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back to index backGLOBALtalk March,  2015


Korea: Rules on individual residence status and tax incentives for foreign employees revised

On 2 December 2014, Korea’s National Assembly approved several changes that will affect foreign individuals living in the country. The most salient points of the new rules, which apply as from 1 January 2015, are as follows:

- The time period for an individual to qualify as a Korean tax resident has been reduced. Under the new rules, an individual qualifies as a tax resident if he or she (1) resides in Korea for 183 days or more in any two consecutive tax years (reduced from one year (365 days) or more in any two consecutive tax years), or (2) has an occupation that generally would require him or her to reside in Korea for 183 days or more (reduced from one year or more). However, this change is not expected to have a substantial impact since, under the Individual Income Tax Law, if a foreign tax resident has resided in Korea for less than five years in the previous 10-year period, foreign-source income is taxable in Korea only if such income is either remitted to Korea or paid in Korea. Accordingly, in most cases, an inbound foreigner qualifying as a short-term resident alien will be taxed only on Korea-source income. This is the same treatment as for a nonresident, except that the only deduction permitted to a nonresident is an individual exemption, whereas a Korean resident (including a short-term resident alien) is allowed full deductions.

- The sunset date for the incentive that allows foreign individuals to elect to apply a flat tax rate to their gross earned income (with no deductions, income exclusions or tax credits allowed), as an alternative to the regular progressive individual income tax rates, is extended to 31 December 2016. There is no expiration date for the incentive for employees of qualified headquarters companies.

- The sunset date for the special tax exemption under which 50% of wages received by a qualified foreign technician/engineer providing services to a domestic entity in Korea may be eligible for a tax exemption for two years from the date on which the foreign technician/engineer commences rendering services in Korea is extended to 31 December 2018. However, the scope of the exemption is tightened to cover only foreign technicians/engineers working in the qualified R&D centers of foreign-invested companies or providing services in Korea under a qualified technology inducement contract.” Foreign technician/engineers commencing services in Korea before 1 January 2015 still are eligible for the exclusion under the previous qualification requirements.

Source: Deloitte - GAI




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