GES NewsFlash

Korea–2015 tax law revisions

22 December 2014


Several tax law revisions effective for the 2015 tax year were approved by Korea’s National Assembly on December 2, 2014. The following is a summary of major tax law revisions relevant to global employer services.

Flat tax rate individual income tax incentive for foreigners

Under the Korean Tax Incentives Limitation Law (TILL), when calculating individual income tax liability on earned income, foreigners may elect to use a flat tax rate as an alternative to the regular progressive individual income tax rates. If elected, foreigners may apply a flat tax rate to their gross earned income, with no deductions, income exclusions, or tax credits allowed. This is in lieu of the regular progressive individual income tax rates, which range from 6% to 38% (6.6% to 41.8%, including local income tax surcharge).

Effective January 1, 2014:

  1. Election of the flat tax rate individual income tax incentive for foreigners is only allowed in the five-year period beginning from the foreign employee’s Korean employment start date (only applicable to Korean employment start date of January 1, 2014, or later).
  2. A foreign employee who has a special relationship with his or her employer does not qualify for the flat tax rate individual income tax incentive.
  3. A special relationship means employee or a family member (i.e., spouse, second cousin, or close relative) with direct or indirect control over management of the company.

Effective January 1, 2015:

  1. Sunset for the flat tax rate individual income tax incentive for foreigners is extended to December 31, 2016.
  2. There is no expiration date for application of the foreigner flat tax rate individual income tax incentive for qualified headquarters companies. Qualified headquarters company means a global company headquartered in Korea and performing support work for the core businesses, i.e., business strategy, personnel management, research and development (R&D), etc.

Definition of tax resident

Currently, a Korean tax resident is defined as an individual who has resided in Korea for 12 months or more (technically, 365 days in any two consecutive tax years). Additionally, if an individual’s facts and circumstances indicate that it is reasonably certain that the individual will stay in Korea for 12 months or more, such individual will be considered as tax resident from the start of the stay in Korea. For example, if the Korea assignment duration as indicated in the assignment letter is 12 months or more, such inbound assignee would be considered as Korean tax resident from the start of the Korea assignment.

Effective January 1, 2015, the period of time used to determine tax residency status is reduced from 12 months to 183 days.

Deloitte's View

We do not expect any substantial impact of this law revision since under Article 3 of the Individual Income Tax Law (IITL), Scope of Taxation, if a foreign tax resident has resided in Korea for less than five years in the previous 10-year period, foreign-sourced income is only taxable in Korea if such foreign sourced income is either remitted to Korea or paid in Korea (short-term resident alien). So, an inbound foreigner qualifying as a short-term resident alien will in most cases only be taxed on Korean-sourced income, which is the same as a Korean tax nonresident.

Additionally, a Korean tax nonresident may only deduct an individual exemption for the taxpayer and no other deductions are allowed, while a Korean tax resident (including short-term resident alien) is allowed full deductions.


Special foreign technician/engineer tax exemption

Currently, under the TILL, certain foreign technicians/engineers may qualify for a special tax exemption, where 50% of wages received from a domestic entity by a qualified foreign technician/engineer providing services in Korea to the domestic entity may be eligible for tax exemption for two years from the date on which the foreign technician/engineer commences rendering services in Korea.

In order to be eligible for the exemption, the foreign technician/engineer must have had at least five years’ work experience, or three years’ experience with a bachelor’s or higher degree, and be contracted to work in a field designated by law, such as construction, mining, technology-intensive industries, or certain engineering services.

The foreign technician/engineer tax exemption sunset clause is extended to December 31, 2018.

However, effective January 1, 2015, the qualification scope for the foreign technician/engineer tax exemption is tightened and only foreign technicians/engineers working in the R&D centres of foreign-invested companies would qualify for tax exemption.

Foreign technician/engineers commencing services in Korea before January 1, 2015, are still applicable for the exclusion under the current qualification scope. 


If you have any questions concerning the issues in this GES NewsFlash, please contact a GES professional at our Deloitte offices as follows:

Kyung Su Han
+82 2 6676 2500

Min Soo Seo
+82 2 6676 2590

Jeffrey Trageser
+82 2 6676 2588

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