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Foreign Workers in South Korea: Tax Issues and Concerns

The recruitment of foreign workers in South Korean companies has increased significantly in recent years. Some foreigners also start their own businesses in the country or work as representatives in Korean companies. However, non-Korean foreign workers are also required to pay income tax, which raises concerns about tax processing and withholding for these workers. Here is a summary of the tax concerns related to foreign workers based on Q&A sessions with the National Tax Service.

Paying Consultation and Lecture Fees to Foreigners

Question 1: Can we withhold miscellaneous income tax when paying consultation and lecture fees to non-resident foreigners who temporarily visit Korea and provide their services?

National Tax Service (NTS): Non-residents are liable for income tax only on domestic-source income according to the Income Tax Act. In the case of consultation and lecture services provided by non-residents in Korea, they are considered personal services with an income source in the country. However, if there are tax treaty provisions between Korea and the non-resident’s resident country, the final taxability should be determined by additional judgement according to the provisions of the relevant tax treaty.

Applying Single Tax Rates for Foreign Representative holding Residence Visas

Question 2: When a foreign representative holding a valid residence visa receives a salary, should the single tax rates be applied? Can we use the simple tax calculation table?

NTS: Applying single tax rates is not mandatory but rather an optional choice. If the employment income is withheld at the rates specified in the simplified tax withholding table for employment income, and the foreign representative satisfies the tax exemption requirements under the tax law, then it is deemed appropriate to apply the single tax rates.

Eligibility for Employment Promotion Employment Deduction for Permanent Employees

Question 3: Can foreign workers be included in the category of permanent workers eligible for employment promotion tax deductions?

NTS: Permanent employees eligible for the employment promotion tax deduction are limited to Korean workers who have entered into employment contracts according to the Labor Standards Act (domestic workers). However, if the foreign worker, without holding Korean citizenship, qualifies as a resident for tax purposes under the Income Tax Act (having an address or residence in Korea for 183 days or more), they would be considered as a permanent worker.

Validity of Single Tax Rates for Foreign Workers

Question 4: We have an employee who is a U.S. citizen but has been living in Korea. They applied the single tax rate until December 2018, and applied general tax rates since then. We have heard that the law for the single tax rate for foreigners has been revised. Can this employee also apply the single tax rate from this year?

NTS: According to the revised tax law, the special tax treatment (applying a 19% single tax rate) for foreign workers on employment income will apply to employment income received by non-residents who started working in Korea for the first time before December 2023 and earned income within 20 years from the initial employment date. However, since this provision will take effect from January 1, 2023, this foreign worker from the question would be eligible for the single tax rate again from 2023.

Tax Treatment for Overtime Allowance of Foreign Workers

Question 5: The overtime allowance of foreign workers earning less than 30 million won in total annual salary is said to be non-taxable. How is this allowance applied if a foreign worker changes jobs during the year?

NTS: Since the total salary, including income from the previous tax period, is the basis for determining whether the total salary is below 30 million won, it is necessary to sum up the total salary of the current year to confirm whether it remains within the limit.

Tax Application for Foreign Workers Eligible for Reduced Tax Rates

Question 6: We understand that foreign workers eligible for the 90% reduced income tax rate for young workers in small and medium-sized enterprises are subject to a 19% income tax withholding. Can the reduced tax rate and the single tax rate be applied concurrently?

NTS: According to the Special Tax Exemption Law, foreign workers subject to the single tax rate for employment income will not be subject to the tax exemption, deduction, reduction, or credit provisions regarding income tax. Furthermore, they will not be included in the aggregate income subject to comprehensive income tax. Therefore, it is deemed that the reductions and exemptions for small and medium-sized enterprise employees cannot be applied to employment income subjected to the single tax rate.

Withholding Income Tax for Foreign Workers Employed Abroad

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