19% Flat Tax Rate: Tax Exemption for Expat Employees
Eligibility:
- Foreign workers (excluding daily workers) who do not hold Korean nationality as of the end of the relevant tax year.
- The labor provision must begin before December 31, 2023, in Korea (excluding labor provided to special relationship companies).
Reduction Details:
- Instead of applying the comprehensive income tax rate, a single tax rate of 19% is applied to labor income.
- Exemptions, deductions, reductions, and tax credits are not applicable to the labor income.
Applicable Period:
- The tax exemption is applicable for 20 years.
For example if you start in Jan.01, 2014, it's applicable until the end of 2033FY, even if you've been here from 2010FY.
To apply for the Flat tax rate exemption for foreign employees, the following steps must be taken:
1. Submit the "Application for Flat Tax Rate Exemption for Foreign Employees" along with the year-end tax settlement or the determination of comprehensive income tax base according to the criteria for executing Article 26 of the Special Taxation Act to the withholding agent(Employer), tax association, or the tax office having jurisdiction over the taxpayer.
2. The income tax withholding agent(Employer) should withhold 19% of the labor income and pay the remaining amount to the foreign employee.
3. If a foreign employee who has submitted the "Application for Single Tax Rate Exemption for Foreign Workers" later submits the "Application for Waiver of Single Tax Rate Withholding," the exemption will not be applicable starting from the next taxable period after the submission date.
Tax Exemption for the Employer's Portion of Foreign Employees' Home Country Pension Insurance Premiums
When a foreign worker provides labor to a domestic corporation in accordance with a social security agreement between the sending country and the foreign country, and is exempt from joining the pension system of the foreign country where they are on assignment, the portion of the home country pension insurance premiums that the domestic corporation bears on behalf of the foreign employee is not included in the comprehensive income tax base according to Article 14(2) of the Income Tax Act. However, when applying tax exemptions for foreign employee under Article 18-2 of the Special Taxation Limitations Act, it is considered as taxable income.
Please note that this information is based on the available sources and may not be exhaustive. For more detailed and accurate information, it is recommended to refer to official sources such as the relevant legislation or consult with a tax professional.
[1]: "Special Taxation Act" [Effective from January 1, 2023]
For more details, please send an e-mail to jz@taxjz.com or If you would like a free consultation with an English-speaking Accountant in Korea, please schedule a call at: Schedule a Call with Jz
