments, paid by a Wage & Salary Income earner for the taxpayer him/herself or his/her qualified spouse or dependents (deduction will not apply for the graduate school expenses paid for the spouse or dependents).Limitation for this deduction is as follows :

) Employee himself(herself) : No limitation, Graduate school is included in the qualified educational facilities(includes course fees at the vocational competency development and training facilities) for taxpayer himself(herself).

) Kindergarten : 3,000,000 /person ) Elementary School, Secondary & High School : 3,000,000 /person ) University & College (does not include graduate-level studies) : 9,000,000 /person

Education expense from the overseas educational institutes that is equivalent to the school of Korea under the Elementary and Secondary Education Act or the Higher Education Act may be deducted also under certain limit. However, if the resident paying those overseas educational expenses is employed in Korea, deductibility is allowed only for educational expenses incurred by a student meeting the "self-funding studies requirement." For tax deduction, supporting documents (e.g., original receipts, not copies) must be attached to the Report. Where supporting documents are not readily available, then a certificate for payments of tuition fees issued by the principal of the respective school must be attached.Appropriate exchange rate to apply in calculating overseas educational fees :

) When money is transmitted from Korea : Foreign currency exchange rate applied to bank customers on the date of the transfer

) When money is paid from outside Korea : Basic rate or arbitrage rate based on the Foreign Exchange Transaction Act is applied.


4 Donations

Donations made by a resident in the applicable tax period can be deducted from his/her global income. The donations include the amount donated by the taxpayer's qualified spouse or linear descendants.

Qualified donations include amounts disbursed in Korea for the following purposes :) Statutory donation : Amount up to adjusted wage & salary income(No Limit) Donations to the Korean government or local autonomous government bodies (either in

cash or in kind)

Donations for national defense purposes (in cash) Donations to welfare facilities prescribed by the Presidential Decree, which are available for

public use free of charges or at practical charges from among welfare facilities installed under the Social Services Act.

Donations to government relief funds relative to disasters, earthquakes, floods and other calamities. Other calamities are limited to calamities categorized as special calamity areas according to the Framework Act on the Management of Disasters and Safety.

Consideration for the voluntary support served in Special Disaster Area Donations made to cover costs required for facilities, education, scholarship, or research in

private schools under the Private School Act, technical colleges under the Technical College Act, hospitals attached to national universities, College of Seoul National University and Industrial & Educational Corporation Corps. were added.

) Political fund donation : Amount up to adjusted wage & salary income(No Limit) Donations to political party , etc. as prescribed by the Article 76 of the Restriction of

Special Taxation Act.

- Amount less than 100,000KRW : Paid Amount 100110 () - Amount over 100,000KRW : Paid Amount - 100,000KRW() * will be credited from the Calculated Income Tax, will be deducted from the

Adjusted Wage & Salary Income ) 50% limit donation : Amount up to 50% of (adjusted wage & salary income --) Certain other donations as allowed by Article 73 of the Restriction of Special Taxation Act

(e.g., Charitable donations contributed to the Independence Hall, constructed under the Independence Hall Act)


) 30% limit donation : Amount up to 30% of (adjusted wage & salary income ---) Funds donated to the Employee Stock Ownership Association) 10% limit donation : Amount up to {[10% of (adjusted wage & salary income ----) + the

lesser of [10% of (adjusted wage & salary income ----) or Donation amount other than religious groups]}

The 10% limit should be applied if organizations where donations were made include at least one religious groups.

) 20% limit donation : Amount up to 20% of (adjusted wage & salary income ----) The 20% limit should be applied if organizations where donations were made include no

religious groups. Donations prescribed in Article 80 of the Enforcement Decree of the Income Tax Act

(e.g., donations for the purpose of public interest of art, education etc.

If the deduction amount of deductions exceeds the amount of the resident's global income in the applicable tax period, tax credits for each donation can be carried forward to a period from the first day of the next tax period up to 5 years.

To obtain the deductions, supporting documents (e.g., original receipts, not copies) must be attached to the Report.


TIP

I made my D ecember 2009 payment of life and illness insurance premium in January 2010. In this case, is this amount deductible from my 2009 tax base or my 2010 tax base?

Deductibility is extended to premiums paid out in the current tax year. Therefore, the December 2009 premium you paid in January 2010 will be deducted from your 2010 tax base.

Can I claim a medical expense deduction for medical expenses paid to hospitals located outside of Korea?

No, only the amount paid to hospitals in Korea is deductible.

If I only have my own medical bills, do my bills have to exceed 3% of the gross w age and salary income for me to claim deductions for medical expenses?

Only the amount in excess of the 3% threshold is deductible. Therefore, even if there are no other medical bills than those of your own, you will be unable to take a deduction for medical bills when their total amount is less than 3% of your gross and salary income.

If the amount accounted for through the documents I downloaded and printed out from the N TS Simplified Year-End Tax Settlement Service w ebsite is less than the actual amount I spent at medical institutions, how can I get deductions for those unaccounted expenses?

If the NTS Simplified Year-End Tax Settlement does not cover all or has omitted some of your medical expenses, you can get your deductions by asking for supporting documents (sales receipt, etc.) from individual hospitals or pharmacies, and entering that amount in the "Other Documents" item in your income deductions claims form. The income deductions claims form should be submitted to your employer.

Can a foreign wage and salary earner employed in Korea get deductions for educational expenses incurred by a child studying overseas (e.g., home country)?

No. Only those educational expenses that meet both the "student" requirement and "overseas educational institute" requirement are deductible.

The overseas educational institute has to be a "school" as interpreted under the Pre-School and Elementary/Middle/High School Law or Higher Education Law of the Youth Education Law of Korea, and

The student has to be an international student studying at the invitation or admission by an overseas educational institute or research center, as prescribed by Article 5 or Article 15 of the "Regulations on Overseas Studies."


TIP Can I get a deduction for the donations I made to charitable organizations in another

country?

A deduction is allowed as long as the charitable organization is registered with r e s p o n s i b l e K o r e a n a u t h o r i t i e s , o r m e e t s o t h e r r e q u i r e m e n t s s t i p u l a t e d

in relevant Korean laws.

F. Other Deduction

These are itemized deductions which include Personal Pension Savings Deduction, Investment Association Deduction, and Credit Card Usage Deduction, etc. Among these deductions, Personal Pension Saving Deduction, Credit Card Usage Deduction, Deduction of Long-term stock-invested saving are canvassed herein, relevant for the purpose of this book.

1 Personal Pension Saving Deduction

When a resident joins personal pension saving or pension saving under his/her own name, the amount of saving made in the applicable tax period is deducted from the amount of global income of the applicable tax period.

Category Personal Pension Saving Pension Saving

Joining Joined on/before Dec. 31, 2000 Joined on/after Jan. 1, 2001

Subject 20 year old or older 8 year old or older

Amount of deposit 3 million won or less quarterly 3 million won or less quarterly

Period of saving 10 years or more 10 years or more

pension payment after maturity

pension received for a period of 5 years or longer after the subject becomes 55 years old once the

saving matures.

pension received for a period of 5 years or longer after the subject becomes 55 years old once the

saving matures.

Deduction rate 40% of yearly payment 100% or yearly payment

Deduction ceiling 720 thousand won per year3 million won per year

(including retirment pension)


2 Credit Card Usage Deduction

Expenditures by credit cards include the payments by credit cards, debit card, prepaid card with name registered, Cash receipt Usage, which are issued only in Korea in the name of taxpayer or his/her qualified spouse or dependents who have annual income less than 1,000,000 per annum. The credit cards amount spent only in Korea are subject to credit card usage deduction. And the credit cards expenses between Jan.1,2010Dec.31,2010 are subject to credit card usage deduction. Deduction amount and limit is as follows.

Calculation of Deduction Amount

Usage of Credit Card etc. = Credit Card + Cash receipt Usage + Tuition fee payment for private educational institutions (Hakwon) through Giro transfer Usage of Debit Card etc. = Debit Card + Prepaid Card Deduction Amount = + = [+-Gross wage & salary income of the year25%] [(+)] 20% = [+-Gross wage & salary income of the year25%] [(+)] 25% Limit of Deduction Amount = Min (20% of Gross wage & salary income, 3,000,000)However, the payments by credit cards for the following purposes are not entitled to the credit card usage deduction.) Payments for company's expenses (e.g., entertainment made by an employee's credit card

and reimbursed by the employer),) Payments for national or local taxes,) Payments for utilities (e.g., gas, telephone, etc.),) Payments for social costs such as national health insurance, pension, etc., and) Payments for education expenses.) Monthly rent subject to income deduction) Other Payments telephone charges include internet bill toll, apartment management fee, purchase price for gift certificates, etc.

To obtain the deductions, supporting documents (e.g., certificates of credit card usage amount issued by the respective credit card companies) must be attached to the report.


3 Deduction of Long-term stock-invested savings

When a resident has joined long-term stock-invested savings during the period from October 20, 2008 to December 31, 2009 and has made deposits, the deposit amount multiplied by a certain deduction rate in the applicable tax period is deducted from the amount of global income of the applicable tax period.

The long-term stock-invested savings are the savings made to acquire stocks of an investment company or stocks/beneficiary certificates of an investment trust that makes investment in stocks of a company whose 60% of the total assets is issued and traded in Korea.

The period of savings are 3 years or longer, and there should not be withdrawal of principal, interests, dividends, or stocks in less than 3 years. The long-term stock-invested savings are a installment-based savings for which a person should make a total deposit amount of 3 million won or less quarterly.

Any resident who subscribed to long-term stock-invested fund may deduct certain percentage of the deposit amount as follow; 1st year20% of the payment 2nd year10% of the payment 3rd year5% of the payment


TIP

Is usage of Cash Receipts different from credit cards in terms of income deduction? No. The Cash Receipt amount is added to the "credit card, etc." amount, which is then deducted from the income after deduction.

How much of the amount of credit cards and Cash Receipts do I get back? To qualify, your combined amount of "credit cards, etc. (which includes your Cash

Receipt amount)" must exceed 25% of your annual wage and salary income. Once the amount exceeds that threshold, the deductible amount is 20% of the amount in excess of the threshold. The amount you can receive is the amount after all qualified deductions, multiplied by applicable tax rate and tax credit.

I already claimed deductions for medical bill under "deductions for medical expenses." If I made the payment w ith my credit card, can I take that same expense to claim "deductions for credit card, etc."?

Yes, you may take the same amount to claim both "medical expense" deductions and "credit card, etc." deductions.

Can I get deductions for the amount I spent using my credit card before I took my job, or after quitting?

No. Only the amount you have spent during employment qualifies for deductions.

Can I get credit card usage deductions for the amount I spent overseas w ith my credit card?

No. Overseas expenses are non-deductible.

If I left out certain deduction items during year-end tax settlement, can I still get deductions later on?

Yes. You may ask for additional income deduction during Global Income Tax filing season, or by claiming refunds.

For deductions left out by a wage and salary earner : He/She may file Global Income Tax Returns by May of the following year to the

Head of the competent District Tax Office, or Pursuant to Article 45(2)4 of the Basic Framework on National Taxes, the filer or

his/her withholding agent may request for a tax refund. However, a tax refund claim can be made only when the filer had completed the year-end tax settlement, and when the withholding agent had submitted the Statement of Wage and Salary Payment by the legal submission date (by March 10 of the following year), as long as the refund is claimed within three years.


G. Calculated Income Tax

1 Tax Base (Taxable Income)

Taxable Income is calculated after Personal Deduction, Pension Contribution Deduction, Special Deduction and Other Income Deduction have been made from the amount of Adjusted Wage & Salary Income.

2 Tax Rates and Tax Amount

After Tax Base is calculated from Adjusted Wage & Salary Income minus Income Deductions, the amounts of income tax is calculated by applying progressive marginal tax rates to respective tax base, as seen in the following table.

Tax Base Tax Rates

up to 12,000,000 6%

over 12,000,000up to 46,000,000 720,000+15% of the AMT over 12M

over 46,000,000up to 88,000,000 5,820,000+24% of the AMT over 46M

over 88,000,000 15,900,000+35% of the AMT over 88M

H. Tax Exemption & Tax Credit

1 Tax Credit for Wage & Salary Income

The following amount shall be credited against total tax on Wage & Salary Income. Where the amount of credit exceeds 500,000, the credit is limited to 500,000

Tax Amount Amount of Tax Credit

up to 500,000 55% of total taxover 500,000 275,000 + 30% of amount over 500,000


2 Taxpayers' Association Credit

When a person receives wage & salary income from foreign organization, the UN forces stationed in Korea (Except US army), non-residents living in a foreign country, or a foreign corporation, if he/she has joined a taxpayer association, the taxpayer association should withdraw income tax every month by the simplified table of income tax rate. 10% of the calculated income tax amount shall be deducted and withdrawn.

When conducting the year-end tax settlement, the deducted amount of 10% of the settled tax amount of wage and salary income subject to income tax withholding by the taxpayer association is collected as a tax.However, if a foreign taxpayer choose separate taxation with 15% flat rate under Article 18-2 under the Restriction of Special Taxation Act, this credit will not be applied.

The person who has joined a taxpayer association and who has one of the followings can conduct the Year-end Tax Settlement through the taxpayer association. Wage & salary income received from a foreign organization or the UN forces stationed in Korea (Except US army) Wage & salary income received from a non-resident living in a foreign country or a foreign corporation (Except domestic branches or domestic places of business)

3 Foreign Tax Credit

In case where any foreign source Wage & Salary Income is added to the domestic Wage & Salary Income amount of a taxpayer, if the foreign income tax amount as determined by the Presidential Decree is paid or payable in a foreign country with respect to such income of the foreign source, the taxpayer is eligible for foreign tax credit.

For application of this credit, supporting documents such as Foreign Tax Credit Statement, Foreign Tax Credit Receipt are required to be submitted to the NTS.

If the taxpayer cannot submit the application with a final return of tax base due to foreign tax authorities' delay in making a notice of determination on the foreign source wage and salary income or difference in tax period, he/she can submit the application within 45 days from the day he/she receives the notice of determination.


Converting the tax amount paid overseas into won should be based on the basic exchange rate as of the day of tax payment or arbitrated rate of exchange. Penalty and additional charges are excluded from tax amount paid overseas subject to deduction.

The foreign income tax amount may be credited from the calculated income tax amount in the current year, within the limit of the amount calculated as follow

Ceiling of tax credits wage & salary income tax amount calculated foreign source wage & salary income

wage & salary income

Tax credits exceeding the ceiling can be carried forward for 5 years.

4 Tax Exemption for Foreign Engineers

A foreign engineer who falls under the Enforcement Decree of RSTA 16 shall be allowed to be exempted by 50% from income tax on employment income derived from the provision of his services to a national within Korea if such employment income has been earned until the month whereto belongs the date on which 2 years have passed since the first date (December 31, 2011 or earlier) on which the foreign engineer provided his services in Korea. (RSTA 18 )

A foreign engineer shall be allowed to be exempted by 50% from income tax on employment income derived by providing his services to a national within Korea under a contract for the introduction of technologies as referred to in the Foreign Investment Promotion Act. In this case the exemption amount shall be limited to the income earned until the month whereto belongs the date on which 2 years have passed since the date of delivery (December 31, 2011 or earlier) of the certificate of report on a contract for the introduction of such technologies. (RSTA 18 )For foreign engineers whose first date of service is rendered on/before December 31, 2009 and foreign engineers who provide service according to a reported contract of technology introduction, 100% tax exemption is applicable for 5 years, the same as before.

Foreign engineer shall file a written application for tax exemption to the tax office not later than the 10th of the month next to that whereto belongs the day on which he has provided a service.


Reduced tax amount wage & salary income tax amount calculated wage & salary income amount subject to

tax reduction50% wage & salary income

5 Tax Exemption for Teachers and Professors

Instructors (teachers and professors) of foreign nationalities are generally taxed on their wage and salary income following the identical taxation process as applied to resident Koreans. However, when instructors meet the non-taxation requirements stipulated in the relevant provisions under the tax treaty, they qualify for non-taxation treatment on the wage and salary income that were generated in Korea for the treaty-specified (three years with China, but two years in general with other countries).

How to claim non-taxation treatment

A foreign nationality teacher/professor employed by a school must submit an application form in order to receive non-taxation treatment. Failure to submit the application will result in taxation of the income.

Persons wishing to receive non-taxation treatment must submit the "Application Form for Non-Taxation of Wage and Salary Income Pursuant to Tax Treaties" and the following documents to the school (the payer of the wage and salary income). The school must then submit the documents to the competent district tax office by the 9th day of the month following the month the first wage and salary income payment was made. All documents, including the application form, must be prepared and submitted in two copies.

* Required documents for submission1. Certificate of residency2. Copy of employment agreement with the school3. Copy of documents proving the instructor's qualification for non-taxation


I. Taxes Due

1 Calculation of Payable / Refundable Tax

After tax credit is made, the calculated tax amount comes out. Then, the pre-paid income tax amount, which has been withheld by an employee's withholding agent based on Simplified Tax Withholding Table and paid to NTS monthly, is deducted from the adjusted tax amount to work out the amount payable or refundable.

2 Special Tax for Rural Development

U nder the Law of Special Tax for Rural D evelopm ent, an individual w hose tax liability has reduced under the Restriction of Special Taxation A ct, Local Tax Law , or Custom s Law has responsibility of paying the Special Tax for Rural D evelopm ent(STRD ). A ccordingly, STRD is levied as a surtax on the am ount of exem ption of individual incom e tax and is calculated by m ultiplying 20% by tax base of STRD , w hich is the total of H om e M ortgage Interest Credit and the reduced tax am ount through Investm ent A ssociation D eduction herein.

3 Local Income Tax

Local Income Tax has two types : per capita and pro rata. The tax base of Pro rata Local Income Tax is the amount of income tax to be paid pursuant to the provisions of Income Tax Law. That is, individuals liable to the payment of income tax have a responsibility to pay local income tax. A surcharge, pro rata local income tax, is added to income tax in computing the total tax liability (10% of income tax).

Examples of Income

Tax Calculation


Case #1. Workers receiving w age & salary income from a single w orkplace (1)

< Information > Adam working for a private English school had Wage & Salary Income during 2010 as

follows : He earned 2,500,000 every month.(Including compensation for driving one's own car of 100,000)

His family members are as follows : Adam (age 25), Wilkins (Adam's Father, age 53), Mary (Adam's mother, age 50) (His parents live his home country with gross income of US$50,000 for the tax year)

Detailed Items of Expenditures - National Pension contribution: 750,000 - Medical expenses: 450,000 - Cash receipt: 4,000,000, Debit card usage amount : 4,000,000 He didn't chose 15% flat tax rate under the article 18-2 of the RSTA. Withheld tax: 500,880(41,74012) (Local income tax is not included.)

< Calculation of Income Tax >Total Income Non-taxable incomeGross Wage & Salary Income Deduction for his Wage & Salary IncomeAdjusted Wage & Salary Income Personal Deduction Basic Deduction Pension Contribution Deduction Special Deduction Standard Deduction Other Deduction Credit card usage etc.Taxable IncomeCalculated Income Tax (15%) Tax Credit for Wage & Salary IncomeFinal Tax Liability Prepaid Tax Tax Due

30,000,000 1,200,00028,800,000

11,070,00017,730,000 1,500,000 (11,500,000) 750,000 1,000,000*1)

180,000*2)

14,300,000 1,065,000 *3)*3)*3) 444,500*4)

620,500 500,880 (41,74012) 119,620

*1) Total special deduction amount is under 1,000,000 *2) + = 180,000 [(4,000,000+4,000,000)-28,800,00025%)]4,000,0008,000,00020%= 80,000 [(4,000,000+4,000,000)-28,800,00025%)]4,000,0008,000,00025%= 100,000 *3) 720,000+[(14,300,000-12,000,000)15%] = 1,065,000 *4) 275,000+[(1,065,000-500,000)30%] = 444,500


Case #2. Workers receiving wage & salary income from a single workplace (2)

< Information > Adam working for a private English school had Wage & Salary Income during 2010 as

follows : He earned 3,000,000 every month. Adam has no non-taxable income. His family members are as follows: Adam (age 40), Mary (Adam's wife, age 35), David

(Adam's son, age 5), Wilkins (Adam's Father, age 71) (His family members who are living together in the same house are qualified dependents

with gross income of 1,000,000 or less for the tax year) He paid 500,000 for life insurance premium, 300,000 for national pension contribution,

and 4,800,000 for education fee for David in Korea. He didn't chose 15% flat tax rate under the article 18-2 of the RSTA. The amount withheld monthly by his withholding agent (the school) is as follows: Based on

the Simplified Tax Withholding Table(2010), the amount withheld matching his situation is 34,440 every month.(Local income tax is not included.)

< Calculation of Income Tax >

Total Income Non-taxable incomeGross Wage & Salary Income Deduction for his Wage & Salary IncomeAdjusted Wage & Salary Income Personal Deduction Basic Deduction Additional Deduction Pension Contribution Deduction Special Deduction life insurance premium educational expenseTaxable IncomeCalculated Income Tax (15%) Tax Credit for Wage & Salary IncomeFinal Tax Liability Prepaid Tax Tax Due

36,000,000 036,000,000

11,850,00024,150,000 6,000,000 (41,500,000) 2,000,000 (21,000,000) 300,000 500,000 3,000,000*1)

12,350,000 772,500 356,750 415,750 413,280 (34,44012) 2,470

*1) The limit of Educational expense is 3,000,000


Case #3. Workers receiving wage & salary income from two or more workplaces

< Information >

1) Taxpayer & his Employer Taxpayer: John P. (640101-5234567) Employer: ABC Co. (123-81-12345)

2) Taxpayer's Family John has his spouse, 2 children (age 13, age 5) and mother (age 75) (His family members are qualified dependents with gross income of 1,000,000 or less

for the tax year)

3) Details of Wage & Salary income for each source Gross payroll (current job): 51,000,000 - Salary: 40,000,000 - Bonus: 10,000,000 - Allowance: 1,000,000 Gross payroll of the previous job (Woori co. 123-35-12342): 15,000,000 Tax Withheld (current + previous): 4,000,000 (other than Local income tax) John has no non-taxable income.

4) Detailed Items of Expenditures National Pension contribution: 500,000 Insurance premium - National Health Insurance Premium: 300,000 - Life Insurance Premium 600,000, Car Insurance Premium: 500,000 Medical expenses - Expense to hospital for spouse: 2,000,000 - Hospital charge for mother: 1,000,000 - Payment to drugstore for mother: 400,000 - Purchase of a pair of glasses for sight recovery for mother: 300,000 Education expenses - Kindergarten Fee for a child: 1,000,000 - Middle School Fee for a child: 1,500,000 Donation to government relief funds relative to floods: 900,000 Credit Card Usage: 15,200,000 (Cash Credit Service 2,500,000 is included.)


< Calculation of Income Tax >

Global Taxation Method with Basic Tax Rate

Total Income Non-taxable incomeGross Wage & Salary Income Deduction for his Wage & Salary IncomeA djusted Wage & Salary Income Personal Deduction - Basic Deduction - Additional Deduction - For Households with Many Children Pension Contribution Deduction Special Deduction - insurance premium National Health Insurance Other Premium - medical expense - educational expense - donation - credit card usageTaxable IncomeCalculated Income Tax(15%) Tax Credit for Wage & Salary IncomeFinal Tax Liability Prepaid TaxTax D ue

66,000,000 066,000,000 13,800,00052,200,000 7,500,000 (51,500,000) 2,000,000*1)

500,000 500,000

300,000 1,000,000 1,720,000*2)

2,500,000 900,000 0*3)

35,280,000 4,212,000 500,000 3,712,000 4,000,000 288,000

Separate Taxation Method with 15% Flat Rate Final Tax Liability = 66,000,000 15% = 9,900,000

*1) the aged(1,000,000) & child under 6 years old(1,000,000) *2) expenses(3,700,000) - 3% of gross wage & salary(3% x 66,000,000) *3) Cash credit service is not included in eligible credit card usage 20% x {(15,200,000 - 2,500,000) - (25% x 66,000,000)}


[Tax Form 24(1)] (Page 1)

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