[Income Tax in Korea] Non-Taxable Income

Non-Taxable Income

In the Korean tax system, non-taxable income refers to the income for which the tax authority waives its taxing rights. This means that such income is excluded from taxation, and taxpayers do not need to apply for non-taxation status. Various types of income fall under this category, providing certain exemptions for individuals and businesses.

 

Non-Taxable Income

Non-Taxable Income Examples

1. Income belonging to public goods

Profits of a public trust

2. Non-taxable interest and dividend income

Gain on settlement of monthly installment-type savings insurance or permanent pension insurance with maturity of 10 years or longer which meets the minimum insurance premium payment requirements. Such gain is non-taxable up to the annual ceiling.

Contract period: From the date of first payment to the date of maturity or cancellation before maturity.

Non-taxable savings income under the Restriction of Special Taxation Act

 

3. Non-taxable other income

• Veteran payments and educational subsidies received by persons of distinguished service to the State and settlement money received by North Korean defectors pursuant to relevant laws
• Rewards and compensations received under the National Security Act

4. Non-taxable business income

• Income generated by having a person utilize a paddy field or a dry field for the production of crops (excluding crop cultivating businesses with revenue exceeding 1 billion won but including grain and other food crop cultivating businesses)
• Housing lease income of a person with one house only, excluding income from lease of a housing located overseas or a housing whose standard market price is over 900 million won
• House rental income of a person with total income of 20 million won or less (limited to the income accruing until the taxable period that ends on or before December 31, 2018, separate taxation for income incurred on or after Jan. 1, 2019)
• Income from a livestock business operated as a sideline at a farm
• Income other than income from a livestock business operated as a sideline at a farm, which is not more than 30 million won per year
• Income generated from the production of traditional liquor in administrative units of 'eup' and 'myeon' outside the Seoul metropolitan area not exceeding 12 million won per year

5. Non-taxable wage and salary income and retirement income

• Salary received by a soldier in service and persons mobilized according to laws
• A benefit in the nature of compensation, reparation or consolation for an injury, etc. from the provision of labor
• Tuition expenses of a wage and salary income earner who meets certain requirements
• Payments in the nature of reimbursement for expenses actually incurred (day/night duty payment, travel expenses, uniforms, etc.)
• Salary received by a foreigner who works for a foreign government or an international organization (e.g., the United Nations) designated by Presidential Decree. Under the principle of reciprocity, non-taxation shall apply only to foreign countries that do not impose income tax on pay received by Korean public officials working in the country.
• Salary received for providing service overseas or in North Korea. The non-taxable ceiling shall be 1 million won per month (3 million won in the case of providing service in deep-sea fishing vessels, etc.).
• Insurance premium borne by the State, a local government, or an employer under the National Health Insurance Act, the Employment Insurance Act, or the Long-Term Care Insurance Act
• Allowance for overtime work, night-shift work, or holiday work received by a production worker (the total salary of the immediately preceding taxable year should be 30 million won or less) with fixed monthly salary of 2.1 million won or less (the amount not exceeding 2.4 million won a year)
• Company meals or meal expenses of not more than 100,000 won per month
• Wages received by workers from employers in connection with their or their spouses' childbirth under the age of six, which amount not more than 100,000 won per month.
• Compensation for employee's invention defined in the Invention Promotion Act given in the amount not exceeding 5 million won a year

6. Non-taxable pension income

• Bereaved family pension, disability pension, etc. received pursuant to public pension- related Acts
• Pensions received pursuant to the Industrial Accident Compensation Insurance Act

Conclusion

Understanding non-taxable income is crucial for individuals and businesses in Korea to optimize their tax liabilities. By identifying the sources of income that qualify for exemption, taxpayers can legally reduce their tax burden and manage their finances more efficiently.