How to Report Freelance Income from Abroad in Korea
If you are residing in Korea and receiving a freelance-type salary from a foreign company without a legal entity in Korea, it may not qualify as employment income (근로소득) under Korean tax law. Here’s how to handle this situation and report your income correctly:
1. Why It’s Not Considered Employment Income
Under Korean tax law, employment income typically applies when:
There is an employer-employee relationship.
The employer has a legal presence or registration in Korea.
If the company paying you does not have a legal entity or registration in Korea, your income might not be categorized as "employment income" but rather as business income (사업소득) or other income (기타소득).
2. How to Report Your Income
You must report the income under the correct category. Here's how it works:
A. Business Income (사업소득)
This is the most common category for freelancers or independent contractors.Steps to report:
Register as a business entity (사업자등록) with the Korean tax office.
Report your income periodically (monthly or quarterly) through VAT returns if required.
File an annual tax return for total income, deducting any allowable expenses.
💡 Benefits:
You can deduct legitimate business expenses, such as equipment, internet, and office space.
Tax rates vary depending on income, starting at 6% and scaling up.
B. Other Income (기타소득)
If the income is irregular or does not fit into other categories, it might be reported as "other income."Steps to report:
Include it in your annual tax return.
The tax rate for other income is generally 20% but can vary depending on the situation.
💡 Important: Check with a tax advisor to determine the appropriate category based on your contract and work type.
3. Tax Rate for Business or Other Income
Business Income: Progressive tax rates starting at 6% up to 45% for higher income brackets.
Other Income: A flat rate (often 20%) unless specified otherwise.
Comparing this to the 19% flat rate for employment income, reporting correctly as a freelancer may provide opportunities for tax optimization through deductions.
4. Documents Required for Reporting
Prepare these documents to ensure compliance:
Contract or agreement with the foreign company.
Proof of income (e.g., bank statements, invoices).
Records of business expenses, if applicable.
5. Professional Advice
Korean tax regulations can be complex, especially for expatriates or foreign income earners. Engage a tax accountant experienced in expat taxation to:
Ensure correct categorization of income.
Maximize deductions and credits.
Avoid penalties for incorrect filings.
By properly categorizing your income and reporting it through the correct channels, you can comply with Korean tax laws while potentially optimizing your tax liability.
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