Understanding Taxation for Residents and Non-Residents
Taxation in Korea is based on the classification of taxpayers into residents and non-residents. A resident is someone who is obligated to pay tax on their worldwide income in Korea, while a non-resident only pays tax on their domestic-source income.
I. Taxpayer
1. Resident
A resident is generally an individual who has either their domicile or a place of residence in Korea for 183 days or longer. Domicile is determined based on objective factors such as having family members sharing a livelihood in Korea, owning assets in the country, or holding a job in Korea. On the other hand, a place of residence refers to a location where one has lived for an extended period without engaging in typical activities of a domicile.
A taxpayer can be considered a resident if they meet any of the following criteria:
- Residing in Korea for 183 days or more due to their occupation.
- Having family members sharing a livelihood in Korea, and residing in the country for 183 days or longer because of their job or assets held in Korea.
Residents are required to pay tax on all income earned both within and outside of Korea.
2. Non-resident
A non-resident, as the name suggests, is an individual who is liable to pay tax solely on their domestic-source income. This means that any individual who does not meet the criteria to be classified as a resident will fall into the non-resident category.
II. Income – Types and Classification
Classification of taxable income
The method of taxation for the income of residents or non-residents is classified into global taxation and schedular taxation.
- Income tax is imposed using a progressive tax rate on the sum (i.e. aggregate) of all income attributable to an individual. Such method of taxation is called global taxation and applies to interest income, dividend income, business income, wage and salary income, pension income, and other income.
- Certain types of income subject to global taxation are not aggregated with other income types (by either taxable period or by taxpayer) and are withheld at the time of payment by the income payer. In this case, all tax liabilities are settled at the time of withholding. Such types of income include interest income, dividend income, housing rental income*, pension income, other income, and wage and salary income (of daily workers).
- For housing rental income separately taxed (revenue of not more than 20 million won), a joint return can be filed or tax can be filed separately (14% tax rate)
- Schedular taxation applies to retirement income and capital gains. Such types of income are not aggregated with global income and taxed respectively.
Conclusion
Understanding the classification of taxpayers and the different methods of income taxation in Korea is essential for both residents and non-residents. By adhering to the tax regulations, individuals can ensure compliance with the Korean tax system and fulfill their tax obligations accordingly.