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Taxes in South Korea [2023] – A Complete Guide

taxation south korea

Last updated on 7 de April de 2023

South Korea is one of the great economic powers in Asia. It is home to many large companies and one of the largest cities in the world. We analyze the most important taxes in South Korea.

Content

Introduction

Asia is a very large and diverse continent, the most populous on the planet. It also matters at lot on the economic level, counting with several advanced economies. One of the countries that stand out the most is South Korea.

South Korea has more than 50 million inhabitants, a GDP per capita very similar to that of Western countries and is home to large multinationals. Among those we can find Samsung, Hyundai, LG and Kia.

When it comes to prices, according to the comparison website WorldData.info, the cost of living in South Korea is about 13% lower than in the United States and 20% lower than in the United Kingdom.

South Korea uses its own currency, the Korean Won (KRW), which is one of the most stable currencies in Asia. Throughout this analysis we will mention monetary figures in both Won and US Dollars, using an approximate exchange rate of $1 = 1300 KRW.

To understand well how South Korea works, we will analyze its most important taxes.

Taxes on Earned Income

Labor income in South Korea is subject to social security payments and income tax:

Social Security

The South Korean social security contemplates 4 different concepts for which employers and employees have to make contributions.

First, both employers and workers must pay the equivalent of 4.5% of the worker’s gross salary to finance the public pension system. The maximum salary base used to calculate these payments is 5.53 million KRW per month, which corresponds to 66.36 million KRW per year ($51,046).

Secondly, for healthcare insurance both parties must pay the equivalent of 3.924% of the gross salary. This amount is calculated on a maximum base of 8.2 million KRW per month, which corresponds to 98.4 million KRW per year ($75,692).

The third concept is unemployment insurance. In this case, the worker must pay 0.9% of the their gross salary, while the employer must pay between 1.15-1.75% depending on the economic activity that is being carried out. These payments are not subject to a maximum base and, hence, calculated on the entire gross income.

Finally, the employer must also pay the equivalent of a percentage ranging from 0.7-18.6% of the employee’s gross salary, depending on the activity carried out, for accidents insurance.

For most jobs, the percentage is very close to the low end of the range. These payments are not capped either but calculated on the entire gross salary.

If we add up these 4 concepts, we will see that workers must contribute 9.324% of their gross salary to the South Korean social security. This percentage is calculated mostly on a capped base.

With regards to employers, their share will be near 10.274% for most of their employees, but increasing to a maximum of 28.774% for those people carrying out dangerous jobs.

Income Tax

Workers in South Korea must also pay income taxes. These are paid to both the central government as well local governments. Therefore, two different progressive tax income structures exist.

Income taxes are calculated based on the tax base, which is the gross salary minus social security contributions made by the worker.

Central  government income taxes have a total of 8 brackets and work as follows:

  • From 0 to 12 million KRW ($0 to $9.231): 6%
  • From 12 to 46 million KRW ($9,231 to $35,385): 15%
  • From 46 to 88 million KRW ($35,385 to $67,692): 24%
  • From 88 to 150 million KRW ($67,692 to $115,385): 35%
  • From 150 to 300 million KRW ($115,385 to $230,769): 38%
  • From 300 to 500 million KRW ($230,769 to $384,615): 40%
  • From 500 to 1,000 million KRW ($384,615 to $769,231): 42%
  • More than KRW 1 billion ($769,231): 45%

Local taxes, which are paid to the municipal or provincial government, depending on where we live, follow the exact same structure and their rates are exactly 10% of those paid to the central government.

  • From 0 to 12 million KRW ($0 to $9,231): 0.6%
  • From KRW 12 million to KRW 46 million ($9,231 to $35,385): 1.5%
  • From KRW 46 million to 88 million ($35,385 to $67,692): 2.4%
  • From 88 to 150 million KRW ($67,692 to $115,385): 3.5%
  • From KRW 150 million to KRW 300 million ($115,385 to $230,769): 3.8%
  • From KRW 300 million to KRW 500 million ($230,769 to $384,615): 4.0%
  • From KRW 500 million to KRW 1 billion ($384,615 to $769,231): 4.2%
  • More than KRW 1 billion ($769,231): 4.5%

Consequently, the highest marginal income tax rate in South Korea is 49.5%.

Total Tax Burden on Earned Income

We will now compare the employer’s total cost, which include social security contributions, with the employee’s net salary. This will allow us to see the total tax burden on labor income.

The table below summarizes, for employees with different salary levels, the total cost of employment for the company and the corresponding net salary. We can then derive the total level of taxation on labor income:

As we can see, low incomes bear a moderate tax burden of less than 20%. The tax burden is still below 30% for middle-income earners.

Those with high incomes must bear a tax burden close to and sometimes even higher than 40%. While that may look excessive, it is slightly less than in most developed countries.

Capital Income Taxes

Let us now analyze how income from savings and investments is taxed in South Korea:

Interest

The interest we receive from a bank deposit is exempt from tax. Income received from fixed income investments, such as government bonds, will be subject to a flat tax rate of 15.4%.

Dividends

Dividends received from equity investments, regardless of whether they come from South Korean or foreign companies, will be subject to a tax rate of 15.4% as well.

Realized Capital Gains

Regarding realized capital gains, most of them will be taxed at a flat tax rate of 22%. Given that capital gains are taxed more heavily than the recurring income stream in the form of dividends and interest, we are incentivized to look for income-paying assets.

Fortunately, most realized capital gains from real estate investments are exempt from taxation.

Rental Income

Income obtained through the lease our real estate assets will also be subject to taxes. In this case, we can deduct all expenses associated with the ownership of these properties to arrive at the pre-tax net rental income.

Pre-tax net rental income will be added to our general tax base, together with income from labor, and subject to the same progressive central government and local tax rates. Therefore, rental income can be subject to a marginal rate of 49.5%.

Something worth mentioning is that South Korea does not have a wealth tax.

Corporate Tax

Corporate profits in South Korea are subject to taxation. Corporate tax is paid to both the central government as well as regional governments.

Corporate tax rates paid to the central government are progressive and work as follows:

  • 0 to 200 million KRW ($0 to $154,000): 10%
  • KRW 200 to 20 billion ($154,000 to $15.4 million): 20%
  • KRW 20 billion to KRW 300 billion ($15.4 million to $231 million): 22%
  • More than KRW 300 billion ($231 million): 25%

Regional taxes have the same brackets and are 10% of those charged by the central government:

  • 0 to 200 million KRW ($0 to $154,000): 1%
  • KRW 200 to 20 billion ($154,000 to $15.4 million): 2%
  • KRW 20 billion to KRW 300 billion ($15.4 million to $231 million): 2.2%
  • More than KRW 300 billion ($231 million): 2.5%

Effectively, this means that small companies face a corporate tax rate of 11%, medium-sized corporations 22%, large 24.2% and multinationals 27.5%.

VAT

The general VAT rate in South Korea is 10%. It applies to most goods and services. This rate is lower than those of most European countries.

Certain purchases are not subject to VAT, such as some foods, medicines, educational activities, international transport, as well as various financial services.

Real Estate Transfer Tax

The purchase of a home in South Korea is also subject to taxes. The tax rate depends on several factors, including the value of the property and the municipality in which it is located.

As a general rule, the applicable tax ranges between 1% and 7% of the purchase price. And, for corporations acquiring homes, the rate increases to 12%.

On some occasions, it is also necessary to pay a registration tax, which can range from 0.2% to 5% of the transaction value. As a result, it is important to know if, in our case, the registration would be included in our real estate transfer tax. For this, it is best to speak to a specialist on the ground.

Inheritance and Gift Tax

South Korea has one of the most onerous inheritance and gift taxes in the world. Its law does not contemplate any exemption for direct relatives. Consequently, the amount to be paid in taxes can be extremely high.

The inheritance and gift tax has 5 brackets, depending on how much wealth a person has received:

  • 0 to 100 million KRW ($0 to $77,000): 10%
  • 100 to 500 million KRW ($77,000 to $385,000): 20%
  • 500 to 1 billion KRW ($385,000 to $770,000): 30%
  • KRW 1 to 3 billion ($770,000 to $2.31 million): 40%
  • More than KRW 3 billion ($2.31 million): 50%

It should be noted that the heir to the Samsung empire had to pay an astronomical tax bill when he inherited part of the company in 2021.

South Korea Public Finances

Let us know look at the state of South Korea’s public finances to see how well resources are managed.

The following chart shows the level of public debt relative to the size of the economy since the 1990s:

Fortunately, public debt in South Korea is low and under control. It barely exceeds 40% of GDP, a negligible percentage compared to most developed countries.

Conclusion

South Korea is a prosperous and advanced economy. And its tax system is quite attractive compared to that of other developed countries.

Workers, corporations, and most investors receive a better fiscal treatment than we can find in many places. And consumption taxes are also moderate.

In summary, if you are interested in relocating to South Korea, taxes should probably not deter you.

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And if you want to read about taxes in another major Asian economy, check out the following link:
Taxes in Japan – A Complete Guide

Published in Impuestos Taxes

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