South-KoreaTax Obligations Detailed

In South Korea, employers face various tax obligations, including income tax withholding, social security contributions, and local income tax.

Income Tax

• Withholding: Employers withhold income tax monthly from employee salaries. The tax rate is progressive, ranging from 6% to 45%, excluding the 10% local income tax. A flat rate of 19% (excluding local tax) applies to foreign employees with less than five years of residency, provided they started working before the end of 2026. The final tax liability is finalized by February of the following year and filed by March 10th.
• Local Income Tax: This surtax is levied at 10% of the income tax amount, making the total tax liability range from 6.6% to 49.5%.

Social Security Contributions

• National Pension (NP): Employers and employees each contribute 4.5% of the employee's salary, up to a monthly salary cap of KRW 6,170,000. The maximum monthly contribution is KRW 277,650 from July 2024 to June 2025.
• National Health Insurance (NHI): Both employers and employees contribute to NHI. Specific rates depend on various factors and require further investigation for precise figures.
• Employment Insurance (EI): Employers and employees contribute to EI. Contribution rates and details require additional research.
• Workers' Compensation Insurance (WCI): Employers contribute to WCI, but employees do not. The contribution rate varies based on industry and risk assessment. Specific details require further investigation.

Corporate Income Tax (CIT)

• Rates: CIT is levied on resident corporations' worldwide income and non-resident corporations' Korean-source income. The tax rate is progressive:
  • Up to KRW 200 million: 9%
  • KRW 200 million to KRW 20 billion: 19%
  • KRW 20 billion to KRW 300 billion: 21%
  • Over KRW 300 billion: 24%
  • These rates exclude the 10% local income tax.
• Additional Tax: A 20% additional tax applies to excess corporate earnings reserves for certain companies until December 31, 2025. This applies to companies within conglomerate groups subject to cross-shareholding restrictions.
• Special Tax for Rural Development: A 20% surtax may be levied on reduced CIT liability when certain tax credits or exemptions are claimed.
• Filing: Annual CIT returns are due by April 1st of the following year, along with necessary tax payments. Local income tax returns are due by April 30th.

Value Added Tax (VAT)

• Standard Rate: The standard VAT rate is 10%.
• Filing: VAT returns are filed quarterly due to preliminary reporting. Taxable periods are from January 1st to June 30th and July 1st to December 31st.

This information is current as of February 5, 2025, and is subject to change. It's important to consult official sources or tax professionals for the most up-to-date and specific details relevant to your situation.

In South Korea, employees are subject to various tax deductions, impacting their net income. These deductions fund social security programs and other government initiatives.

Income Tax

Income tax is a progressive tax, meaning higher earners pay a larger percentage of their income in tax. Foreign workers have the option of a flat 19% income tax rate for up to 20 years, forgoing other deductions. As of 2025, general employees and daily workers follow separate deduction guidelines. Those earning below a certain threshold are exempt from filing a tax return. Specific progressive tax rates and thresholds are adjusted annually, so it is advisable to consult the latest National Tax Service guidelines for specific figures.

Social Security Contributions

• National Pension (NP): Employees contribute 4.5% of their salary, matched by their employer for a total of 9%. The monthly contribution is capped at KRW 277,650 (as of July 2024 - June 2025), based on a monthly salary ceiling of KRW 6,170,000.
• National Health Insurance (NHI): Both employees and employers contribute to NHI. Specific contribution rates vary based on income and are subject to annual revisions.
• Employment Insurance (EI): Employees and employers contribute to EI, providing benefits in case of unemployment. Rates are subject to change.
• Workers' Compensation Insurance (WCI): Employers are solely responsible for WCI contributions, covering work-related injuries or illnesses. Rates vary based on industry risk factors.

Other Deductions

• Year-end Tax Settlement: All foreign employees (excluding daily workers) must complete their year-end tax settlement by the end of February. This process reconciles taxes withheld throughout the year with the final tax liability, leading to either a refund or additional payment.
• Deductions and Allowances: Various deductions, allowances, and credits are permitted, including an earned income deduction, credits for qualifying medical expenses, certain educational expenses, and certain charitable donations. Specific details on eligible expenses and deduction limits are subject to change and should be verified.
• Special Deductions for Foreigners: Foreign engineers and researchers may qualify for a 50% income tax reduction for ten years. Some foreign teachers and professors may also be exempt from certain taxes. Eligibility criteria for these deductions should be confirmed with relevant authorities.

Note: This information is current as of February 5, 2025, and may be subject to change. Always refer to the official National Tax Service (NTS) publications and guidelines for the most up-to-date and accurate information.

In South Korea, the Value Added Tax (VAT) is a 10% consumption tax on most goods and services.

VAT Registration

Both domestic and foreign businesses supplying taxable goods or services in South Korea must register for VAT, regardless of revenue. Foreign businesses providing digital services are also required to register, even without a physical presence in South Korea. While appointing a fiscal representative is not mandatory for foreign companies, doing so can simplify interactions with tax authorities. The fiscal representative would then share responsibility for VAT reporting and payment.

VAT Rates and Exemptions

The standard VAT rate is 10%. However, some goods and services are exempt, including:

• Certain financial services (e.g., insurance)
• Medical services
• Agricultural products
• Books

VAT Filing and Deadlines

Businesses must file VAT returns quarterly, by the 25th of the month following the end of the respective quarter. A late filing penalty of 3% of the unpaid VAT amount applies, plus an additional 1.2% for each subsequent month of non-payment. As of 2025, amendments to the VAT Act are in effect. Key updates include:

• Extension of the VAT deduction period for e-invoices until December 31, 2027, for small business owners (annual revenue below KRW 300 million).

• Increase in surcharges for businesses operating under false pretenses (2% for general taxpayers and 1% for individual taxpayers).

• Imposition of VAT on invoiced items not actually supplied, closing a tax evasion loophole.

It's important to note that these regulations are based on information available as of today, February 5, 2025, and might be subject to change. Consulting with a tax professional is always recommended for the most up-to-date and specific advice.

South Korea offers various tax incentives to stimulate economic activity and attract foreign investment.

Tax Incentives for Businesses

• R&D Tax Credit: A general tax credit is available for R&D expenditures. Additional credits exist for investments in R&D equipment. These incentives are further enhanced for businesses operating in designated national strategic technology sectors, which include bio-pharmacy, semiconductors, and secondary batteries. Incentives will be available till 31 December 2027. The additional rate for investment tax credits for national strategic technology facilities would be 10%.
• Comprehensive Investment Tax Credit: This credit is available for investments in specific sectors, including national strategic technologies and new original technologies. It is available till 31 December 2027. The additional rate for investments other than facilities for national strategic technologies would also be 10%, if the amount of investment for the current tax year exceeds the average investment or acquisition amount of the previous three years.
• Tax Credits for Overseas Natural Resource Development Investments: Reinstated in the 2024 tax revisions, these credits aim to encourage investment in overseas natural resources.
• Tax Incentives for Foreign Investment: These incentives include exemptions from customs duties, individual consumption tax, and VAT on imported capital goods. The exemption period is extended to seven years. Additional benefits, such as corporate tax, acquisition tax, and property tax exemptions, are available for foreign companies investing in designated “opportunity development zones.”
• SME Tax Incentives: Several tax incentives are available specifically for small and medium-sized enterprises (SMEs). These may include tax deductions and specific R&D tax credits. The criteria for qualifying as a medium-sized enterprise have been adjusted in the 2024 Tax Revision Bill, and real estate leasing businesses are now excluded.
• Corporate Tax Credit for Increased Shareholder Returns: Listed companies on the KOSPI and KOSDAQ that increase shareholder returns (dividends and share buybacks) exceeding 5% of the average of the previous three years can receive a corporate tax credit.
• Tax Credit for Video Content Production Costs: The basic deduction rate for video content production costs is increased. An additional credit (10% to 15%) is available for expenditures meeting specific criteria. SMEs and middle-scale enterprises investing in film, TV series, and OTT content through specialized companies in the cultural content industry are also eligible for tax credits.

Tax Incentives for Individuals

• Tax Credit for Class B Wage Earners: Individuals categorized as Class B wage earners who report and pay monthly income taxes through licensed taxpayer associations can claim a tax credit of 5% of income tax, up to KRW 1 million annually.
• Child Tax Credit: A tax credit is available for children aged 8 or older. This applies to grandchildren as well, from January 1, 2024. The amounts are KRW 150,000 for one child, KRW 350,000 for two children, and KRW 300,000 per child for three or more.
• Charitable Contribution Tax Credit: A tax credit is available for charitable contributions.

General Tax Information

• Tax Year: The tax year for corporations is generally their fiscal year, which is usually a 12-month period. The tax year for individuals is the calendar year.
• Filing Status: Married couples cannot file joint tax returns.
• Residency Status: Individuals residing in South Korea for 183 days or more within a tax year are considered residents for tax purposes. Residents are taxed on their worldwide income while non-residents are taxed only on South Korea-sourced income.
• Foreign Tax Relief: Korean residents subject to both domestic and foreign taxes can claim a foreign tax credit for taxes paid on foreign-sourced income, up to the limit of the Korean tax liability on that income.
• Application Procedures: The application process for tax incentives varies depending on the specific incentive. Applications are typically made to the Korean tax authorities, often requiring detailed documentation.

This information is current as of today, February 5, 2025, and might change due to future legislation or adjustments. It is advisable to consult with tax professionals or refer to official government sources for the most up-to-date and detailed information regarding tax incentives in South Korea.