Press Release-

Reference Material
Press Released
12:00pm, Sunday Feb. 6, 2022 10:00am, Sunday Feb. 6, 2022
Release on
International Taxation Bureau Directior In Soon Choi (044-204-2801)
Drafting
Division International Taxation Division Deputy
Kyunghwan Kwon (044-204-2822)
Directior

Guide to 2021 Year-end Tax Settlement for Foreigners

- Manual and video for foreign taxpayers provided

□ The National Tax Service (NTS) of Korea (Commissioner Daeji

Kim) provides various services to support tax filing and
payment of foreign employees in Korea.
○ To provide detailed instructions on filing year-end taxes, NTS
publishes Easy guide for Foreigners’ Year-end Tax Settlement,
and also responds to all inquiries through its English hotline for
foreigners (☎1588-0560).
○ This year, in addition to the year-end tax settlement manual
provided every year, NTS services a video guide to year-end tax
settlement with English, Chinese and Vietnamese subtitles
through its English website and Youtube channel for the first time.

□ Foreign employees in Korea (excluding daily workers) should

settle year-end taxes* in Korea for wage & salary income
attributable to 2021, in the same way as Korean employees.
○ Also, they can use a simplified year-end tax settlement
service** which will be introduced for the first time this year.
* Taxes settled: 545,000 persons, 962 bil. won (for 2020); 586,000 persons,
904.3 bil. won (for 2019)
** NTS forwards year-end tax settlement data directly to employers under
the consent of employees.

- 1 -
□ There are changes to foreign workers’ year-end tax settlement
this year.
○ Starting from wage & salary income attributable to 2021,
foreign employees can receive deductions and credits on
housing-related expenses* in the same way as Korean
employees, and the scope of employers providing income tax
reduction/exemption for foreign engineers has been expanded.
* Income deduction for housing funds, tax credit for monthly rent paid
(excluding income deduction for deposits for savings for housing
purchase)

□ NTS will continue to improve its services to support and assist

foreign employees’ year-end tax filing.

<Precautions>
This guide provides information to foreign employees so that they can better
understand Korea’s year-end tax settlement process. Also, the translated version
may differ from the original Korean text, so if you are using this manual for
business purposes, please refer to the original Korean text and receive
assistance from the withholding agent (employer).

- 2 -
 1 Foreign Employees Should Settle Year-end Taxes

□ Foreign employees (excluding daily workers) who earned wage

& salary income in Korea in 2021 should settle year-end taxes
by the day on which wages for February this year is paid*,
regardless of the amount of income.
* If wage & salary income for February is not paid until the last day of
February or if there is no wage & salary income to be paid for February,
year-end tax settlement should be done by the last day of February.

○ The method and schedule for foreign employees’ year-end tax

settlement is identical to that of domestic employees.
- The employee himself/herself shall not submit the income
deduction/tax credit reports and supporting documents to the tax
office, but instead submit them to his/her employer who is the
withholding agent.
- Also, depending on the results of the year-end settlement, the
income tax amount settled for the wage & salary paid by the
withholding agent (employer) is determined and the relevant
amount shall be collected or refunded.

□ If a foreign employee submitted an application for simplified

year-end settlement service and gone through the confirmation
process, his/her company shall provide simplified year-end tax
settlement data to the employer, just as domestic employees.

- 3 -
○ The withholding agent (employer) should use the
foreign-language guidebooks* and videos provided by NTS to
assist foreign employees’ year-end tax settlement efforts as they
are not fluent in Korean.
* Easy guide for Foreigners’ Year-end Tax Settlement (Korean & English),
year-end tax settlement manual and videos on how to settle year-end
taxes in Korea(English, Chinese and Vietnamese)

2 Foreign Employees’ Year-end Tax Settlement Trends

□ The number of foreign employees who settled year-end taxes for

wage & salary income attributable to 2020 (545,000 persons)
represents a 7.0% decrease from the year before (tax settlement
for 2019 income). This is due to the decrease in the number of
foreigners entering Korea.
* (2019) 35.8 million → (2020) 5.5 million: 84.6% decrease (Ministry of
Justice immigration statistics)

○ The amount of taxes filed by foreign employees for income

attributable to 2020 (962 billion won) has increased by 6.4%
from the 904.3 billion won of the previous year (year-end tax
settlement for 2019 income).

- 4 -
□ Among the foreign employees who filed year-end tax settlement
for income attributable to 2020, Chinese nationals accounted for
the largest portion (198,000 persons, 36.3%), representing one
out of every three foreign employees. This was followed by
Vietnamese, Nepalese, Cambodian and Philippine nationals.
○ In terms of the amount of year-end taxes filed, U.S. employees
in Korea accounted for the highest figure with 363.3 billion won
(37.8%). This was followed by Chinese, Japanese, Canadians
and Australians.

3 What Foreign Employees Should Know

Eligibility for deductions differs for residents and non-residents

□ (Foreign residents) If a foreign employee is a resident (refer to

attachment 3), general deduction items including income
deduction and tax credit will apply in the same manner as the
domestic residents.
○ With the amendment of tax laws*, foreign employees who are
residents are also eligible for income deductions and tax credits
for housing-related spendings starting from this year’s year-end
tax settlement.

- 5 -
 * Article 52 (4) and (5) of the Income Tax Act, Article 95-2 of the
Restriction of Special Taxation Act
< Foreign employees’ eligibility for housing-related deductions(Summary) >

Deductions/ Credits Income for 2020 Income for 2021

and before and after
① Deduction for housing funds X O
② Income deduction for deposits
X X
for housing purchase savings*
③ Tax credit for monthly rent X O

* ② applies only to the heads of households (foreigners are not eligible

because they cannot be household heads pursuant to the Resident
Registration Act)

□ (Foreign non-residents) Foreign employees who are

non-residents should also settle year-end taxes for
domestic-source wage & salary income. The method of
calculation is identical as applied to foreign residents.

○ However, note that eligible items* (Attachment 3) for income

deduction and tax credit will be limited to non-residents.
* Applicable items: Wage & salary income deduction, personal deduction
(for yourself), pension insurance premium deduction, deduction for
contribution to employee stock ownership association, wage & income
tax credit, tax credit for taxpayer association members

Special Taxation for Foreign Employees

□ Application of the 19% flat tax rate

Foreign employees can choose to have the flat tax rate (19%)
for five years from the taxable year starting from the first day
that service was provided in Korea. This is regardless of your
residency.

- 6 -
○ However, foreigners who receive wages from controlled
companies* are not eligible to apply for the flat tax rate. Also,
when choosing to have the flat tax rate, non-taxation, income
deductions, tax reduction/exemption and tax credits will not be
applied. Thus, it is advised to be mindful of the exceptions that
apply**.
* Controlled companies (excluding foreign-invested companies subject to
tax reduction/exemption) where a foreigner‘s stock ownership is 30% or
more
** Example: Non-taxable income such as national health insurance premium
is included in taxable income.

□ Tax reduction/exemption for foreign engineers

Foreign engineers who provide technology service through an
engineering technology contract or those who meet certain
qualifications as a research personnel can receive 50%
reduction* of income tax on wage & salary income incurred for
the past five years**.
* Where a foreign engineer in the field of parts, materials and equipment
first provided service in Korea no later than Jan. 1, 2020, 70% reduction
rate is applied for the first three years and 50% applies for two years
thereafter.
** For five years from the year to which the first day of providing service in
Korea no later than Jan. 1, 2019 belongs; for two years for employees
who first provided service on or before Dec. 31, 2018.

○ Note that the requirements for qualification as a research

personnel will become stricter for foreign engineers who signed
a contract of employment on or after Feb. 17, 2021. On the
other hand, these employers has expanded. Therefore, foreign
engineers are advised to check if they qualify for this tax
reduction/exemption requirement.

- 7 -
 < Changes in foreign engineers’ qualification for tax
reduction/exemption (effective Feb. 17, 2021) >

Qualification
Eligibility Foreign engineers (persons who satisfy either 1 or 2 below)
(1) Persons providing technology service under an engineering
1
technology introduction contract (contract worth USD 300,000 or more)
(2) Persons who satisfy both of the below (❶ & ❷)
Before After
Bachelor’s degree or higher
❶ Research in science and engineering &
personnel research experience in foreign
2 science and technology
research institute (for at least 5 yrs)
Domestic company-affiliated
❷ R&D center of research institute or R&D
foreign-invested department,
company government-contributed
research institute, etc.

□ English instructors
Income tax related to lecture and research can be exempted for
a certain period (mostly two years) if he/she is able to claim a
tax exemption clause* for teachers/professors based on a tax
treaty with Korea (e.g., U.S., U.K., Australia).
* The conditions differ depending on the tax treaty counterpart, so it is
necessary to check the one that applies to you.

4 Year-end Tax Settlement Services for Foreigners

Exclusive Services for Foreign Employees

□ NTS operates an English-language hotline for foreigners (☎

1588-0560) so that foreign employees can ask their questions
on year-end tax settlement services which will be answered in
English.

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○ Also, NTS publishes ｢Easy Guide for Foreigners’ Year-end Tax
Settlement｣ to provide information for foreign employees and
their withholding agents (employer) that has useful examples
such as tax calculation using the flat tax rate and information
regarding the Hometax simplified on-line tax filing services.

Services in English, Chinese and Vietnamese

□ The National Tax Service of Korea provides an year-end tax

settlement manual in English, Chinese and Vietnamese on its
English website to support foreign employees who are not fluent
in Korean.
○ Especially, this year, NTS provides a video guide* on year-end
tax settlement with Chinese and Vietnamese subtitles on NTS
YouTube channel and NTS English website since Chinese and
Vietnamese employees** account for a large portion of foreigners
settling their year-end taxes.
* The Korean video provides information such as the definition of
year-end tax settlement and the necessary procedures with English,
Chinese, and Vietnamese subtitles.
** Among the foreigners who settled year-end taxes for 2020 income
(550,000 persons), 44% (i.e., 240,000 persons) were Chinese and Vietnamese.

< How foreigners can access help on year-end tax settlement >
Support Access

Phone (English) 1588-0560, 9:00 am ∼ 6:00 pm (excluding 11:30∼1:00)

On-line www.nts.go.kr/english/main.do > Help Desk > Q&A

Easy Guide for
www.nts.go.kr/english/main.do > Resources > Publication >
Foreigners’ Year-End
2021 Easy Guide for Foreigners' Year-end Tax Settlement
Tax Settlement
Year-end tax www.nts.go.kr/english/main.do > Resources > Publication >
settlement manual 2021 Year-end Tax Settlement Manual for Foreigners
(English, Chinese, Vietnamese)
YouTube video
(English, Chinese, Vietnamese) www.youtube.com/user/ntskorea

- 9 -
□ NTS will continue to improve year-end tax settlement support for
foreigners to help foreign employees’ year-end tax settlement
efforts.

【Attachments】
1. FAQ on foreigners’ year-end tax settlement
2. Criteria for determining resident and non-resident
3. Income deduction and tax credit for foreign residents and
non-residents
4. How to calculate tax for year-end tax settlement
5. Summary of income deductions for year-end tax settlement for
2021 income
6. Summary of tax credits for year-end tax settlement for 2021
income
7. Example of incorrect settlement of year-end taxes
8. Documents of proof for income deduction and tax credit

- 10 -
 1 FAQ on foreigners’ year-end tax settlement

I am a foreigner and I earn wage & salary income in Korea. It is my

1 knowledge that my company pays taxes on behalf of myself every
month. Then why is year-end tax settlement necessary?

○ Year-end tax settlement is a process of finalizing the income tax

amount that the withholding agent (employer) should pay for
employees’ wage & salary income for the relevant taxable period.
- The final amount of tax payable is determined by reflecting the
report on income deduction and tax credit claims submitted by the
employee to his/her wage & salary income for the relevant taxable
year.
○ When the finalized amount of tax payable is determined through
year-end tax settlement, the withholding agent (employer) compares
the amount to the sum of taxes withheld every month. If the total
withheld amount is more than the tax payable, the surplus amount
is refunded (added to wage). In the other case, the amount in
short is additionally collected (deducted from wage).
* Related laws: Articles 134 and 137 of the Income Tax Act

If I leave the company in the middle of the year, how do I settle year-end
2
taxes?

○ If an employee leaves the company in the middle of the year, the

withholding agent (employer) settles year-end taxes when the wage
& salary income of the retiring month is paid.
○ Therefore, an employee retiring in the middle of the year shall
submit his/her report for income deduction and tax credit and
supporting documents to the company before payment of the wage
& salary income for the month in which the employee retires.
* Related law: Article 137 of the Income Tax Act

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 If a foreigner who is a resident of Korea provides service overseas
and is paid from overseas, does he/she have to settle the year-end
3
income by aggregating all incomes from both overseas and domestic
sources?

○ A foreigner who is a resident of Korea should, in principle, settle

year-end taxes with the sum of all wage & salary income from
both Korea and abroad.
- However, a foreign resident whose total period of having a domicile or
residence in Korea for 10 years retroactively from the last day of the
relevant taxable period is five years or less, year-end taxes shall be
settled only for the overseas wage & salary income remitted to Korea
or paid in Korea.
* Related laws: Articles 3 and 20 of the Income Tax Act

If the flat tax rate (19%) is applied, is the national health

4 insurance premium and employment insurance premium borne by
the employer included in the tax base?

○ For a foreign employee who chooses the flat tax rate, regulations
on non-taxation, tax reduction/exemption, and income deduction and
tax credit do not apply. In this regard, national health insurance
premium and employment insurance premium borne by the
employer pursuant to the Income Tax Act are included in the tax
base.
* Related laws: Article 18-2 of the Restriction of Special Taxation Act,
subparagraph 3 of Article 12 of the Income Tax Act

How is the five year taxable period for which the 19% flat tax
5
rate is applied to foreign employees calculated?

○ The period for which the 19% flat tax rate applies to foreign
employees is from the first day of providing labor in Korea to the
taxable year in which five years elapse from such date ends.

- 12 -
 - For example, if a foreign employee started providing labor in Korea
for the first time on Apr. 10, 2018, he/she can choose to report
tax by applying a 19% flat tax rate for wage & salary income paid
for five taxable years from 2018 - the taxable year to which the
date of first providing labor belongs - until Dec. 31, 2022.
* Related law: Article 18-2 of the Restriction of Special Taxation Act

6 Is it always an advantage to apply the flat tax rate (19%)?

○ The regulations on flat tax rate are special regulations that apply
exclusively to foreign employees who faithfully pay taxes. Therefore,
the amount of tax payable may differ depending on each eligible
taxpayer‘s tax base and deduction items, so it depends on a
case-by-case basis.

- Therefore, it is reasonable for a foreign employee to calculate the

expected amount of tax payable using the simplified year-end tax
settlement service and choose a method that is more
advantageous.

Are the medical expenses spent in an overseas medical institution

7
deductible?

○ The medical expenses spent in an overseas medical institution are

not deductible.
* Related laws: Article 59-3 of the Income Tax Act, Article 118-5 (1) of the
Enforcement Decree of the Act

8 Are overseas credit card spendings deductible?

○ The amount of credit card spendings overseas is not

deductible.
* Related law: Article 126-2 (1) of the Restriction of Special Taxation Act

- 13 -
 Are the education expenses for a foreign employee’s children
9
attending an overseas school deductible?

○ The education expenses that a foreign resident spent for his/her

children attending an overseas educational institution are not
deductible.
- However, the education expenses that a foreign resident spent for
his/her children attending a foreign school established in Korea by
obtaining approval pursuant to the Elementary and Secondary
Education Act are deductible.
* Related laws: Article 59-4 (3) of the Income Tax Act, Articles 118-6 (4) and (5)
of the Enforcement Decree of the Act

What are the general qualifications of tax exemption for a

10
foreign English teacher?

○ The regulations on tax exemption for foreign English teachers of

each country can be looked up on the national tax information
system (txsi.hometax.go.kr).
○ The conditions for tax exemption differ depending on the tax treaty
counterpart country, so it is needed to review the relevant tax treaty.
○ For example, a U.S. resident who satisfies the following conditions
is eligible for tax exemption.
- Inviting organization: Central or local government or certified
education institute
* Not applicable for private language schools or English camps within English
villages.

- Invitation period: Should not exceed two years

* Related treaty: Article 20 (1) of the Korea-U.S. Tax Treaty

- Purpose of invitation: Lecture or research at a university or

certified education institution
- Purpose of visit: Should be primarily for such lecture or research

- 14 -
 2 Criteria for determining resident and non-resident

□ A ‘Resident’ means an individual who has had his/her domicile in Korea

or has had a place of residence for 183 days or more in Korea while
–
‘Non Resident’ means an individual who is not a resident (Article 1-2 of
the Income Tax Act).
○ The definitions of ‘domicile’ and ‘place of residence’, which
determine resident status, are as follows:
(Domicile) Determined by objective living status such as family members supported
by the resident and assets held in Korea
(Place of residence) The place where an individual resides for a lengthy period of
time besides the domicile without forming strong residential ties

□ Criteria for determining resident/non-resident

1. Determination by the place of residence 2. Determination by the domicile
(if an individual satisfies the requirements on (if an individual has a domicile regardless of the period of
length of stay: Resident) stay: Resident)
○ An individual who has had a place of ○ An individual is considered as having a domicile in
residence in Korea for 183 days or more Korea in the following cases:
- If the length of having the place of residence - When an individual who has resides in Korea has
is 183 days or more* during one taxable an occupation that requires him/her to reside in
period Korea for 183 days or more
* Consecutive residence not required - When an individual who resides in Korea has
- The period of having the place of residence family members in Korea supported by him/her and
shall be from the day after the date of is likely to reside in Korea for 183 days or more based
arrival in Korea to the date of departure. on the job and the status of the assets.
Temporary departure is included in the period of - In case of a crew member of a ship or an air
residence in Korea. plane traveling abroad, when the place of residence
of family members supported by him /her or the
place of stay during the period other than the working
period is in Korea, the domicile of him/her is considered
to be in Korea.
3. An executive or an employee dispatched by an overseas place of business of a resident individual or
domestic company or by a foreign company (limited to where a domestic company directly or indirectly
invested 100/100 of the total number of stocks issued or the contributed shares), or a public officer working
abroad is considered a resident.

○ Even if the individual does not fall under any of the above, It is
possible to determine his/her domicile based on objective living
status such as family members in Korea supported by him/her and
assets held in Korea.
* Only the living status in Korea is considered. The living status in Korea and
overseas is not compared.

- 15 -
 Income deduction and tax credit for foreign
3
residents and non-residents
Domestic Foreign
Type Related law/Note
Resident Non-resident Resident Non-resident
Including Domestic- Including Domestic- Article 3, Income Tax
Total wage & salary income foreign- source income foreign- source income Act
source income source income

Deductions for wage & salary income ◯ ◯ ◯ ◯

Basic deductions Article 122, Income
(Yourself, spouse, dependent ◯ Only yourself ◯ Only yourself Tax Act
Personal family)
deduc-
tions Additional deductions
(Senior citizens, the disabled, ◯ Only yourself ◯ Only yourself Article 122, Income
woman, etc.) Tax Act
National pension
Deductions for pension insurance premium ◯ ◯ ◯ ◯ insurance borne by
yourself
National health insurance
Special & employment insurance ◯ X ◯ X
income premium
deductions
Housing fund ◯ X ◯ X

Pension savings, etc. ◯ X ◯ X

Deposits in a mutual aid

fund for small enterprises ◯ X ◯ X
and small entrepreneurs
Savings account for
housing purchase ◯ X X X
Contributions to a small
Other and medium business ◯ X ◯ X
income start-up investment fund
deduction
Credit card spending ◯ X ◯ X
Employees of SMEs that ◯ X ◯ X
maintain savings
Long-term collective
investment securities savings ◯ X ◯ X

Contributions to Employee ◯ ◯ ◯ ◯ Applicable to all

Stock Ownership Association association members

Wage and salary income ◯ ◯ ◯ ◯

Child tax credit ◯ X ◯ X

Special tax credit(insurance

premium, medical expenses, ◯ X ◯ X
education, expenses, donations)
Tax Monthly rent ◯ X ◯ X
credits, etc.
Applicable if you joined
Taxpayer association ◯ ◯ ◯ ◯ an association and taxes
were withheld
Foreign tax credit ◯ X ◯ X

Standard tax credit ◯ X ◯ X

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 4 How to calculate tax for year-end tax settlement

1. General year-end tax settlement process

○ Non-taxable income
Annual wage & salary - Subsidies for self-driving (200,000 won/month)
Step 1 income - Non-taxable tuition expenses, employment scholarships
Gross wage/salary (-) non taxable income - Foreign source income (1 million won [3 million won]/
income = Gross wage and month)
salary income - Child care allowance for children aged 6 or under
(100,000 won/month), etc.
○ Deductions for wage & salary income
Total wage & salary Wage & salary income deduction (up to 20
amount (won) million won)
Gross wage & salary
5 million or less Gross wage & salary × 70%
Step 2 income
(-) wage & salary More than 5 million
3.5 mil.＋(amount exceeding 5 mil. × 40%)
Adjusted wage/salary to 15 million or less
income deduction More than 15 million
income = Adjusted wage & to 45 million or less
7.5 mil.＋(amount exceeding 15 mil. × 15%)
salary income More than 45 million
12 mil.＋(amount exceeding 45 mil. × 5%)
to 100 million or less
More than 100 million 14.75 mil.＋(amount exceeding 100 mil. × 2%)

○ Personal deductions
- Basic deduction, additional deduction
○ Deduction for pension insurance premium
- Premium allotment paid by the taxpayer for National
Pension, Public Officials Pension, etc.
○ Special income deduction and other deductions
Special income deduction Other income deductions

Adjusted wage & ①Individual pension savings

salary income
②Contributions to SME start-up
(-) Other deductions investment associations, etc.
ㆍ Personal deduction
③Credit card usage
ㆍ Pension insurance
premium deduction ④Deduction for small businesses and
① Insurance premium
Step 3 ㆍ Special income small entrepreneurs
deduction ② Housing funds ⑤Deposits in a mutual aid fund for
Tax base
small enterprises and small
ㆍ Other deductions enterprises
(+) Amount ⑥Wage cut amount by small and
exceeding the medium enterprises which have
composite ceiling of maintained the same level of
employer
income deduction
⑦Long-term collective investment
= Tax base securities savings

○ Ceiling on composite income deduction amount

- Amount exceeding the composite ceiling of income
deduction
- If the deduction amount included in the composite
ceiling (e.g. special income deduction, etc.) exceeds 25
million won, the exceeding amount will be added to the
tax base.

- 17 -
 Tax base bracket Tax
Calculated tax (won)
(won) rate
12 mil. or less 6% Tax base × 6%
More than 12 mil. 7720,000 + (amount exceeding 12 mil. ×
15%
to 46 mil. or less 15%)
More than 46 mil. 5.82 mil. + (amount exceeding 46 mil. ×
24%
to 88 mil. or less 24%)
Step 4 Tax base More than 88 mil. 15.9 mil. + (amount exceeding 88 mil. ×
(×) tax rate 35%
to 150 mil. or less 35%)
Calculated tax
= Calculated tax More than 150
37.6 mil. + (amount exceeding 150 mil.
amount amount mil. to 300 mil. or 38%
× 38%)
less
More than 300
94.6 mil. + (amount exceeding 300 mil.
mil. to 500 mil. or 40%
× 40%)
less
Over 500 mil. to 1 174.6 mil. + (amount exceeding 500 mil.
42%
bil. or less × 42%)
Over 1 bil. 45% 384.6 mil. + (amount over 1 bil. x 45%)

Calculated tax ○ Tax credit

Step 5 amount
- Tax credit for wage & salary income, child tax credit,
Determined tax (-) Tax credit
pension account tax credit, special tax credit, taxpayer
amount = Determined tax
amount association tax credit, etc.

Determined tax ○ Prepaid tax

Step 6 amount
- Monthly amount withheld from wage & salary income
Tax payable (-) Prepaid tax
according to the simplified tax withholding table or at
(refundable) = Tax payable
(refundable) a 19% flat tax rate

2. Year-end tax settlement when applying a 19% flat tax rate

○ Non-taxable income
- Subsidies for self-driving (200,000 won/month)
Step 1
- Work-related education expenses
Annual Including
- Employee contributions to National Health Insurance and
wage & salary non-taxable income
Employment Insurance
income - Child care allowance for children aged 6 or under
(100,000 won/month), etc.

Step 2 Annual wage &

Determined tax salary income
amount (×) 19%
(=Calculated tax = Determined tax
amount) amount

Determined tax amount ○ Pre-paid tax

Step 3 (-) Pre-paid tax - Monthly amount withheld from wage & salary income
Tax payable (refundable) = Tax payable according to the simplified tax withholding table or at
(refundable) a 19% flat tax rate

- 18 -
 Basic tax rate vs 19% Flat tax rate

< Information >

∙ James worked for ABC Company in 2021 and earned income as follows:
- Annual wage & salary income: 200,000,000 won (including non-taxable income of
5,000,000 won)
∙ Family members: James (aged 36), Jane (spouse, aged 38)
* Jane is a dependent family member subject to basic deduction and her annual wage &
salary income is not more than 1,000,000 won.
∙ Expenditure details
- National pension contribution: 2,500,000 won
- National health insurance premium: 1,500,000 won
∙ Pre-paid tax amount: 44,334,000 won

When applying basic tax rate When applying 19% flat tax rate
Annual wage & salary
Annual wage &
income ₩200,000,000 ₩200,000,000
salary income
Non-taxable wage & 5,000,000
salary income
Gross wage & salary
income ₩195,000,000
Deduction for wage 16,650,000
& salary income
Adjusted wage &
₩ 178,350,000
salary income
Personal deduction 3,000,000
- Basic deduction
Pension contribution deduction 2,500,000
Special income deduction 1,500,000
– National health insurance
premium
Tax base ₩ 171,350,000
Calculated income tax
(basic tax rate: 38%) ₩ 45,713,000
Tax credit for wage & 500,000
salary income
Determined tax ₩ 45,213,000 Determined tax ₩ 38,000,000
Prepaid tax (-) 44,334,000 Prepaid tax (-) 44,334,000
Tax due ₩ 879,000 Tax due ₩ - 6,334,000

- 19 -
 Summary of income deductions for year-end tax
5
settlement for 2021 income

Item Ceiling (won) Deduction requirements

Employee, his/her spouse, and dependent family members sharing a livlihood (persons with annual
income of 1 mil. won or less),
Dependent Lineal Lineal
Siblings Foster child recipients*
Basic family ascendants descendants
1.5 mil. per person
deduction
60 & older,
Age 60 or older 20 and below Below 18 None
20 & below

Personal * No age restrictions in the case of disabled persons

deduction
Where a person subject to basic deduction falls under the below
The elderly Woman(Dependent
Eligibility The disabled Single parent
(70 & up) /married)
Additional
Differs by subject Deduction
deduction 1 mil. won 2 mil. won 500,000 won 1 mil. won
amount

* Single-parent deduction does not apply with deduction for woman (when both apply, apply
single-parent deduction)
Pension Public pension
insurance insurance Full amount National pension insurance premium or public official’s pension premium borne by yourself
premium premium
Health insurance
National health insurance premium (including long-term care insurance premium) and
and employment Full amount
Special employment insurance premium borne by yourself
insurance premium
income
deduction 3 mil. - 40% deduction for redeemed principal for housing rental loans
Housing fund
3 mil. to 18 mil. - Deduction for redeemed interest for long-term housing mortgage loans

Personal pension Deduction of 40% of the personal pension savings deposit (account opened no later
720,000 per year
savings than Dec. 31, 2000)
Deposits to a Yellow Umbrella Deduction Cooperative by a company representative with
Deposits made in a
2 mil. gross wage & salary of 70 mil. won or less
mutual aid fund for
(Deduction ceiling) 5 mil. won for persons with wage & salary income of 40 mil. won or
small enterprises 3 mil.
less; 3 mil. won for persons with wage & salary income of more than 40 mil. won and not
and small 5 mil. more than 100 mil. won; 2 mil. won for persons with wage & salary income of more than 100
entrepreneurs
mil. won
50% of the wage & Deduction of 10% (100%, 70%, 30%)* of the contributions or investments to a small and
Contributions to salary income amount medium business start-up investment fund
an investment (income deduction for
association, etc. venture company investment * Direct investment to a venture company, etc. (30 mil. won or less: 100%, 50 mil. won
trusts cannot exceed 3 mil. won) or less: 70%, More than 50 mil. won: 30%)

The lesser of [20% of gross

Other
wage & salary, 2 mil.,2.5 mil.,3 Income deduction of 15% (30%, 40%) of the amount exceeding 25% of gross wage &
income
Credit card mil.]+1 mil. (traditional market); salary
deductions
+1 mil. (public transportation); - 10% of the amount over 5% of the YoY increase of credit card expenses in 2021
+1 mil. (books, performance tickets, etc.)
Contribution to
4 mil. per year (15
employee stock Amount of contributions to an employee stock ownership association to acquire company
mil. for venture
ownership stocks
companies)
association
Employees of SMEs
that maintain 10 mil. per year Deduction of 50% of the wages cut by SMEs that maintain their employment level
employment level

40% of the deposited amount for employees with gross wage & salary of 80 mil. won
Long-term collective or less in the taxable period (up to 6 mil. won per year) (non-taxation of special tax for
investment securities 2.4 mil. won per year rural development)
savings * (Savings account opened no later than Dec. 31, 2015) Amount paid in each taxable period for 10
years from the date of opening the account

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 Summary of tax credits for year-end tax settlement
6
for 2021 income

Item Ceiling Tax Credit Requirements

740,000,
Tax credit of 55% for calculated tax of 1.3 mil. won or less;
660,000 or 30% for tax exceeding 1.3 mil. won.
Wage & salary income 500,000 won ※Tax credit ceiling: 740,000 won (Gross wage & salary of 33 mil. won or less),
depending on 660,000 won (Gross wage & salary of 70 mil. won or less), 500,000 won
(others)
gross wage &salary
Tax credit of 12% (15% for gross wage & salary of 55 mil.
1.05 (1.35) or
less) of the pension account deposit amount (ceiling of 7
mil. (9 mil.) won per year; pension savings – 4 mil. won for
Pension account mil. won gross wage & salary of 120 mil. won or less or global
per year
income of 100 mil. won or less; 3 mil. won for persons
exceeding such amounts)
Basic 150,000 won per child if there are 1 or 2 child(ren) aged 7
Full amount and up; 300,000 won per child for the 3rd child and up
Child tax deduction
credit Childbirth,
Full amount 300,000 won for the first adopted or newborn child, 500,000 won
adoption for the second child and 700,000 won for the third child and up
Coverage 120,000 won Tax credit of 12% of the coverage insurance premium paid if a
insurance per year person subject to basic deduction is the insured
Insurance
premium Coverage 150,000 Tax credit of 15% of the premium paid for a coverage
insurance for won per insurance for the disabled of which a disabled person who is
the disabled year subject to basic deduction is the insured or the beneficiary

①Self, etc. Where medical expenses exceed 3% of the gross wage &
(including salary, tax credit of 15% (20% for infertility treatment
infertility Full amount expenses) of the amount in excess (no limit in dependent
family members’ age and income)
Medical treatment
expenses expenses) Amount subject to ② < 3% of gross wage & salary ② ≥ 3% of gross wage & salary

Sp 1.05 mil. tax credit ① - (3% of gross wage & salary - ②) ① + (② - 3% of gross wage & salary)
②Dependent
eci won per ※ Ceiling of amount subject to tax credit: Dependent family members (7
families
year mil. won per year), self, etc. (full amount)
al
tax Tuition for daycare centers, kindergartens, private
education facilities, sports education facilities,
cre Pre-school afterschool program expenses (including book expenses,
children excluding supply expenses), meal expenses: Up to 3
dit mil. won per person
450,000 Tax credit of
15% of the Tuition fee, school meal expenses, textbook expenses,
won afterschool program expenses (including book
education expenses
Education Elementary, per person expenses, excluding supply expenses), overseas
middle & ※No limit in age education expenses, uniform purchase expenses (up to
expenses high (lineal 500,000 won for middle & high school students),
school ascendants are excursion expenses (up to 300,000 won for
students not eligible) elementary, middle & high school students): Up to 3
mil. won per person
1.35 mil. Education expenses (including cyber university
College won per and degree acquisition programs), overseas
students
person education expenses: 9 mil. won per person

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 Item Ceiling Tax Credit Requirements

Self Full amount Education

for
expense for education programs of 1 semester or more
university or graduate schools, tuition fee for occupational
× 15%
capacity development and training, repayment of student loans
Special
education Full amount Expenses paid for the rehabilitation of the disabled who are
for the × 15% subject to basic deduction
* No limit in income, lineal ascendants are also eligible
handicapped
100,000
won Tax credit of 100/110 for the amount of 100,000 won or less
100% of
political or less
wage &
funds Over
salary Tax credit of 15% for the amount over 100,000 won and not over 30
100,000
income mil. won; 25% for the amount over 30 mil. won
won
Statutory
Employee
stock
ownership
Donat 30% of
association
ion wage &
Designated
salary
(excluding Within the ceiling for each donations, 15% if the sum of
income
donations to the amount subject to tax credit is 10 mil. won or less;
religious 30% for the amount exceeding 10 mil. won
organization)
Designated
10% of
(donations
wage &
to
salary
religious
income
organization)
130,000 Where application for special income deduction, special tax credit
Standard tax and special tax credit for monthly rent was not filed
won per
credit ※ Applied where the amount of deductions such as special income deduction is
year less than 130,000 won per year

Tax credit of 5% of the global income tax amount for

Taxpayer association Full amount
wage & salary income withheld by the taxpayer association

Full amount The overseas paid tax of a resident is deducted from his/her global
Overseas paid tax within income tax amount of the relevant year
※ Deduction ceiling = Wage & salary income tax × (Overseas wage & salary
ceiling income/ wage & salary income)
750,000
won or
900,000 won 10% or 12% of the monthly housing rent paid by a household head
depending who does not own a house and whose gross wage & salary income
Monthly housing rent
on the gross is not over 70 million won (household members who satisfy certain
wage & conditions are also eligible)
salary
amount

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 7 Example of incorrect settlement of year-end taxes

The flat tax rate was applied although the special

1
taxation application period (5 yrs) has passed

□ Facts

○ Foreign employee A entered Korea for the first time in January 2014 and
worked for the Korean branch of a Hong Kong company AA

○ The special taxation period for which the flat tax rate applies to
foreigners is five years from the day on which service was first
provided in Korea. In this regard, the flat tax rate only applies
until Dec. 31, 2018.
- However, the withholding agent AA applied the special taxation
on foreign employees for wage & salary income paid from 2014
to 2019 and withheld taxes by applying the flat tax rate (19%)
and filed and paid taxes accordingly.

□ Effective measure
○ For A’s wage & salary income for income attributable for 2019,
the flat tax rate application was denied and the basic tax rate
was applied, resulting in additional collection of income tax.

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 Wages were paid by a controlled company but the flat
2
tax rate was applied

□ Facts

○ Foreigner B is the representative of limited company BB and

owns 100% of the company’s shares.

○ If a foreign employee is paid wages from a controlled company

where he/she holds stakes of 30% or more, the flat tax rate
cannot apply.

- Nonetheless, B applied the flat tax rate (19%) for year-end tax
settlement of wage & salary income paid by company BB for
2018 and 2019.

□ Effective measure

○ The flat tax rate application for wage and salary income for
2018 and 2019 was denied and the basic tax rate was applied
instead, resulting in additional income tax collection.

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 Income tax reduction/exemption for foreign engineers
3
was applied when the applicable period has passed

□ Facts
○ Foreigner C entered Korea in May 2016 and worked as a
technology institute CC located in Ulsan.
○ If a foreigner provides labor in Korea before Dec. 31, 2018, the
income tax reduction/exemption period for foreign engineers is two
years since previous measure applies.
- However, when the income tax reduction/exemption period
extended to five years*, the company still continued to apply
the 50% income tax reduction even after July 2018 by filing
and paying the withholding taxes accordingly.
* With the amendment of tax laws in 2018, the period for application of
the 50% income tax reduction for foreign engineers was extended, and
for services provided for the first time on or after Jan. 1, 2019, the
income tax reduction applies until the month in which five years elapse
from the first service date.

□ Effective measure

○ Tax reduction for income tax attributable for the period of Jul.
2018 through Dec. 2019 was denied and additional income tax
was collected.

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 8 Documents of proof for income deduction and tax credit

Document Who should submit Issued by

- Foreign employees hired in 2021

Certification of foreigner registration - Foreign employees whose Immigration office
dependent families were changed

Receipt for payment of insurance

Subscribers of life insurance, etc. Insurance company
premium

Certification of payment of medical Employees subject to medical

Hospital, pharmacy
expenses expense deduction

Persons who are students or whose

Certificate of payment of education
dependent family members are Education institute
expenses
students

Receipt for donations Employees who provided donations The place of donation

Confirmation of credit card Employees subject to deduction for

Credit card company
spendings, etc. credit card spendings

Application for flat tax rate for Foreign employees who wish to have
Taxpayer
foreign employees the flat tax rate (19%) applied

Foreigners satisfying the tax

Application for tax reduction/exemption
reduction/exemption qualifications Taxpayer
for foreign engineers
pursuant to the relevant laws
Foreign employees dispatched to Korea
Application for tax
who satisfy the conditions for tax
reduction/exemption for wage & Taxpayer
reduction/exemption prescribed by
salary income
government treaties

Application for tax credit for taxes Persons who worked overseas and paid
Taxpayer
paid overseas income tax overseas

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