Frequently Asked Questions
1. Global Income Tax Filing by a Foreigner Planning to Depart Korea
Q: I am a foreigner, and I have been running my own business in Korea for a few years. I am planning to return to my home country in April this year. Should I file my global income tax return for 2022 in May this year? Also, how should I file a tax return on income earned in 2023?
A: If you are a foreigner subject to filing a finalized return of global income tax and you are leaving Korea, you must file your tax return no later than a day before your departure. In your case, you should declare the income earned in 2022 and until the day of your departure in 2023, no later than a day from the date of departure.
2. Eligibility for Basic Deduction Ⅰ
Q: My spouse and children live in my home country. Are they eligible for the basic deduction?
A: The eligibility for basic deduction is determined based on whether you, a foreign worker, are a resident or non-resident under the Income Tax Act. If you are a resident under the Income Tax Act, even if your spouse and children live in your home country, you are eligible for income deduction for your dependent family members, just like domestic residents. However, if you are not a resident under the Income Tax Act, personal deduction for other persons and special deductions do not apply, and you cannot receive income deduction for your spouse and children.
3. Eligibility for Basic Deduction Ⅱ
Q: My parents live in my home country. Are they eligible for the basic deduction?
A: If you, as the filer, are a resident under the Income Tax Act, yes, your parents are eligible for the basic deduction. If your parents are your dependent family members and the sum of their annual income is not over 1,000,000 won, they are eligible for the basic deduction. Additionally, if your parents are aged 70 or older, they can receive an additional deduction of 1,000,000 won.
4. Alien Registration of a Dependent Family Member
Q: My spouse is a foreigner but is not a registered alien yet. How can I register my spouse as a dependent family member so that I can claim the basic deduction for my spouse?
A: If you are a resident under the Income Tax Act, you can claim spousal deduction if your spouse's annual income is not more than 1 million won (gross wage & salary of not over 5 million won where there is only wage & salary income). To claim the basic deduction on a foreign spouse, you need to register your spouse's personal information, such as the alien registration number or passport number, with the National Tax Service. You can visit the tax office with jurisdiction over your address and provide the necessary documents, such as the certificate of family relations, your spouse's passport (if there is no alien registration card), and your ID, to register your spouse as a taxpayer. Then, write down the registered taxpayer number on the tax filing form to claim spousal deduction.
For more information on the process of taxpayer registration, please contact the tax office with jurisdiction over your address. You can also visit the National Tax Service website (www.nts.go.kr) to look up the contact number and location of your tax office.
5. Where a Foreigner Naturalized and Acquired Korean Nationality
Q: I was approved for naturalization in 2022, acquired Korean nationality, and was given a resident registration number. Now, I have income registered under both my alien registration number and resident registration number. Do I have to file taxes for the sum of the two types of income?
A: If you have income registered under both your alien registration number and resident registration number, you should report the total income generated for the relevant year by writing down your resident registration number on the tax filing form. This includes the income earned under your foreigner registration number before issuance of a resident registration number and the income made under your resident registration number. However, as a foreigner who has naturalized into a Korean citizen, you should be identified as the same taxpayer with the National Tax Service. To do this, you need to prepare the abstract of the resident register, which states the alien registration number (request inclusion of alien registration number before issuance) and your tax filer's ID. Visit the tax office having jurisdiction over your address and request registration as the same taxpayer. For more information on the process for registration as the same taxpayer, inquire at your jurisdictional tax office.
6. Income from Lease of Overseas Real Estate
Q: I have worked in Korea for three years and have real estate lease income from my home country. I already filed a return for my wage and salary income earned in Korea through year-end tax settlement. Should I declare the real estate lease income in Korea as well?
A: Yes, since you are technically deemed a resident of Korea, you should also file and pay income tax on income generated overseas, including the real estate lease income from your home country. However, if the foreign source income was incurred for the first time on or after Jan. 1, 2009, foreign residents whose total period of having a domicile or place of address in Korea within the past ten years is five years or less are only taxed for income paid in Korea or wired to Korea. Therefore, if the real estate lease income was not paid in Korea or wired to Korea, there is no need to report it in Korea.
7. Special Taxation for Foreign Employees
Q: I am a foreigner and settled year-end taxes just like Korean employees. However, I have recently learned that a special taxation for foreign employees can be applied, under which a flat tax rate is applied. In this case, even if I already settled year-end taxes, is it possible to have the flat tax rate applied instead?
A: Yes, if a foreign employee could not have the flat tax rate for foreign employees applied because he/she failed to submit an application for flat tax rate application, he/she can attach an application for flat tax rate application when filing a finalized return of global income tax base and submit it to the head of the competent tax office of his/her place of tax payment to have the flat tax rate applied. However, in this case, the regulations on non-taxation, tax deduction, tax reduction/exemption, and tax credit shall not apply.
8. Single Tax Rate vs. Progressive Tax Rate
Q: It is my knowledge that foreigners with wage & salary income can choose between the single tax rate and the progressive tax rate. How do I know which one will be more beneficial for me?
A: Under the single tax rate, the amount of tax is calculated by multiplying 19% to the gross wage & salary. However, when applying the single tax rate, non-taxable income is included, and deduction items cannot apply. On the other hand, when applying the progressive tax rate, non-taxable wage & salary income is deducted from the gross wage & salary, and the applicable income deduction, tax credit, tax reduction/exemption for the individual taxpayer is applied. To determine which tax rate would be more beneficial for you, you should consider factors like your gross wage & salary, applicable tax credit, and tax deduction items. It is advised to calculate the tax amount under both the single tax rate and the progressive tax rate and compare the two to make an informed decision.
9. Filing a Return After the Deadline
Q: I was unable to submit the global income tax return for income attributable to 2021. What should I do?
A: If a taxpayer was unable to submit the global income tax return by the statutory due date, he/she can still submit a return of tax base before the head of the jurisdictional tax office determines and notifies the tax base and tax amount for the relevant national tax. If you have not received a notice of determination of global income tax for income attributable to 2021, you should submit a return for filing past the due date with the evidentiary documents on revenue and expenses attached. However, keep in mind that you will be required to pay a penalty tax for non-compliant filing and late payment.
10. Incorrect Filing of Global Income Tax Return
Q: I am a foreign language teacher residing in Korea and recently found out that I incorrectly filed my global income tax return for 2021 and paid extra taxes. What can I do to receive a refund?
A: If you have declared a tax base and tax amount that is more than what should have been declared according to tax laws, you can request a correction of the tax base and tax amount to the head of the jurisdictional tax office within five years of the due date for statutory filing. In the case of the global income tax return attributable to 2021 submitted no later than May 31, 2022, you can fill out the attached form of Article 16-2 of the Framework Act on National Taxes, provide a document stating the reason for the request of correction, and submit all necessary evidentiary documents by May 5, 2027. The head of the tax office will review your request and notify the results within two months from the date of receiving the request.
11. Income Tax on Gains from Stock Option Exercise
Q: I work for a foreign-invested company and incurred profits from exercising stock options in 2022, which were granted by the foreign parent company three years ago. Should I declare the gains?
A: Yes, you should declare the profits from exercising stock options. If an employee of a domestic subsidiary in Korea is granted stock options from its overseas parent company and incurs a profit by exercising them during the employment contract period, the profit is deemed as compensation for the labor the employee provided. Therefore, you should declare the profits from the exercise of stock options during the period for filing income tax in the same year. Report the profits on the Statement of Wage & Salary Income, Pension Income, and Other Income on page 11 of form 40(1), and record 56 (wage & salary income generated from the exercise of stock options granted from the headquarters or parent company located overseas) in the ① Income classification code. If you exercised the stock options after retirement, you should report the profit as other income, and in this case, enter 60 in the ① Income classification code.
12. Conversion of Wage & Salary Paid in Foreign Currency into Won
Q: I have been working in Korea since early last year, and I receive my wage and salary from the US head office on the 20th of every month. I would like to file a tax return on the income. How should I declare my wage and salary paid in foreign currency?
A: If your wage and salary are paid in foreign currency, you should convert the currency into won currency as follows:
- If you are paid wage and salary before the agreed date of payment, you should apply the standard exchange rate or the arbitrage exchange rate of the actual payment date.
- If you are paid wage and salary on or after the agreed date of payment, you should apply the standard exchange rate or the arbitrage exchange rate of the agreed date of payment.
Conclusion
This blog post addressed common questions related to income tax in Korea for foreigners. We covered topics like global income tax filing before departing Korea, eligibility for basic deduction concerning dependent family members, and the alien registration process for a foreign spouse to claim deductions. Understanding these aspects can help foreign taxpayers navigate the Korean income tax system more effectively.