National Tax Service

For Press Release on Wednesday, December 23, 2008

Guide to the Year-end Tax Settlement for foreigners - by the automatic calculation offered in English -

The schedule of the Year-end Tax Settlement is same for both Korean natives and foreign workers.

□ As Korea is transforming to a multi-cultural nation with a growing number of influx of foreign workers, the population of foreigners is increasing.

Therefore, the NTS will provide various programs to help foreigners who are not acquainted with Korean taxation and having language barriers. The programs will help foreigners understand the Year-end Tax Settlement so that they may better comply with the Korean tax law.

* Number of foreigners who filed the Year-end Tax Settlement : 242 thousand (attributable to the year 2006) ⇨ 282 thousand (attributable to the year 2007) ⇨ 345 thousand (attributable to the year 2008)

□ All workers who have wage/salary income are subject to the Year-end Tax Settlement (excluding daily workers). That is, foreign workers are also to submit the final return of deductions with supporting documents to their withholding agents around the end of January 2010.

Workers need to check the changes of the Korean tax law beforehand and prepare supporting documents for deductions in order not to miss any qualified deductions by referring to ｢Easy-guide｣.

- If a foreigner whose place of residence is registered in Korea gets the Public Internet Certificate, he/she can easily retrieve supporting documents that are needed to be obtained to claim deductions through the service offered in the ｢Simplified Year-end Tax Settlement Web-site｣.

* Insurance premiums, medical expenses, educational expenses, Housing funds, Credit card usage, Private pension plans, pension savings, retirement savings, Home purchasing savings, Membership fees for Small enterprises/small and micro businessmen association, and long-term equity type savings

☞ The Simplified Year-end Tax Settlement service is offered in www. yesone.go.kr.

Key Instructions for foreign workers applying for deductions

□ As the Korean Tax Law classifies an individual either as a resident or non-resident regardless of his or her nationality, the area of deductions is differentiated based on his or her being a resident.

○ If a foreigner whose "domicile" is in Korea or whose occupation requires a "place of residence" in Korea of at least one year or more, he/she is deemed a resident of Korea, he/she is qualified for deductions in every applicable area.

- NOTE: The subject of deductions does not count ‘credit card usage’ or ‘medical expenses’, etc. spent in a foreign country.

○ For a non-resident, the personal deduction is only qualified for the taxpayer himself/herself.

- Basic deduction of 1.5 million KRW for the taxpayer himself/herself, deduction for pension contribution, deduction of 1 million KRW for the senior taxpayer whose age is 70 or older (the aged), deduction of 0.5 million KRW for the female taxpayer who has spouse or dependent family members (qualified females), and deduction of 2 million KRW for the disabled person.

* Appendix I. Deduction comparison between residents and non-residents

□ Special tax treatment for foreign workers

○ According to the Korean Tax Law, the definition of the foreigner qualified for special tax treatments is a foreigner with foreign nationality, a Korean with foreign nationality, as well as a Korean with Korean nationality having the right of permanent residence in a foreign country.

① A foreign worker can choose whichever method he/she thinks more advantageous between (a) receiving non-taxation treatment on 30% of the gross wage/salary income earned in Korea and then conducting the Year-end Tax Settlement and (b) applying a 15% flat rate on the total income from employments. (Article 18-2, Restriction of Special Tax Treatment Act)

② If a foreign engineer who works on a technology-transfer contract or who works as a research worker in a research institute for science technology provides his/her service to the Korean resident (individual or domestic corporation) in Korea, his/her wage/salary income tax is exempted for 5 years. (Article 18, RSTA)

③ If a foreigner whose country of residence has a tax exemption provision for teachers/professors in its tax treaty with Korea meets the requirement for tax exemption, his/her income paid for his/her teaching/research in the authorized school is exempt from tax for a period not exceeding 2 years.

* A foreign English teacher who is a resident among US, UK, Australia, New Zealand, Ireland, or the Republic of South Africa at the time when he/she enters Korea is qualified for tax exemption.

○ To be qualified for 15% flat rate treatment ((b) of ①), tax exemption for foreign engineers (②), or tax exemption under the tax treaty (③), a foreigner is required to submit an application for those treatments.

* Refer to □ in the Appendix III, Frequently Asked Questions by foreign taxpayers on the Year-end Tax Settlement.

Year-end Tax Settlement for foreigners

Residency

Test

Resident

Non-

resident

Flat rate

Deductions after non- taxation of 30%

Applying Tax rate of 15% with no deductions

Personal deductions for taxpayer him/herself after non- taxation of 30%

Applying Tax rate of 15% with no deductions

No

Yes

No

Yes

Flat rate

No

Yes

Other Year-end Tax Settlement services available for foreign taxpayers

□ The NTS is providing various taxpayer services to help foreign taxpayers understand the Korean tax law and make the Year-end Tax Settlement more easily.

□ The Year-end Tax Settlement through the NTS website

○  ｢Easy Guide｣ provides contents of major changes in the tax laws regarding the Year-end Tax Settlement for foreigners, how to get income deductions, FAQs, how to fill in the forms, etc.

☞ www.nts.go.kr/eng ＞＞ ｢2009 Year-end Tax Settlement｣ ＞＞ ｢Easy Guide｣

	Contents of the Easy Guide
○ Classification of a resident or non-resident and withholding system ○ Scope of wage/salary income and non-taxable income and other tax exemptions/deductions. ○ Examples of calculation and tax forms for foreign workers who work in more than one workplace, foreign teachers, and foreign engineers ○ ｢Receipts for wage/salary income tax withholding｣ and ｢the application form for deductions｣ ○ Major changes in the tax laws which foreigners should know

○ The NTS offers an ｢automatic calculation service｣ for the Year-end Tax Settlement in its website for foreigners himself/herself to calculate their final tax liability. A foreigner may choose either non-taxation treatment on 30% of gross wage/salary income or 15% flat rate method.

☞ www.nts.go.kr/eng  ＞＞  ｢2009 Year-end Tax Settlement｣  ＞＞ ｢Automatic Calculation Service｣

- 30% exemption method: 30% of gross wage/salary income is deducted automatically, and then deductions such as personal deduction, etc. can be applied on the left amount.

- 15% flat rate method: A flat rate of 15% is applied on the total income from employments. Exemptions and deductions shall not be applied.

□ ｢Foreign Taxpayer Service Desk｣ is available in 45 district tax offices most frequently visited by foreign taxpayers so that the tax offices can quickly respond to foreign taxpayers' requests.

Region	District tax offices with ｢Foreign Taxpayer Service Desk｣	Total(45)
Seoul	All	24
Jungbu	Ansan, Goyang, Incheon, Nam-Incheon, Seo-Incheon, Pyeongtaek, Seongnam, Siheung, Suwon, Uijeongbu	10
Daejeon	Cheonan, Seo-Daejeon	2
Gwangju	Mokpo, Seo-Gwangju	2
Daegu	Gumi, Seo-Daegu	2
Busan	Busanjin, Buk-Busan, Changwon, Suyoung, Ulsan	5

□ Tele-consultation service through ｢Interpretation Service for Foreigners｣

○ Foreigners can have a tele-consultation on the simplified Year-end Tax Settlement and simple explanation regarding tax law on the Year-end Tax Settlement at ☏110 [Government Call Center].

○ Apart from the consultation service in Korean language in the NTS Customer Satisfaction Center (☏1588-0060), foreigners can have the tele-consultation through ｢Interpretation Service for Foreigners｣ by calling the nearest district tax office.

	Available Languages
English, Chinese, Japanese, French, Russian, German, Spanish, Vietnamese, Mongolian, Indonesian, Thai, Bengalese, Urdu, Nepalese, Khmer, Myanmarese, and Arabic

○ The NTS also offers the Hot-line in English (☏02-397-1440) for the Year-end Tax Settlement for foreigners.

□ The NTS will further continue to develop various taxpayer services to help foreigners comply with their tax liabilities without any inconvenience.

Released on		Tuesday December 22, 2009		Drafting Division	International Tax Resource Management Division
Director in Charge		Lee, Dong-shin (Tel:82-2-397-1431)		Deputy Director in Charge	Cho, Se-hee (Tel:82-2-397-1452)

Appendix I.  Deduction comparison between residents and non-residents

Type		Deductibility		Note
		Resident	Non-resident
Total wage and salary income		Including Foreign- source income	Domestic-source income	Article 119, Income Tax Act
30% non taxation treatment		◯	◯	Applicable only for foreigners
Deductions for wage and salary income		◯	◯
Personal deductions	Basic deductions (Self, spouse, dependent family)	◯	Self only	Article 122, Income Tax Act
	Additional deductions (Aged, disabled, qualified female, etc.)	◯	Self only	Article 122, Income Tax Act
	Additional deductions for multiple children	◯	X	Article 122, Income Tax Act
Deductions for pension contributions		◯	○	Deductible, if participant of pension plan
Special deductions	Insurance fees	◯	X
	Educational expenses	◯	X
	Medical expenses	◯	X
	Housing fund	◯	X
	Donations	◯	X
	Interest payment of loans for long-term housing mortgage	◯	X
	Standard deduction	◯	X
Other income deductions	Pension savings	◯	X
	Membership fees for Small enterprises/small and micro businessmen association	◯	X
	Home purchase savings	◯	X
	Establishment funding of investment association	◯	X
	Credit card	◯	X
	Long-term equity type savings	◯	X
	Workers in S./M enterprises which maintain the same employment level	◯	X
	Pension contributed by Employee stock ownership association	◯	△	Deductible if joined in the association
Tax Rate		Basic tax rate or 15%	Basic tax rate or 15%	When applied a tax rate of 15% to foreigner, no further deduction is given
Tax credits, etc.	Wage and salary income	◯	◯
	Political funds	◯	X
	Deduction for members' withheld amounts by the association of Class B income earners	◯	◯	When joined and withheld by the association
	Tax payment to foreign tax authorities	◯	X

Appendix II.  Example of the Year-end Tax Settlement for a foreign worker

Case I	Foreign workers who work in a single workplace

⦁ Wage/salary income earner (age 37), income of 70 million KRW attributable to the year 2009

⦁ Dependent family members qualified for deduction: spouse (age 35), son (age 5), father (age 65)

* All should reside in Korea. In case of the linear ascendant, separate residence due to the residential situation is also counted.

⦁ Expenses:

- Life insurance of 0.5 million KRW, national pension of 0.3 million KRW

- Educational expense of 1 million KRW

⦁ Withholding amount: 161,980 KRW every month (non-taxation of 30% applied) (not including inhabitant tax)

(Unit : KRW)

Tax Rate Category		Non-taxation of 30%	Flat tax rate
Total income from employments		70,000,000	70,000,000
Non-taxable income		1,000,000
Non-taxation of 30%		20,700,000
Gross wage & salary income		48,300,000
Deduction for wage & salary income		12,915,000
Personal deduction	Basic deduction	6,000,000
	Child support	1,000,000
Pension contribution		300,000
Insurance premium		500,000
Education expenses		1,000,000
Tax base		26,585,000	70,000,000
Calculated income tax		3,053,600	10,500,000
Tax credit for wage & salary income		500,000
Final tax liability		2,553,600	10,500,000
Pre-paid tax		1,943,760	1,943,760
Taxes due		609,840	8,556,240

Case II	Foreign workers who work in more than one workplace

⦁ Wage/salary income earner (age 33)

- Income from the current workplace: 200 million KRW

- Income from the previous workplace: 50 million KRW

- Withholding amount (The amount withheld by the previous and the current workplaces) : 5,800,000 KRW (not including inhabitant tax)

⦁ Dependent family members qualified for deduction: Spouse (age 31), mother (68)

* All should reside in Korea. In case of the linear ascendant, separate residence due to the residential situation is also counted.

⦁Expenses

- National Pension of 0.5 million KRW, national health insurance of 0.3 million KRW

- Life insurance of 0.6 million KRW, car insurance of 0.5 million KRW

(Unit : KRW)

Tax Rate Category		Non-taxation of 30%	Flat tax rate
Total income from employments		250,000,000	250,000,000
Non-taxation of 30%		75,000,000
Gross wage & salary income		175,000,000
Deduction for wage & salary income		19,250,000
Personal deduction	Basic deduction	4,500,000
Pension contribution		500,000
Insurance premium		1,300,000
Tax base		149,450,000	250,000,000
Calculated income tax		38,167,500	37,500,000
Tax credit for wage & salary income		500,000
Final tax liability		37,667,500	37,500,000
Pre-paid tax		5,800,000	5,800,000
Taxes due		31,867,500	31,700,000

Case III	Foreign workers who work in a single workplace and qualified for tax exemption under the tax treaty

⦁ Wage/salary income earner (age 37), income of 50 million KRW attributable to 2009 (Income tax is exempted under the tax treaty.)

* Income paid to professors/teachers for teaching/research for a period not exceeding 2 years

⦁ Dependent family members qualified for deduction: Spouse (age 37)

⦁ Expenses:

-  National pension of 1.3 million KRW, national health insurance of 0.7 million KRW, credit card usage of 10 million KRW

(Unit : KRW)

Tax Rate Category		Non-taxation of 30%	Note
Total income from employments		50,000,000
Non-taxation of 30%		15,000,000
Gross wage & salary income		35,000,000
Deduction for wage & salary income		11,750,000
Personal deduction	Basic deduction	3,000,000
Pension contribution		1,300,000
Standard deduction		1,000,000*1)
Credit card usage		600,000	(10,000,000 - 35,000,000 × 20%) × 20%
Tax base		17,350,000
Calculated income tax		1,576,000
Exempted tax amount under the tax treaty		1,576,000
Final tax liability		0
Pre-paid tax		0
Taxes due		0

*1) If special deduction amount is less than 1 million KRW, the standard amount of 1 million KRW is applied.

Case 4	Tax exemption-qualified foreign engineers also having wage/salary income which is not the subject of tax exemption

⦁ Wage/salary income earner (age 38), 50 million KRW of wage/salary income attributable to 2009

-  30 million KRW is from the previous workplace(the income tax is exempted under the Article 18 of the Restriction of Special Taxation Act)

- 20 million KRW is from the current workplace

⦁ Dependent family members qualified for deduction: Spouse (age 35)

⦁ Expenses: National Pension of 1.3 million KRW, national health insurance of 1 million KRW, credit card usage of 10 million KRW

⦁ Total withholding amount: 150,480 KRW (not including inhabitant tax)

(Unit : KRW)

Tax Rate Category		Non-taxation of 30%	Flat tax rate
Total income from employments		50,000,000	50,000,000
Non-taxable income		0
Non-taxation of 30%		15,000,000
Gross wage & salary income		35,000,000
Deduction for wage & salary income		11,750,000
Personal deduction	Basic deduction	3,000,000
Pension contribution		1,300,000
Standard deduction		1,000,000
Credit card usage		600,000
Tax base		17,350,000	50,000,000
Calculated income tax		1,576,000	7,500,000
Income tax exemption for foreign engineer		945,600 1,576,000 × 30,000,000/50,000,000	4,500,000
Tax credit for wage & salary income		314,120
Final tax liability		316,280	3,000,000
Pre-paid tax		150,480	150,480
Taxes due		165,800	2,849,520

Appendix III.  Frequently Asked Questions by foreign taxpayers on the Year-end Tax Settlement

□ If a person with Philippine citizenship is working as an English teacher in Korea on a 2-year contract, is he/she a resident or not?

He/she is a resident if he/she needs to stay in Korea for one year or longer as an English teacher even though his/her family is in the Philippines.

○  Since he/she is a resident, he/she is eligible for personal deduction, special deduction, tax credit, etc.

※ Relevant law: Article 1 of the Income Tax Act, Article 2 of the Enforcement Decree of the Income Tax Act

□ If a foreign worker, who is a resident, has another income source overseas, how can he/she make the Year-end Tax Settlement?

○  The wage/salary income received from an overseas place of employment is counted as Class B Income.

Therefore, the income from the overseas place of employment is first withheld through the Class B taxpayer association, and then the Year-end Tax Settlement is to be conducted for the combined income in the principal working place.

○  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.

※ Relevant law: Article 20 of the Income Tax Act, Article 137 of the Income Tax Act, Article 3 of the Income Tax Act (Scope of Taxable Income, amended on Dec. 26, 2008)

□ When a foreign taxpayer residing in Korea has parents living overseas, can he/she receive personal deductions regarding his/her parents?

His/her income is deductible if the income amount of the parent is not more than 1 million KRW, and the parents are separated from the taxpayer for the residential situation.

○  Documentary evidence to prove that the persons living overseas are his/her own parents, that the parents' annual income amount is not more than 1 million KRW and that he/she is actually supporting the parents should be submitted.

- If the parents are 70 or older, the taxpayer is eligible not only for basic deduction but also deduction for the aged.

- If his/her spouse or dependents living overseas earns not more than 1 million KRW per year, the taxpayer is eligible for income deduction for them.

※ Relevant law: Article 50 and 53 of the Income Tax Act, Article 106 of the Enforcement Decree of the Income Tax Act

□ Are medical expenses paid to a medical institution overseas deductible?

Medical expenses paid to an overseas medical institution are not deductible.

○ Medical expenses paid to a medical institution located overseas are not deductible because medical institutions located overseas are not considered as a medical institution prescribed in the Article 3 of the Medical Service Act.

※ Relevant law: Item 3 of the Clause 1 of the Article 52 of the Income Tax Act, Article 110 of the Enforcement Decree of the Income Tax Act

□ Are the donations made by a domestic resident to an overseas charitable organization deductible?

The donations made by a domestic resident to an overseas charitable organization can be deductible only when the charitable organization is registered in the competent offices of Korea or meets certain regulatory criteria.

○ To get income deduction for the donations he/she made, the charitable organizations to which he made the donations should be registered in the charitable authorities in Korea or satisfy certain regulatory criteria.

※ Relevant law: Article 34 of the Income Tax Act, Article 80 of the Enforcement Decree of the Income Tax Act

□ Are the education expenses deductible if a foreign taxpayer working in Korea paid educational expenses to a foreign education institution for children studying overseas?

The education expenses can be deductible only when the overseas education facility meets the qualification of the Korean relevant laws and the children studying overseas are qualified as a "student" as prescribed under the related laws.

○ In order for a foreign taxpayer working in Korea to get deduction on education expenses paid for children overseas, foreign education facilities should be qualified as "schools" prescribed in Korea's relevant laws (Early Childhood Education Act, Higher Education Act).

- To be a "student", the taxpayer's child should be a student who is studying overseas after the child received admission or invitation from a foreign education facility or a research institution according to the Article 5 or 15 of the Provision for Overseas Study.

※ Relevant law: Article 52 of the Income Tax Act, Article 110-3 of the Enforcement Decree of the Income Tax Act

□ Is a Korean having a right of permanent residence in a foreign country also treated as foreign workers who are qualified for "Special Tax Incentive Granted to Foreign Workers (Non-taxation of 30% or flat rate of 15%)"?

"Special Tax Incentive Granted to Foreign Workers (Non-taxation of 30% or flat rate of 15%)" is also applicable to Korean residents abroad even when the Korean national is with a right of permanent residence to stay in a foreign country under the Article 18-2 of the Restriction of Special Tax Treatment Act.

※ Relevant law: Article 18-2, Restriction of Special Tax Treatment Act

□ What kind of documents should a foreign worker qualified for special tax treatments submit in order to apply for tax exemption or deductions?

○ In case of selecting non-taxation of 30%

⇨ A Certificate of the Facts of Alien Registration should be submitted when filing the Year-end Tax Settlement for the first time.

○ In case of selecting a flat rate of 15%

⇨ Summit an ｢Application for a Flat Rate Taxation for Foreign Workers｣ to the withholding agent.

* Relevant law: Article 16-2, Enforcement Decree of the RSTA

○ For foreign engineers qualified for tax exemption

⇨ Submit an ｢Application for Tax Exemption on Wage/salary Income of Foreign Engineers｣ to the competent tax office by the 10th day of the following month of the month in which he/she started working.

* Relevant law: Clause 2, Article 16, Enforcement Decree of the RSTA

○ For foreign English teachers qualified for tax exemption under the tax treaty

⇨  Summit an ｢Application for Tax Exemption/deduction on Wage/salary Income under Tax Treaty｣ to the educational institution where he/she works. Then the educational institution is to submit the application with the foreign teacher's residence certificate and the contract to the competent tax office by the 9th day of the following month of the month in which the educational institution paid the first salary to the foreign teacher.

* Relevant law: Article 156-2 of the Income Tax Act, Article 207-2 of the Enforcement Decree of the Income Tax Act