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Understanding the Korean Tax System: A Comprehensive Guide for Expat Taxpayers

Korea's tax system can be confusing, especially for expat taxpayers. One common question revolves around the fluctuating tax payments and refunds each year. Let's take the example of an E2 Visa holder who started his job in May 2020.

In the first year, he earned around 20 million won, had approximately 600,000 won (3%) withheld, and received a return of about 240,000 won. The following year, he earned around 30 million won, had aound of 900,000 won withheld, and needed to pay an additional 100,000 won. In 2022, despite earning 28 million won and having 840,000 won withheld, he had to pay an extra 1.3 million won in May 2023.

This seemingly erratic tax system is due to different expense rates applied each year – the Simple Expense Rate (61.7%*Gross Income) and the Standard Expense Rate (27.7%*Gross Income) for a teaching jobs.

For this individual, the Simple Expense Rate was applicable for the first year (as his income was less than 24 million won in 2019). However, for the third year, the Standard Expense Rate was applied (as his income exceeded 24 million won in 2022). These expense rates are determined based on the previous year's gross income and are set by the National Tax Service (NTS), not by your tax accountant.

However, taxpayers have the option to file under the bookkeeping system instead of the Expense Rate System. Typically, this is recommended when you fall into the Standard Expense Rate System while earning more than 24 million won. This is because, under the standard rate system, you may end up paying around 600-900,000 won more.

But there's a catch. With the bookkeeping service, you need to prove you paid more than 60% of gross income; otherwise, this option is not beneficial. There have been cases where tax accountants have filed without evidence, leading to legal consequences and triggering tax investigations for their clients.

If your gross income exceeds 75 million won, it's highly recommended to use a Double-entry Bookkeeping service. This can potentially reduce your tax and risks while providing a complete record of your bank account transactions with check and credit card statements.

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1. What is the difference between the Simple Expense Rate and Standard Expense Rate in Korea?


Keywords: Korean Tax System, Expat Taxpayers, E2 Visa Holder, Simple Expense Rate, Standard Expense Rate, National Tax Service, Bookkeeping System, Double-entry Bookkeeping Service.


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