HR and tax alert
New restrictions for applying the flat tax rate to foreign employees
January 2014 - South Korea
On 1 January 2014, the Korean National Assembly approved revisions to the flat tax rate regime for foreign employees under the Restriction of Special Taxation Act (RSTA).
The major changes include:
- The flat tax rate is only valid for the tax years that fall within the first five years of working in Korea
- Employees who are considered 'related parties' of their employers will no longer be eligible for the benefit
Previously, foreign employees were entitled to choose the application of a 17% flat tax rate (18.7% including local income tax), or normal progressive tax rates, whichever was more favorable, to employment income received in return for services rendered in Korea.
The purpose of this tax law change is to strengthen financial solidity of the country as well as to promote fairness of income taxation between domestic employees and foreign employees, by reducing allegedly excessive tax benefits for foreign employees.
The changes apply from 1 January 2014.
Read more at HR and tax alert 2014 January (pdf, 290.9kb).