Everything about Flat Income Tax Rate for Expats in South Korea

What is a Flat Tax Rate?

A flat tax rate is 19%, and it is a single tax rate applied to all levels of income. In contrast, a normal personal income tax rate ranges between 6% and 42% in Korea. This income tax rate is a progressive rate, which increases as the tax base goes up. Therefore the higher your income, the higher the tax rate is applied.

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Who Can Apply the Flat Tax Rate?

A flat rate is applied to the income of a (1) foreign (2) salary worker from the date the person first provides labor in the Republic of Korea until the taxable period that ends within (3) five years.

The First Condition — You have to be a foreigner. A foreigner as a person who does not have Korean nationality. If you were a Korean but acquired other citizenship and renounced your Korean nationality, you can apply for a flat rate. If you were a foreigner but naturalized to Korea, then you can only apply for a flat rate while you were a foreigner.

The Second Condition — You have to work as a salaried worker. If you work as a freelancer deducting a 3.3% income tax rate, or own a business registered to the tax office, then you cannot apply for a flat tax rate.

The Last Condition — You can apply a flat tax rate only for 5 years consecutively. Please be careful this does not mean that you have five chances of applying the flat rate in your working lifetime. It starts from the first year when you worked as an employee in Korea, and it ends in the 5th year.

Let me give you an example. Let’s assume you’ve started to work in Korea in the year 2015, but left the company in December 2016. You didn’t work for two years in 2017 and 2018. Then the last year in which you can apply for a flat rate is 2019. This is because the flat rate is applicable only for the five straight years starting from the first working year in Korea.
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How Much Does Flat Rate Save Your Tax?

The 19% income tax rate sounds very generous and tempting compared to a normal rate. But in practice, there are a few people who would take benefit out of it due to the way of computing income tax with the flat rate.

When you apply for a flat tax rate, all favorable deductions and tax credits are NOT allowed. The deductions such as family deductions and credit card spending deductions are not allowed. Tax credits such as child tax credit, insurance, education, donation credits, and housing-related tax credits are not allowed.

This is an example of a person with a spouse (two people in the family) whose gross salary is KRW 160 million. If this person applies a 19% flat rate, then he is even worse off.

When computing the tax base, a 19% flat rate does not allow social insurance deduction. When you apply flat rate you are required to add the company’s contribution of National Health Insurance and Unemployment insurance to the gross salary.

So if your gross salary is less than KRW 160 million then you are better off applying the normal income tax rate.
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I have Two kinds of Income; Salary Income, and Personal Business Income. Can I still Apply a Flat Rate to Salary Income?

YES, you can to your salary income only. Please do not forget to do your business income tax filing in May about business income. No need to add the salary income with a flat tax rate to other incomes in May, as these two types of incomes are taxed separately.

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If you would like to ask more questions on a flat rate, please feel free to reach myself at www.aratax.net

Written by Ara Jung (CTA)

All information provided is of limited scope and not exhaustive or comprehensive of any subject. It is not intended to be legal advice, and should not be used in place of consultation with appropriate professionals

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