Simple Tax Guide for Americans in Korea
At Taxes for Expats we have been preparing U.S. taxes for Americans working in South Korea since 2008. Our clients hail from different parts of the country - Seoul and Pusan, Yongsan and Incheon and work in different industries - English teachers to DoD contractors.
Korea has seen a fast rate of economic growth during the past several decades. This is one reason expats may choose to live there. Because of the growth, and the desire for it to continue, the Korean government has instituted several tax rules beneficial to the expatriates who choose to work and live there. This article addresses some of the tax issues relevant to expats in Korea.
US Expat Taxes - Korea
US citizens, as well as permanent residents, are required to file expatriate tax returns with the federal government every year regardless of where they reside. Along with the typical tax return for income, many people are also required to submit a return disclosing assets which are held in bank accounts in foreign countries by using FinCEN Form 114 (FBAR).
The United States is among only a few governments who tax international income earned by their citizens, as well as permanent residents, residing overseas. There are, however, some provisions that help protect from possible double taxation. These include:
- The Foreign Earned Income Exclusion. This exclusion allows one to exclude USD 105,900 (this amount is for 2019 taxes) in earned income from foreign sources.
- A tax credit allowing tax on remaining income to be reduced based on the taxes paid to foreign governments.
- An exclusion on foreign housing that allows additional exclusions from their income for some amounts paid to cover household expenses due to living abroad.
Preparing a quality tax return following proper tax planning should allow one to use these, as well as other strategies, in minimizing or possibly eliminating tax liability. Note that in most cases the filing of a tax return is required, even if taxes are not owed.
Who Qualifies as a Korean Resident?
You are considered a Korean resident after having lived there a minimum of one year.
Does Korea Tax Foreign Income?
Residents of Korea are usually subject to taxes on their worldwide income. But, as far as foreign sourced income goes, foreigners who are resident short term (their total time in Korea is less than 5 of the prior 10 years) get taxed on only their foreign sourced income that is remitted to or paid in Korea. Non-residents get taxed on only their Korean sourced income.
Korean Tax Rates
The top personal tax rate in Korea is 42% (including a local income tax corresponding to 10% of the personal income tax due), and this rate applies to taxable income in excess of KRW 500 million. However, expatriates can elect to apply a 19% flat tax rate to total Korea-sourced employment income.
Progressive Income tax table for 2016
| Taxable income bracket | Total tax on income below bracket | Tax rate on income in bracket | |
|---|---|---|---|
| From KRW | To KRW | KRW | Percent |
| 0 | 12,000,000 | 0 | 6 |
| 12,000,001 | 46,000,000 | 720,000 | 15 |
| 46,000,001 | 88,000,000 | 5,820,000 | 24 |
| 88,000,001 | 150,000,000 | 15,900,000 | 35 |
| 150,000,001 | 50,000,000 | 300,000,000 | 38 |
| 300,000,001 | 94,600,000 | 500,000,000 | 40 |
| 500,000,001 | Over | 170,600,000 | 42 |
Tax Treaty
Korea and the United States agreed to their tax treaty back in 1979. One reason for the treaty is the elimination of double taxation. Provisions in the treaty allow some types of income to be excluded from taxes in one of the countries. Some provisions in the treaty likely apply to your situation, so it is advisable to consult with tax experts to ensure the appropriate treaty provisions get applied properly.
When Are Korean Taxes Due?
Income in Korea is reported based on the calendar year. Income tax returns get filed during the month of May in each year. Korean residents must pay 50% of their tax due before the 30th of November in each year.
Korean Social Security
Korea and the United States finalized their totalization agreement in 2011, which allows expatriates working within Korea to get covered under the United States Social Security system, or the Korean pension system.
Korean Taxes
Most services and goods purchased in Korea are subject to a value added tax of 10%. Taxpayers also pay the inhabitant tax of 10% of the taxpayer’s income tax. Taxes on real estate range between 0.24% - 0.6%.
Questions About Korean Taxes?
Contact us! We have an expert team to provide tax advice to expats, and give you all the information you need to know to file your United States expat tax return while living outside the country.