INDIVIDUAL TAXES
SIGNIFICANT DEVELOPMENTS
Starting from January 1,1999, certain listed stocks and foreign assets are subject to capital gains tax.
TERRITORIALITY AND RESIDENCE
All individuals in Korea are classified for income tax purposes as listed below.
1. Citizen-Korean national.
2. Resident-Non-Koreans having a domicile or residence within Korea for one year or more, individuals having an occupation that would generally require them to reside in Korea for one year or more, or individuals whose families accompany them to Korea and who retain substantial assets in Korea. Generally, residency is determined on a＂facts and circumstances＂test,
evaluated on an individual basis.
3. Nonresident-An individual who is not deemed to be a resident.
Korean citizens and individuals considered as residents for tax purposes are subject to Korean income tax on worldwide income. An expatriate who is deemed to be a nonresident is taxed only on Korean-source income. A nonresident is not allowed all the personal deductions granted to residents except a basic deduction of W1,000,000.
GROSS INCOME
Employee gross income/Individual income can be categorized as taxable, nontaxable or tax exempt. Taxable income includes global income, capital gains and severance pay, each of which is subject to tax on a unique tax rate structure. There are certain elements of income on which the government has waived its taxing rights, whether or not an application for nontaxation is filed by an individual. There are other items of income for which a taxpayer can submit an application for tax exemption.
Global income is subject to global taxation and includes earned
income(salaries, wages, bonuses, and other amounts received for personal services rendered), interest income, dividend income, rental income, personal business income, and other income (prize winnings, royalties, rewards, etc.).
Korean tax law segregates earned income into Class A or Class B income, depending on the income source.
1. Class A earned income-Employment income received from a domestic(Korean) corporation or a Korean branch office of a foreign corporation for services rendered in Korea. Such income is subject to payroll withholding taxes by the employer on a monthly basis:
2. Class B earned income-Employment income received in a foreign currency from a foreign corporation outside Korea. However, even if foreigners who work in Korea are paid their wages overseas, the wages are considered Class A earned income rather than Class B earned income where the wage is deducted as an expense in calculating the taxable income of a permanent establishment of the foreign corporation in Korea.
3. The employer is not required to withhold Korean taxes at the time of payment of Class B income; however, the individual is required to declare this income annually and pay income taxes thereon on a voluntary basis. Alternatively, the individual may elect to pay Class B income taxes through a licensed taxpayers' association, which collects and remits such taxes on a monthly basis. Taxpayers who join such an association are eligible to
receive a 30% reduction in the amount of income tax payable. A member firm of Price Waterhouse in Seoul, the Samil accounting corporation, operates such an association.
Capital gains and investment income/Gains arising from the disposal of capital assets are included in an individual's taxable income but are taxed separately from global income. Certain capital gains are specifically exempt from tax. These include gains from certain transfers of farmland and other real estate; gains from the transfer of one house, including land
,per household; and gains from the transfer of listed stock (corporate equity share certificates). However, starting from January 1,1999, exceptionally, when a total stake in a listed company of a shareholder and his/her related parties exceeds 5%, at the same time, they sell off their shares more than 1% total shares, the capital gains are taxed at the rate of 22%.
Gains from the disposal of foreign assets are taxable under the conditions that transfer is made after January 1,1999 and the transferor is a Korean resident for five years or more at the time of sale.
Capital losses are deductible only against capital gains. Unused losses may not be carried forward.
Interest income earned on other than National Savings Association deposits and dividend income received from both domestic and foreign corporations are taxable. Most interest and dividend income earned from Korean sources is subject to 24.2% and 22% tax withholding at source, respectively.
Resident taxpayers are required to include any interest and dividends received from non-Korean sources in global income and to pay taxes thereon at ordinary rates.
Non taxable income/The following elements of employee income are no
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