HR and tax alert

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Updates to tax withholding for foreign workers

December 2015 - South Korea

Executive summary


  • The Korean National Assembly has recently ratified the revised Individual Income Tax Law which introduces measures to widen the scope of employment income subject to withholding tax.
  • In accordance with the new legislation, user Korean entities are required to act as the income tax withholder when paying compensation to a hiring foreign entity for services rendered in Korea by high-income employees under a dispatch agreement (e.g. service fees).
  • The obligation to perform and file a year-end payroll true-up to pay any additional tax due or to claim refund of overpaid tax shall fall on the foreign employer, unless the user Korean entity agrees to do so on the foreign entity’s behalf.
  • The definition of user Korean entities and dispatched employees, and procedures and forms for withholding and the year-end true-up settlement, is likely to be provided in the follow-up decree expected to be released in or before February 2016.

 

 Read more at HR and tax alert 2015 December (pdf, 138.41kb).

 

One-time temporary voluntary disclosure program for offshore income and assets

October 2015 - South Korea

Executive summary
Temporary measures have been introduced to promote voluntary reporting of unreported offshore income and assets from past tax periods of tax resident individuals and domestic entities:

  • This one-off program is scheduled to run from 1 October 2015 to 31 March 2016.
  • Previously unreported offshore income and assets voluntarily reported within the above period will enjoy reduced penalties and risk of prosecution to encourage voluntary reporting.

 Read more at HR and tax alert 2015 October (pdf, 276.79kb).

 

New changes and considerations for applying the flat tax rate to foreign employees

December 2014 - South Korea

Executive summary
On 2 December 2014, the Korean National Assembly approved the revision of foreign employees’ flat tax rate regime which includes:

  • The extension of the flat tax rate regime to 31 December 2016.
  • The exemption of time limit set by the sunset clause for the employees working at certified ‘regional head-quarters’ in Korea for their first five tax years working in Korea.

 Read more at HR and tax alert 2014 December (pdf, 303.5kb).

 

New restrictions for applying the flat tax rate to foreign employees

January 2014 - South Korea

Executive summary
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).

 

Social security agreement signed between Sweden and South Korea

October 2013 - Sweden / South Korea

Executive summary
On 9 September 2013 a Social Security Totalization Agreement (Agreement) was signed between Sweden and South Korea. There is currently no official confirmation regarding the date that the Agreement will enter into force.

Read more at HR and tax alert 2013 October (pdf, 122kb).

 

Proposed change of the flat tax rate for foreign employees

December 2012 - South Korea

Executive summary
the Ministry of Strategy and Finance (MOSF) is planning to increase the flat tax rate foreign employees from the current rate of 15% to 17% (16.5% to 18.7 including resident surtax) through a revision of Article 18-2 of the Restriction of Special Taxation Act.

The flat tax rate regime is a special tax benefit provided to foreigners on their employment income received in return for their services in Korea. According to the proposed 2012 tax law change announced by the MOSF, effevtive from 1 January 2013, the flat tax rate regime is to be extended for another two years until the end of 2014, but the rate will be raised.

The bill was submitted in keeping with the increase of the highest tax rate up to 38% (41.8% including resident surtax) under the porgressive tax regime which is applied to domestic employees from the tax year of 2012. The government expects that this revision will also enlarge the tax revenue.

 

Read more at HR and tax alert 2012 December (pdf, 319.4kb).