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).
Social security agreement signed between Sweden and South Korea
October 2013 - Sweden / South Korea
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
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).