Korea:

One of the most complex issues facing TEFL teachers is that of Income Taxation. Despite the Taxation office offering a web site, many questions remain unanswered. The matter is extremely complex for we have issues of Korean Income Taxation Law and issues of Taxation treaties between Australia, Canada, New Zealand, USA and UK all differently worded. Further to this is the fact that the Korean law makes further references to foreign teachers working for the EPIK program and certain other institutions of higher learning. Thus, for any one person to ask what is his Income Tax liability begs a variety of questions outlined above.

If you have questions about your Tax, visit the Forums and post your question.

Some basic observations can be stated:

A

Employees in EPIK ( a government program inviting foreign teachers to teach) and some institutes of higher learning (universities) are Income Tax exempt for two years, with the caveat that Canadian teachers in this category are not covered by the exemption. (In the case of Korean universities, teachers must ask the Financial administration if that Institution is Taxation exempt.)

B

The second issue we can state clearly here is the calculation of monthly Income tax deductions if you do not fall into

(a) above, and thus Simplified Tax Withholding will apply to Hagwon teachers and teachers in private industry. The monthly Simplified Tax Withholding deductions can be viewed here. Your deductions, pursuant to taxation regulations, are that for salary earners. The Income Taxation Commissioner advises that some school owners incorrectly deduct Taxation based upon a belief the teacher employee comes within the Business Income taxation deduction, which is a flat 3%.

C

We have provided a two worked examples, based upon the following facts for your reference: In Example A, the teacher is working in a hagwon and is earning 2,000,000 a month gross. The hypothetical teacher is single, has no dependents, and is paying 4.5% National Pension Deduction. In this example, in which 'Simplified Taxation Withholding ' pursuant to the scale is deducted, the teacher will have a further Income Tax liability at the end of his one year contract and have to pay a further 126,180 Won out of the final pay. (Plus Income Tax on his final severance pay )

 

In Example B, the teacher is married, has other family dependents, and has paid some fees for his children's education. In this case, where the teacher earned 2,500,000 Won per month, and has Simplified Tax Withholdings, he must pay a further 37,200 Won.

c1) Severance Pay is subject to different provisions of the Tax code. The following link to the Korean Tax Office will help you understand your monthly Tax and how much you will receive back or owe on your yearly tax assessment.

D

Some teachers become confused by the amount deducted from their salary. It is important to realize that the deduction may consist of the Simplified Tax Withholding, the National Pension Deduction, and Medical Insurance Premium, thus you should ask the employer to specify which is which, and obtain official documentation from ALL of them showing your membership.

E

FAQs.

i) Can I ask the employer to give me a copy of my Taxation Certificate? Yes, you should. Every employer MUST submit in February a "Receipt for Wage & Salary Income Taxes Withholding" form. Ask for a copy of this. This must be prepared at the end of your contract and is proof of Taxes to be paid to the KTO.
ii) I have only been in Korea 6 months working for my school. Am I classified as a resident for Taxation purposes? You may meet the criterion if your job is classified as one that substantially needs a one year or more stay in Korea, and as you are on a one year contract, you a deemed a resident for taxation purposes.
iii) If I pay tax in Korea must I pay tax in my home country?
iv) I receive additional salary for 'housing allowance.' Is it taxable? When the university/employer purchases or rents a residence under its name and provides it to expatriates, the housing benefits are not taxable for those expatriates.

When the university gives expatriates housing allowances, then the allowances are taxable as additional salaries. However, foreign service allowances, including housing allowances, are excludable up to one sixth of total remuneration (salary + bonus + allowances).

Income Tax Returns.

 

Every May, a residence in Korea is normally expected to file a yearly income tax return for his taxable income. However, the alien resident is not required to file the yearly tax return if he has one of the following things.

1) Only wage and salary earnings from which his income tax was withheld and paid by and through the employer or taxpayers associations.
2) Only retirement income from which his income tax was fully withheld through the employer or taxpayers association.
3) Only interest income from which his income tax was fully withheld.
4) Only dividend income from which his income tax was fully withheld.
5) Only other income from which his income tax was fully withheld.

The regular return period begins on May 1 and ends on May 31 of every year. For tax purposes, an individual taxpayer must use a calendar year as his taxable period

He has to file his return with the district tax office (DTO) having jurisdiction over his domicile. If he lives in a local country or city, he may first contact the regional tax office to find out the location of his relevant DTO.

Principally, a residence is any individual; 1) Who has a domicile in Korea, 2) Who has a place of residence in Korea for a year or more, 3) Who has an occupation which would require him to reside in Korea for a year or more, or 4) Who has his family in Korea and is likely to reside in Korea for a year or more in view of his occupation or assets held in Korea.

An alien who is planning to stay in Korea for more than 90 days is required to obtain an individual residence certificate from the Immigration Office.

The resident registration (Alien Registration Card) number is given by the Immigration Office. It is important for him/her to use his number on each and every tax-related document because it is also used as the alien's identification number for tax purposes during his stay in Korea.

Return to Korean Index list