Korea, Republic of

Individual - Income determination

Last reviewed - 28 March 2024

Individual income can be categorised as taxable, non-taxable, or tax-exempt. Taxable income includes global income, capital gains, and severance pay, each of which is subject to tax on a unique tax calculation structure. Further, starting from the tax year 2025, capital gains generated from transfer of shares is to be reclassified as 'financial investment income' and subject to separate taxation (see Income from the transfer of financial investment instruments below for more information).

There are certain elements of income on which the government has waived its taxing rights, whether or not an application for exemption is filed by an individual. There are other items of income for which a taxpayer can apply for tax exemption.

Global income is subject to global taxation and includes employment income (salaries, wages, bonuses, and other amounts received for employment services rendered), interest income, dividend income, personal business income (including rental income), pension income, and other income (prize winnings, royalties, rewards, etc.).

Employment income

Although the legal terminology for the classification of employment income has been deleted in the tax laws, employment income can be classified into Class A or Class B income, depending on the income source.

Class A employment income

Class A employment income is employment income paid or borne by a Korean entity (including a Korean office of a foreign corporation or a permanent establishment [PE]) or paid by a foreign entity but charged back (or to be charged back under a prior agreement) to a Korean entity. Such income is subject to payroll withholding taxes on a monthly basis.

Class B employment income

Class B employment income is employment income paid by a foreign entity but not claimed as a corporate tax deduction by the Korean entity through a recharge. 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 5% credit of income tax payable (credit ceiling of KRW 1 million per individual).

Despite the above, the recently amended Individual Income Tax Law (IITL) requires a domestic company using foreign secondees to withhold payroll income tax at 19% when the domestic company pays service fees to the foreign corporation that has dispatched foreign secondees. The domestic company shall be subject to withholding obligation when all of the following conditions are met: (i) the total amount of service fees paid to a foreign corporation in return for services via foreign secondees exceeds KRW 2 billion per annum, (ii) the sales revenue of the domestic company exceeds KRW 150 billion or total assets exceed KRW 500 billion during the preceding fiscal year, and (iii) the domestic company engages in air transportation, construction business, and professional, scientific, technical service, and financial service business.

Special tax concession for foreigners working in Korea

Foreign expatriates and employees who will start to work in Korea no later than 31 December 2026 are able to apply for a flat income tax rate of 19% (excluding local income tax) on their employment income rather than the normal progressive income tax rates of between 6% and 45% (excluding local income tax). In this case, any other income deductions, tax exemption, and tax credit are forfeited. If a foreign expatriate or employee wants to choose the 19% flat tax application, they are required to submit an application to the Korean tax authorities at the time of filing the annual tax return or to their employer at the time of monthly withholding or year-end settlement. A foreign expatriate or employee can choose the 19% flat tax rate as a monthly employment income withholding tax (WHT) rate with submission of an application to Korean tax authorities.

The flat tax rate is applicable for a 20-year period, starting with the first day of work in Korea to the end of the tax year immediately preceding the year in which the 20-year anniversary of the first day of work falls.

In addition, the flat income tax rate is not applicable for foreigners working for a company that is regarded as a related party to the foreigner. A related party for these purposes is defined as: (i) a corporation where the concerned employee has a direct or indirect controlling influence on the corporation’s management or (ii) a private company that is owned by a relative(s) of the concerned employee.

Non-taxable items of employment income

The following elements, among others, are excludable from employment income:

  • Reimbursement of business expenses, including social membership costs and entertainment expenses incurred by an employee for business purposes.
  • Cost of a company car, driver, related maintenance, and insurance expenses provided by an employer, provided that the car is owned or leased in the name of the employer and certain conditions (i.e. business usage ratio, mileage report, etc.) prescribed under the Corporate Income Tax Law are met. Non-deductible expenses on the corporate tax return will be deemed as the concerned employee’s salary.

The following elements of employment income, among others, are non-taxable:

  • Employer-provided housing qualifying under certain conditions (e.g. residential property [not a hotel] leased in the name of the employer and related costs paid by an employer directly to a landlord on behalf of an employee, except for a shareholding director). However, utility costs paid by an employer are taxable to the employee.
  • Pre-arranged, fixed allowance for a personal automobile used for business purposes, up to KRW 200,000 per month.
  • Relocation and moving expense reimbursements.
  • Reasonable amounts of employer-reimbursed home-leave travel expenses for expatriate employees.
  • Pay of up to KRW 1 million (KRW 3 million for construction and deep-sea fishing) per month for furnishing service overseas.
  • Meal costs of KRW 200,000 or less per month in case that the meal isn't provided by an employer.
  • Childcare or maternity leave benefits, shorter work hour benefits during the childcare period, and spouse maternity leave benefits as indicated in the Employment Insurance Act.

Non-taxable income should be added back to reportable income when the flat tax rate is elected. 

Employer-provided housing qualifying under certain conditions will be permanently excluded from employment income of foreign workers subject to special tax concession for flat tax rate.

Equity compensation

There is no taxable event at grant or on the vesting date of stock option as the stock option is taxed on exercise date. The spread between the market price of the stock and the amount paid by the employee for the stock pursuant to the plan, if any, is subject to income tax at exercise as employment income. However, stock options exercised by former employees would be treated as other income for resident taxpayers (for non-resident taxpayers, the Korean-sourced portion will still be treated as employment income).

For any other equity-based compensation, such as restricted stock or restricted stock unit, the taxation point differs depending on the equity plan.

Pension income

Pension income includes public pension income and private pension income. Public pension income includes national pension income, pension income for civil servants and veterans, etc. The national pension income shall be taxable while the national pension premium is fully tax deductible. Public pension income tax shall be withheld every month. Private pension income includes income received from individual retirement pension accounts, private pension deposits, severance pension based on defined contribution schemes, etc. Private pension income tax shall be withheld between 3% and 5%. In principle, pension income shall be taxed as global income. In case the amount of private pension income is less than KRW 15 million per annum, the taxpayer can choose either separate taxation or global taxation.

Severance pay

Severance pay received upon either retirement or leaving a company is included in an individual’s taxable income but is taxed separately from global income or capital gains. A deduction depending on the service period and additional deduction depending on income level are available. The calculation method differs depending on the year in which the employee retires or leaves and the total service period of the employee.

Business income

Personal business income consists of gains, profits, income from trade and commerce, dealing in property, rents, royalties, and income derived from any ordinary transactions carried on for gain or profit.

Rental income is the income accruing from the lease of the following assets, which are property or the rights to property; registered or recorded vessels, aircraft, automobiles and heavy equipment, factory facilities or mining facilities, and mining rights. An individual engaged in the business of the rental of real properties is also taxed on the deemed rental income calculated at the financial institutions’ interest rate on the lease security money as well as the recognised rental income.

The taxable amount of business income is what remains after the necessary expenses have been deducted from the gross revenues for the respective year.

Capital gains

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 for tax purposes. These include gains from certain transfers of farmland and other real estate; gains from the transfer of a house, including land, per household with certain conditions; and gains from the transfer of stocks of companies listed on the Korean Exchange.

However, exceptionally, when the total stake of a shareholder together with any related parties (called major shareholder) in a listed company is 1% or more (2%/4% or more for a company on KOSDAQ/KONEX), or total market value of the stock held by a shareholder is KRW 5 billion or more (KRW 4 billion or more of the total market value of shares in a venture firm), the capital gains are taxed at the rate of 22% to 27.5% (if the holding period is less than one year, 33% would be applied), including the local income tax. If the stake is in a small-sized company, the gains are subject to tax at 11% (including the local income tax). Effective from 1 January 2025, gains from the transfer of the stock will be classified as 'financial investment income', which is subject to separate taxation (see below).

Capital gains and losses shall be added up by each category (e.g. real estate, stock) on an annual basis. There are basic deductions of KRW 2.5 million per annum and a special deduction for retaining for a long-term period.

Gains from the disposal of foreign assets (except for foreign shares) are taxable where the transferor has been 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.

Dividend income

Dividend income received from both domestic and foreign corporations are taxable. Most dividend income earned from Korean sources is subject to 15.4% tax withholding at source. Foreign resident taxpayers who have stayed in Korea for longer than five years during the last ten-year period are required to include any dividends received from non-Korean sources in global income and to pay taxes thereon at the greater of basic global income tax rates or 15.4%. Foreign resident taxpayers who have stayed in Korea for five years or shorter during the last ten-year period are required to include dividends received from non-Korean sources in global income only if the foreign source income is paid by a Korean entity or transferred to Korea.

Interest income

Interest income earned on other than National Savings Association deposits from both domestic and foreign corporations is taxable. Most interest income earned from Korean sources is subject to 15.4% tax withholding at source. Foreign resident taxpayers who have stayed in Korea for longer than five years during the last ten-year period are required to include any interest received from non-Korean sources in global income and to pay taxes thereon at the greater of basic global income tax rates or 15.4%. Foreign resident taxpayers who have stayed in Korea for five years or shorter during the last ten-year period are required to include any interest received from non-Korean sources in global income only if the foreign source income is paid by a Korean entity or transferred to Korea.

Financial income, including interest and dividends, shall be subject to global taxation in cases where the annual financial income exceeds KRW 20 million.

Income from the transfer of financial investment instruments 

The separate taxation of income arising from the transfer of financial investment instruments had been deferred for two years until 1 January 2025, but recently the Korean government is going through discussion on whether this new tax system will be repealed.  Thus it is tentative and may be subject to change.  The term ‘transfer’ includes exchange, in-kind contribution, wireless transfer between bank accounts, etc. of financial investment instruments such as securities, bonds, investment contracts, and derivatives under the Capital Markets and Financial Investment Services Act and others prescribed in the Presidential Decree of the Law. Such income shall be taxed separately from an investor’s income (e.g. employment income, interest on bank deposits, dividends) subject to annual income tax return filing, capital gains, and retirement income. The applicable tax rates shall be 20% for the income tax base of up to KRW 300 million and 25% for the excess. However, it will not apply to investment income from risk-free financial instruments such as interest on bank deposits, time savings, savings insurance plans, bonds, and corporate dividends.

Income from virtual assets

For information on the taxation on the virtual assets, see the Income determination section in the Corporate tax summary.

Other income

Other income denotes specifically designated categories of income that could not fall into interest, dividend, business, employment, pension and retirement, and capital gains. It normally includes income derived from occasional activities that a taxpayer would not intend to continue, and income earned from temporary activities without employment. The following are the examples of other income.

  • Prize winnings and other similar money or goods.
  • Money or goods in a lottery, sports betting game, etc.
  • Fees for use of copyrighted materials received by any person other than the creator of the material.
  • Royalties received as consideration for using films or tapes for radio or television broadcasting, or from such use of other similar assets or rights.
  • Gains from the alienation of mining rights, fishing rights, industrial property rights, individual information, industrial secrets, trademarks, goodwill (including certain leases of stores), rights derived from the permission to exploit earth, sand, and stone, the right to exploit and use subterranean water, etc.
  • Rent derived from a temporary lease of real estate or personal property, goods, or places.
  • Damages or indemnity payments for breach or cancellation of a contract.
  • Bribe, taking a bribe for a favour given, etc.

Most other income, net of given deductions or actual expenses, is subject to a 22% tax withholding at source (including the local income tax).

Exempt income

Individuals can request a tax-exempt treatment for certain types of income (specified below) by submitting an application to the appropriate tax authorities through their employers.

  • 50% reduction in income tax on wages received by a qualified foreign technician/engineer providing services in Korea to a domestic entity under an engineering technology inducement agreement or by a foreign researcher working in a qualified research centre of a foreign-invested company for ten years from the date one starts to render services in Korea as long as one has started to work in Korea not later than 31 December 2026.
  • With effect from 1 January 2020, 70% income tax reduction for wages received by the above expatriates for the first three years during the prescribed ten-year period, as long as one serves in the category of raw materials, parts, and equipment businesses and has started to work in Korea not later than 31 December 2026.