Income Tax Refund Guide for International Students

  Foreign workers who do not hold Korean nationality are also required to undergo year-end tax settlement. However, this requirement may vary depending on the contract between the employer and the worker. If the employer and the worker sign a contract as an independent contractor, i.e., as a freelancer, the compensation received for services is classified as business income under the Income Tax Act. In this case, 3.3% (including 0.3% local tax) is withheld from each payment before it is made. The amount of tax withheld in this way is then compared with the final tax liability determined in the following May during the comprehensive income tax filing. If the determined tax amount is greater than the withheld amount, the taxpayer must make an additional payment; conversely, if it is smaller, the taxpayer will receive a refund.

  So what happens if the income earner is an employee? In this case, the schedule and method of year-end tax settlement are the same as for Korean employees. However, it is important to distinguish between residents and non-residents. A resident is defined as a person who has a domicile in Korea or who resides in Korea for 183 days or more in a year. Here, domicile refers to an address determined based on objective facts about one’s living circumstances, such as whether the individual has family members living together or owns property in Korea. If the worker is classified as a resident, general deductions are available, except for the deduction on housing savings deposits. On the other hand, if classified as a non-resident, certain deductions and credits under the Income Tax Act—such as dependent deductions for family members, special income deductions, child tax credits, and special tax credits—are not applicable.

https://www.nts.go.kr/nts/na/ntt/selectNttInfo.do?mi=2201&nttSn=1339358

  There is also a special taxation rule that applies only to foreign employees. From the taxable year in which the employment begins, foreign employees may choose, for up to 20 years, between applying a flat tax rate of 19% or the standard progressive income tax rates. However, when applying the flat tax rate, provisions under the Income Tax Act regarding exemptions, deductions, reductions, and tax credits cannot be applied. Therefore, foreign employees should compare the final tax liability calculated under the flat rate with that calculated under the progressive tax rates and choose the option that is more advantageous when completing their year-end settlement.

https://www.taxtimes.co.kr/news/article.html?no=243188

Kim Ye Ji

<kimyeji4223@naver.com>