Employers in South Korea have several tax responsibilities. One of the primary responsibilities is withholding income tax from employee salaries each month. The tax rates are progressive, ranging from 6% to 45%. The National Tax Service of South Korea (NTS) provides simplified withholding tax tables to streamline the calculation process. The withheld income tax must be submitted to the relevant district tax office by the 10th of the following month. Additionally, employers must complete a year-end tax settlement report by February of the following year to finalize employees' tax liability.

Social Security Contributions

Employers are also obliged to make contributions to various social security schemes in South Korea. These include:

• National Pension: Employers contribute 4.5% of employee salaries (matched by the employee's contribution).
• National Health Insurance: Employers are liable for 3.50% of employee salaries (matched by the employee's contribution).
• Employment Insurance: The contribution rate ranges from around 0.9% to 1.65% of salaries depending on the industry sector.
• Long-Term Care Insurance: Employers contribute 0.43% of employee salaries.
• Worker's Compensation Insurance: The rate depends on the industry, with contributions solely made by the employer. Rates range between 0.7% and 18.6%.

Resident (Local) Surtax

Another responsibility is the payment of a resident (local) surtax. A 10% surtax applies to income tax payable. This surtax is paid along with income tax payments.

In South Korea, there are several types of employee tax deductions.

Income Tax

This is a graduated tax levied on an individual's earned income. The rates are progressive, increasing as income rises.

Social Security Contributions

These contributions support public programs. They include the National Pension, which is a mandatory retirement savings plan, National Health Insurance that provides health coverage, Employment Insurance offering unemployment benefits, and Long-Term Care Insurance supporting care for the elderly or those with severe disabilities.

Special Purpose Taxes

These include the Local Income Tax, which is a surcharge on income tax, calculated as a percentage of income tax liability, and the Resident Tax, a flat tax levied on residents.

Eligibility Criteria

Income Tax is applicable to all individuals earning income in South Korea, including residents and non-residents. Foreigners may opt for a flat 19% tax rate under specific circumstances. Social Security Contributions are generally mandatory for employees working in South Korea, with exemptions possibly applying based on social security agreements between South Korea and other countries. Special Purpose Taxes' eligibility varies but usually applies to residents.

Calculation Methods

Income Tax is calculated based on taxable income after applicable deductions. The tax brackets and rates can change, so it's crucial to use the most recent tax tables. Social Security Contributions are usually computed as a percentage of an employee's gross salary. The calculation methods for Special Purpose Taxes vary, with local income tax being a percentage of income tax and the resident tax being a fixed amount.

In South Korea, the standard VAT rate is 10%, which applies to most services. However, certain services qualify for a zero-rate VAT. These are typically services provided to non-residents or foreign corporations when used to earn foreign currency, although certain conditions and exceptions apply. Examples of these services include professional services, business support, and investment advisory services.

Exemptions

There are also specific services that are VAT-exempt in South Korea. These include essential services such as basic necessities, medical, health, educational, and financial services. Cultural services, such as performances and exhibitions, are also exempt, as are social welfare services.

Filing Procedures

VAT returns in South Korea are generally filed quarterly and are due within 25 days after each quarter ends. Additionally, e-filing of VAT invoices is mandatory in the country.

South Korea provides a range of tax incentives to attract investment and stimulate specific business activities. These incentives come in various forms, and their eligibility criteria and application processes differ.

Types of Tax Incentives

Corporate Income Tax (CIT) Reduction/Exemption:

• Certain industries or business activities such as R&D, green technologies, and startups can benefit from reduced tax rates.
• In some cases, a complete CIT exemption is available.

Tax Credits:

• Businesses can claim credits against their tax liability for activities like R&D investment, hiring new employees, and training costs. The specific credit rates and eligibility criteria vary depending on the program.

Special Deductions:

• Businesses can deduct a higher percentage of specific expenses from their taxable income, such as depreciation on qualifying assets used in designated regions or industries.

Investment Tax Incentives:

• Tax breaks or deductions are offered for investments in specific equipment, facilities, or infrastructure projects that align with government priorities.

Qualification Criteria

Eligibility for tax incentives depends on several factors:

Industry: Some incentives target specific industries like manufacturing, biotechnology, or tourism.

Location: Incentives may be offered to businesses operating in designated regions or free economic zones.

Company Size: Programs often favor Small and Medium-Sized Enterprises (SMEs) or startups.

Activities: Incentives might reward investments in R&D, job creation, or environmental sustainability efforts.

Application Process

The application process varies depending on the specific incentive program. It typically involves:

1. Gathering required documentation: This might include business licenses, financial statements, and project proposals.
2. Submitting an application: Applications are often submitted to the National Tax Service (NTS) or a relevant government agency.
3. Awaiting approval: The government agency will review the application and determine eligibility.