National Tax Service English Web-site

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Easy Guide for Foreigners' Year-end

Tax Settlement

2004. 12

	National Tax Service www.nts.go.kr

PREFACE

I wish to express my profound appreciation for your faithful tax compliance and contribution to the development of the Korean economy.

Foreign investment is the key engine to develop Korean economy and advance the economic and social systems.

Considering the ever-growing population of foreigners furnishing service or carrying on business in Korea, we strongly feel that it is important for our administration to provide them with proper guidance and assistance.

Therefore, National Tax Service have introduced various tailored taxpayer services such as「Help-line for Foreign Taxpayers (397-1440)」, 「Foreign Taxpayer Advocate」and 「Q&A section by Email」 at our english web-site.  We also published a number of books on Korean tax system for foreign taxpayers.

This booklet is prepared to present a brief explanation of the Year-end Tax Settlement for wage & salary income earners, focusing on foreigners. The important changes in legislation enacted in 2004 have been incorporated within this guide and we have reproduced the relevant pages of the filing forms as a cross-reference to this guide.

This guide deals with general principles and may be no substitute for expert advice. However, we sincerely hope that this guide is of interest and benefit to readers from all walks of life.

Yong-Sup Lee

Commissioner of National Tax Service

Table of Contents

Easy Guide for Foreigners' Year-end Tax Settlement

Table of Contents

◈ Flow of Year-end Tax Settlement of Wage & Salary Income Tax

◈ What are major new changes for 2004 ?

Ⅰ	General		11

A. Taxpayer	11

1) Resident

2) Non-resident

3) Difference in Tax Treatment

B. Global and Schedular Income Taxation	12

C. Monthly Tax Withholding	12

D. Year-end Tax Settlement	13

1) Employee who has worked for 2 companies in 2004

2) Employee who retires during the year

E. Things To Prepare for the Year-end Settlement	15

1) Proof of documents for Deductions

2) Submission of certified copy of foreigner's registration card

3) Issuance of receipt for wage & salary income taxes withholding

Ⅱ	Taxation of Wage & Salary Income		17

A. Adjusted Wage & Salary Income	17

1) Wage & Salary Income from Employments

2) Income That Is Not Regarded As Employment Income

3) Non-taxable Wage & Salary Income

4) Adjusted Wage & Salary Income

B. Personal Deduction	21

1) Basic Deduction

2) Additional Deduction

3) Additional Allowances for Small Number of Dependents

C. Pension Premium Deduction	23

D. Special Deduction	24

1) Insurance Premiums

2) Medical Expenses

3) Education Expenses

4) Housing Funds

5) Charitable Donations

6) Deductions of Marriage, Funeral Service and Moving Expenses

E. Other Income Deductions	27

1) Credit Card Usage Deduction

F. Calculated Income Tax	29

1) Tax Base (Taxable Income)

2) Tax Rates and Tax Amount

G. Tax Credit	29

1) Tax Credit for Wage&Salary Income

2) Class B Taxpayer Association Credit

3) Foreign Tax Credit

4) Other Tax Credits

※ Tax Exemption for Foreign Engineers

H. Taxes Due	32

1) Calculation of Payable / Refundable Tax

2) Special Tax for Rural Development

3) Inhabitant Tax

Ⅲ	Example of Income Tax Calculation		33

Ⅳ	Actual Examples of Q&A on NTS website		39

Ⅴ	Tax Forms		44

The explanations and examples in this publication reflect the interpretation by the National Tax Service of Tax Laws. However, the information given does not cover every situation and is not intended to replace the law and change its meaning.

◈ Flowchart of Year-end Tax Settlement of Wage & Salary Income Tax

Total Income from Employments
( - )	Non-taxable Income
	∙Compensation of Actual Expenses - wages that are received by a worker due to natural disasters and other calamities, pays for day duty, night watch, or business travel - compensation for driving one's own car, research subsidies for teachers, news allowances for reporters : limit is ￦200,000/month ∙Salary for Workers Abroad : limit is ￦1,500,000/month ∙Special Tax Treatment for Foreign Employees: up to 30% of total income ∙Allowance for Night Duty received by Productive Laborers : limit is ￦2,400,000 ∙Meal costs of less than ￦100,000 per month, Qualified School Expenses, etc..
Gross Wage & Salary Income
( - )	Deduction for Wage & Salary Income
	∙up to ￦5,000,000 : ∙￦ 5,000,000~15,000,000 : ∙￦15,000,000~30,000,000 : ∙￦30,000,000~45,000,000 : ∙￦45,000,000~ :	Total amount ￦ 5,000,000 + 50% of over 5,000,000 ￦10,000,000 + 15% of over 15,000,000 ￦12,250,000 + 10% of over 30,000,000 ￦13,750,000 + 5% of over 45,000,000
( - )	Personal Deduction
	∙Basic Deduction : Taxpayer himself, Spouse and dependents with gross income of less than ￦1,000,000 ⇒ ￦1,000,000 per capita * Dependents have Age limit, but the Handicapped is not applied to it. ∙Additional Deduction: The Aged, The Handicapped, child under 6 years old ⇒ ￦1,000,000 per capita, ￦1,500,000 (for over 70 years old), Woman ⇒ ￦500,000 per year ∙For Small Dependents : If dependent is one, ￦1,000,000, if two, ￦500,000
( - )	Pension Premium Deduction
( - )	Special Deduction
	∙Insurance Premium : National Health Insurance, Employment Insurance ⇒ Total amount Principal-guaranteed Insurance ⇒ limit is ￦1,000,000 Insurance for the handicapped ⇒ limit is ￦1,000,000 ∙Medical Expenses : Taxpayer himself, The Aged: Total amount Dependents: Medical expense - (Gross Wage & Salary Income × 3%) ⇒ limit is ￦5,000,000 ∙Education Expenses: Taxpayer himself ⇒ Total amount - Up to Kindergarten, Elementary, Secondary, high school ⇒ limit is ￦2,000,000 per capita - University or College ⇒ limit is ￦7,000,000 per capita

Easy Guide for Foreigners' Year-end Tax Settlement

Easy Guide for Foreigners' Year-end Tax Settlement

( - )	Special Deduction
	∙Housing Fund : limit is ￦10,000,000 (but, if ①+②+③, ￦3,000,000) ① Housing savings : 40% of deposit ② Housing loans for purchase : 40% of principal refunded ③ Housing loans for lease : 40% of principal refunded ④ Mortgage loan : interest paid ∙Donation ∙Standard Deduction : if the total amount of Sepcial Deduction is less than ￦600,000 ⇒ annual standard deduction : ￦600,000
( - )	Other Inocome Deduction
	∙Pension Savings Deduction : deposit amount (limit is ￦2,400,000) * Personal Pension Plan signed before Dec. 31, 2000 : 40% of deposit (limit is￦720,000) ∙Investment Association Deduction - Investment after Jan. 1, 2002 : 15% of investment (limit is 50% of Wage & Salary Income) ∙Credit Card Usage Deduction ① Usage Amount = Credit Card + Debit Card + Tuition through Giro + Prepaid Card ② Deductable Amount = [① - (Gross Wage & Salary Income × 10%)] × 20% ③ Deduction Limit = lesser of (20% of Gross Wage & Salary Income, ￦5,000,000) ∙Employee Stock Ownership Association Contribution Deduction ⇒ deduction is lesser of contribution or ￦4,000,000
Tax Base (Taxable Income)
( × )	Tax Rate (9∼36%)
	∙up to ￦10,000,000 : 9% ∙￦10,000,000~40,000,000 : 18% (minus ￦900,000) ∙￦40,000,000~80,000,000 : 27% (minus ￦4,500,000) ∙over ￦80,000,000 : 36% (minus ￦11,700,000)
Calculated Income Tax
( - )	Tax Credit and Exemption
	∙Tax Credit for Wage & Salary Income : limit is ￦500,000 - up to ￦500,000 (55% of calculated income tax) over ￦500,000 (￦275,000 + 30% of over 500,000) ∙Class B Taxpayer Association Credit(TAC) : 10% of income tax withheld by TAC ∙Home Mortgage Interest : 30% of interest paid ∙Donation for political party : 100,000/year ∙Foreign Tax Credit : foreign income tax amount paid or payable in a foreign country ⇒ Credit = calculated income tax × (foreign source income / gross income)
Payable/Refundable Tax			= Calculated Income Tax - Pre-paid Tax

	What are major new changes for 2004 ?

1.  Simplification of Special Taxation Treatment System for Foreign Employees

Before	After
Foreign employees may apply either ⓐ or ⓑ ⓐ Foreign Employees who receive overseas allowances - Exemption of 40% of Adjusted monthly regular salary ⓑ Deductions for foreign employees who do not receive overseas allowances - Deductions of education expenses of foreign school, monthly rental payments - Limit: 40% of (annual amount of monthly regular salary - deduction amount)	Foreign employees may choose either ⓐ or ⓑ ⓐ Separate taxation of wage income applying 17% flat rate - Exclusion of exemptions and deductions ⓑ Exemption of 30% of total wage & salary income - Monthly withholding after subtracting above amount

2. Expansion of Wage & Salary Income Deduction

Wage & Salary Income	Before	After
up to ￦5,000,000 ￦ 5,000,000 ～ ￦15,000,000 ￦15,000,000 ～ ￦30,000,000 ￦30,000,000 ～ ￦45,000,000 over ￦45,000,000	100% 47.5% 15% 10% 5%	100% 50% 15% 10% 5%

3. Expansion of Deduction for Education Expenses

	Before	After
Increased the limit of deduction for education expenses per dependents - up to kindergarten - elementary, secondary, high school - University or college	1,500,000 2,000,000 5,000,000	2,000,000 2,000,000 7,000,000

4.  Abolition of Deduction Limit for Medical Expenses of Taxpayer him/ herself

Before	After
Deduction Limit: 5,000,000/year ※ No limit for over 65 years old or handicapped people	Abolition of limit for taxpayer - Limit for Dependants: 5,000,000/year ※ Deduction of Medical Expenses: Amount over 3% of gross wages

5. Expansion of Tax Credit for Wage & Salary Income

Tax Amount Calculated	Before	After
- up to ￦500,000 - more than ￦500,000 - Credit maximum	50% of total tax 250,000 + 30% of over ￦500,000 ￦450,000	55% of total tax 275,000 + 30% of over ￦500,000 ￦500,000

6. Increase of Exemption Amount of Meal Payment by Employer

Before	After
Scope of Exemption - Less than 50,000/month	- Less than 100,000/month

7. Revision of Credit Card Usage Deduction

Before	After
Scope of Deduction - Credit Card, Debit card usage - GIRO payment of private teaching institution costs - Time limit is to Nov. 30, 2005. Deduction rate for the used amount - Credit card: 20% - Debit card: 30%	Expansion of Scope of Deduction - Prepaid Card (with registered name) (amount used after '03.12.1) - Cash Receipt (amount used after '05.1.1) Unification of deduction rate for the used amount - Deduction of 20% of used amount that exceeds 10% of annual wages.

8. Introduction of Deduction for Marriage⋅Moving⋅Funeral Expenses

Before	After
	Eligibility of Deduction - Taxpayer, Spouse, Dependents' Marriage, funeral expenses - Taxpayer's moving expenses Requirement for Deduction - Resident whose Gross wage & salary income is less than 25,000,000/year. Deduction Amount - 1,000,000 per case

9. Increase of Additional Deduction for the Aged

Before	After
Additional Deduction for the Aged - The aged older than 65 - Amount: 1,000,000/person	- The aged older than 65: 1,000,000 - The aged older than 70: 1,500,000

10.  Special Taxation on Members of Employee Stock Ownership Association

Before	After
Members of ESOA contributing ESOA to acquire the treasury stock of their own company - Deduct Lesser amount (the contributions for the year concerned, 2,400,000) Deduction Limit for the expenses of contribution by large stockholder (As a donation) - 10% of income Withdrawn stocks which have been retained by the owner and member of the ESOA for a period of not less than 3 years - Separate taxation with 9%	Increase of Deduction Limit - Lesser amount (the contributions for the year concerned, 4,000,000) Increase of Deduction Limit - 30% of income Change of Special Taxation Method - Exemption of 50% of withdrawn amount of employment stock ownership

	Ⅰ. General

A.	Taxpayer

Ⅰ. General

Taxpayer, who is liable to pay the income tax on his/her income, is classified into Resident and Non-resident in terms of whether a country has the taxing right on his/her worldwide or just domestic income.

1) Resident

Principally, a resident is any individual who has his/her domicile in Korea or a place of residence for 1 year or more in Korea. The domicile shall be judged by the objective facts of living relationship, such as the existence of a family living together in Korea and of the property located in Korea. And, the 'place of residence' means the place where a person has dwelt for a long time besides his address in which no close general living relationship is formed as the domicile.

A taxpayer who falls within in the following cases is deemed to have a domicile in Korea.

․Who has an occupation which would require him to reside in Korea for 1 year or more; or

․Who has his family in Korea and is likely to reside in Korea for 1 year or more in view of his occupation or assets held in Korea.

On the other hand, according to the general provision1-4 of Income Tax Law, even when a person has a job overseas and stayed there for more than 1 year, but he/she has his/her general living relationship including his/her family and property at home, he/she shall be regarded as a resident of Korea.

A resident is subject to income tax on all incomes derived from sources both within and outside the country.

2) Non-resident

A person who is not a Resident of Korea is deemed a non-resident and is subject to income tax only on income derived from sources within Korea.

3) Difference in Tax Treatment

When a non-resident who does not have a domestic place of business has earned wage & salary income in Korea, most of the provisions concerning the tax base and tax amount of residents shall apply to him/her. However, in calculating tax base and tax amount, a non-resident is not entitled to basic deduction(except for oneself), additional deduction(except for oneself) and special deduction.

B.	Global and Schedular Income Taxation

Income derived by residents and non-residents is subject to global or schedular taxation.

Under global taxation, Real Estate Rental Income, Business Income, Wages & Salary Income, Temporary Property Income, Pension Income, and Other Income are aggregated and taxed progressively. Interest and dividend are also taxed globally with some exceptions of being subject to withholding tax only when paid.

Retirement Income, Capital Gains, and Timber Income are items subject to schedular taxation and thus taxed separately at varying rates.

※ Tax withholding is applied to each domestic source item of income of non-residents who do not have a place of business in Korea and do not have income from real estate located in Korea.

C.	Monthly Tax Withholding

Regardless of whether an employee is resident or non-resident, when he/she is paid a salary income which falls under the category of Class A or B income, his/her personal income tax is monthly withheld by his/her withholding agent(employer, taxpayer association) and deducted from his/her salary every month. That is, an employer paying wage & salary income must deduct income tax monthly from the earnings of their employees based on 「Simplified Tax Withholding Table」 issued by National Tax Service (NTS) and the total of these deductions has to be paid over the NTS (district tax office concerned) by the tenth day of the following month.

However, a person who has less than ten employees on average from at the end of January to December of the preceding year may pay taxes withheld to the government every half-year, after obtaining an approval by the head of the tax office concerned.

※  In the case of paying ‘independent service income’ to a non-resident, which is different from ‘Dependent’ Wage & Salary Income, 20% of the amount payable(paid) is withheld at the time of such payment by the person paying the amount of income from domestic sources to a non-resident who has no domestic place of business, unless otherwise provided in an applicable tax treaty. And the withholding agent has to pay it to the government by the 10th of the following month.

excluding non-residents with real estate income or timber income

D.	Year-end Tax Settlement

One's income tax liability for the year is settled and finalized in January the next year through year-end exact computation as we call "Year-end Settlement". Then, the total of monthly deduction(the amount withheld) taken off an employee's earnings is treated as a credit against the overall amount of tax payable by the employee for the tax year in question.

To sum up, a person liable for tax withholding, withholding tax agent, must calculate the tax amount for the year at the time of first payment of wage and salary income the next year and collect or refund the balance between the tax amount payable calculated by applying the tax rates and the tax amount withheld according to the Simplified Tax Withholding Table.

On the other hand, when a taxpayer has wage & salary income only, he/she is not subject to final composite income tax return(self-assessment), if he/she has other incomes in addition to wage & salary income, he/she should file final composite income tax return in total of the incomes by the end of May of the next tax year.

※ If a withholding agent does not withhold income tax on payment or does not pay the withheld tax to tax authority by the due date, a penalty tax equivalent to 10% of the tax amount not withheld or unpaid shall be imposed.

1) Employee who has worked for 2 companies in 2004

In case where an employee with double employment income from more than 2 work place, the withholding agent of principal working place shall conduct year-end settlement combining the wage & salary incomes of the former work place.

In case where an employee who has retired halfway in the current year is newly employed at another work place, the withholding agent of such new work place shall have the relevant employee submit the receipts for tax withholding for the wage & salary incomes at the former work place, and a copy of the book for tax withholding for wage & salary incomes, and conduct the year-end settlement including the aggregate of wage & salary incomes at the former work place.

In case where an employee has both Class A wage & salary income and Class B wage & salary income which has been withheld by Class B wage & salary income taxpayers association, the employer who pays Class A wage & salary income shall conduct the year-end settlement for the employee.

If a withholding agent is not available for the bankruptcy or missing, etc., the employee shall file a final tax return for the wage & salary income at the district tax office concerned not later than May 31st of next year.

2) Employee who retires during the year

In case where an employee retires during the year, the withholding agent must conduct year-end settlement when he/she pays the earning of retiring month and issue the receipt for the wage & salary income taxes withholding.

E.	Things to Prepare for the Year-end Settlement

1) Proof of Documents for Deductions

Employees shall submit the documents required for deductions, exemptions and tax credits by the law to prove the expenses within the period of year-end settlement to the withholding agent. If an employee fails to submit the required documents within the period, he/she must file the final composite income tax return not later than May 31st to the district tax office concerned to enjoy the benefits of deductions.

In case where an employee who applies incorrect amount of deductions by submitting false or fake receipts, he/she shall be imposed the tax for the incorrect deductions and penalties later by the law.

Proof of Documents	Eligibility and Issuer
∙Report of Exemption & Deduction from Wage & Salary Income	- Taxpayer
∙Certified Copy of Foreigner's Registration Card	- Employees who was hired in 2004 - Employees whose dependents were changed - Issued by immigration office
∙Copy of Receipt for Insurance Payment	- Employees who bought a policy of life, property loss, and accident insurance - Issued by insurance company
∙Copy of Receipt for Medical Expenses	- Employees who paid more than 3% of Gross wage as medical payments - Issued by hospitals, pharmacies, etc.
∙Copy of Receipt for Education Expenses	- Employees whose dependents or him/ herself are students - Receipt issued by principal of school

Proof of Documents	Eligibility and (or) Issuer
∙Copy of Receipt for Education Expenses for Overseas Educational Institutes	- Employees whose dependents go to schools in foreign countries - Receipt issued by principal of school
∙Copy of Receipt for Donation	- Organizations who received donations
∙Report for Deduction of Credit Card Usage, etc. - Receipt of Credit card payments	- Taxpayer - Credit card, debit card, prepaid card companies, etc.
∙Application Report of Flat Tax Rate for Foreign Employees	- Taxpayer who chooses separate taxation method with 17% flat rate
∙Tax Credit Report of Foreigner's Employment Income	- Foreign employees who meet the requirements under the relevant law
∙Exemption Report of Foreigner's Employment Income	- Foreign employees who was dispatched to Korea by the agreement b/w the governments
∙Foreign Tax Credit Report	- Taxpayer who served the labor and paid the income tax in foreign countries

2) Submission of Certified Copy of Foreigner's Registration Card

Instead of copy of resident registration card of Korean citizen, a foreigner shall submit a 「certified copy of foreigner's card」 or other similar documents along with the 「Report of Exemption and deduction from Wage & Salary Income」 to the withholding agent.

3) Issuance of Receipt for Wage & Salary Income Taxes Withholding

Withholding agent shall make 3 copies of the receipt for wage & salary income taxes withholding and give an each copy of the receipt to the tax office and employee and maintain a copy of the receipt.

	Ⅱ. Taxation of Wage & Salary Income Wage & Salary Income is referred to as Wage & Salary Income, Payroll Income, Labor Income or Earned Income in this writing.

A.	Adjusted Wage & Salary Income

Ⅱ. Taxation of Wage & Salary Income

A Wage & Salary Income earner may fill out the 「Report of Exemption and Deduction from Wage&salary Income」attached after reading related-instructions and then submit it to his/her withholding agent along with related supporting documents (receipts, etc.) for the preparation of his/her year-end exact computation of Korean Wage & Salary Income Tax for the calendar year 2004.

First of all, Taxable Income of a wage&salary income earner is calculated to determine his/her wage & salary income tax due.

1) Wage & Salary Income from Employment

At the first stage, as seen in the flow chart, to get the amount of adjusted wage & salary income, the amount of non-taxable income is deducted from the total of Wage & Salary income, which includes all kinds of salary, bonus and allowances.

An employee's wage & salary income subject to Korean income taxation is the amount received as payment for labor performed in Korea. This income has two types, Class A income and Class B income.

Class A:

ⅰ)  Wage, salary, remuneration, allowance, bonus, and any other allowance of a similar nature received in return for services

ⅱ)  Income received as a bonus by a resolution at the stockholders or partners general meeting of a corporation, or a similar deliberative organ

ⅲ) Amount treated as bonus under the Corporation Tax Law

ⅳ) Income, other than retirement income, received due to retirement

Class B:

ⅰ)  Wages and salaries received from a foreign agency or from the U.N. Forces in Korea (excluding the U.S. Armed Forces)

ⅱ)  Wages and salaries received from a foreigner or foreign corporation outside Korea, excluding those claimed as a deductible expense for a Korean place of business of a non-resident or a foreign corporation

ⅲ)  Income incurred from exercise of stock options granted by foreign associated company

It is notable that if salary income paid to employees is deducted from taxable income of a foreign corporation's permanent establishment in Korea to which they belong, the salary income will be categorised as Class A income, not Class B income, even though the income is paid directly by the foreign corporation's head office in a foreign country.

Roughly speaking, the sorts of earning which counts as taxable income from an employment are : an annual salary or wage; bonus; overtime; commission; tips or gratuities; holiday pay; sick pay; earnings from a part-time employment; directors' fees or other remuneration; and benefits-in-kind etc.

2) Income That Is Not Regarded As Employment Income

•  Any income accruing from the difference between the acquisition value of such stocks that is acquired by a member of employee stockholders association determined by the law and decree and the market value.

•  The insurance premium, trust installment or mutual aids installment imposed on the employer in connection with the insurance, trust or mutual aids whose contractor is an employee or whose beneficiary is an employee, his spouse, or tother family member.

•  Benefits obtained from a house provision which is provided to an officer who is not a stockholder or a contributor, an employee who is not an officer and the person who is paid the earned income by the State or local governments.

•  Research subsidies received by teachers of universities, junior colleges, and the schools equivalent to them and research activity expenses received by persons directly engaged in the research activities at the research institutes subject to the Support of Specific Research Institutions Act, the government-contributed research institutes established by a special Act, the local government-invested research institutes under the Act on the Establishment and Operation of Local Government-Invested Research Institutes, or the research institutes attached to enterprises such as the small and medium enterprise, venture enterprise under Article 15 ① 1 and 3 of the Enforcement Decree of the Technology Development Promotion Act, which are the amounts with the limit of those calculated by applying 15/100 to the total sum of wages. And an amount of not more than 200,000 won per month from among the research activity expenses received by the person who directly supports the research activities determined by the Ordinance of the Ministry of Finance and Economy at the research institutes.

•  An amount not exceeding 30,000,000 won per year of the gross profits that an employee may drive by exercising the stock options when the employee serves in a domestic corporation determined by the Presidential Decree.

3) Non-taxable Wage & Salary Income

Non-taxable income is the income for which the Korea government waives its taxing rights. Whether an application for non-taxation is made or not, such income is not taxable, some of which are as follows :

•  Special Taxation Treatment for Foreign Employee : limit is up to 30% of Total Wage & Salary Income

-  Provisions concerning such tax exemption, deduction, reduction, tax credit, and year-end settlement shall be applicable same as resident.

-  A foreigner may choose separate taxation of wage & salary income by multiplying such income by 17/100 instead of non-taxable treatment on 30% of total wage & salary income. In this case, provisions concerning such tax exemption, deduction, reduction, and tax credit shall not be applicable.

•  Pensions or payments of a consolation nature receivable by a person injured while working

•  Pay receivable by a retired employee, a retired teacher, a retired official, a veteran, a former President or his bereaved family.

• Education fees prescribed by Presidential decree

• Payments in the nature of compensation for actual expenses

–  wages that are received by a worker due to natural disasters and other calamities, pays for day duty, night watch, or business travel

–  compensation for driving one's own car, research subsidies for teachers, news allowances for reporters : limit is ￦200,000/month

•  Wages receivable by persons serving with a foreign government or the U.N. and organizations thereof; in the case of a foreign government, the principle of reciprocity shall be applied.

• Wages receivable by furnishing work or services overseas as follows:

–  Pay of up to ￦1,500,000 per month receivable from furnishing service overseas (including service in deep-sea fishing boats or ocean-going vessels)

–  Overseas service allowance of public officials, etc.

• Fringe benefits of employees.

•  Allowance for Night Duty received by Productive Laborers  :  The Maximum is ￦2,400,000/year

• Meal costs of less than ￦100,000 per month, Qualified School Expenses, etc.

•  Pay receivable by an enlisted person in the armed forces or a person mobilized under law.

4) Adjusted Wage & Salary Income

In respect of a resident (or non-resident) having any wage income, the following amount shall be deducted from the amount of gross income in the current year to work out the adjusted gross amount.

Amount of Gross Income	Deduction Amount
Up to ￦5,000,000	Total amount
￦5,000,000～￦15,000,000	￦5,000,000 + 50% of the excess over ￦5,000,000
￦15,000,000～￦30,000,000	￦10,000,000 + 15% of the excess over ￦15,000,000
￦30,000,000～￦45,000,000	￦12,250,000 + 10% of the excess over ￦30,000,000
over ￦45,000,000	￦13,750,000 + 5% of salary exceeding ￦45,000,000

B.	Personal Deduction

With respect to Personal Deduction, a taxpayer may be qualified or not depending on his/her status for the income allowance such as “Basic Deduction", "Additional Deduction", "Additional Allowances for Small Number of Dependents".

Regarding the eligibility for Personal Deductions, persons eligible for spouse deduction, dependents deduction, or exemption for handicapped or aged persons must be family members who are listed on the Registration Card of the her/himself actually living at the same domicile or residence with the taxpayer. A person who has temporarily left the taxpayer's domicile or residence for reasons of schooling, medical treatment, business, or work may still be entitled to the deduction. The determination of eligibility shall be made based on the existing conditions at the close of the tax period in question.

A Wage & Salary Income earner, whose family status already declared to NTS is changed, has to submit an application for personal deductions with documentary evidences before receiving Wage & Salary Income for December of each year.

1) Basic Deduction

A resident with Wage & Salary Income is entitled to an annual deduction for an amount calculated by multiplying the number of family members falling under any of the following sub-paragraphs by ￦1,000,000 per capita.

ⅰ) a resident taxpayer him/herself

ⅱ)  a person who is the spouse of and lives with the taxpayer, and has no annual income, or whose annual income is not more than ￦1,000,000 in the aggregate.

ⅲ)  dependents living in the same household with the taxpayer. A dependent means a lineal family member or a brother/sister who is 20 years and under or 60 years and more (55 years for woman) supported by the taxpayer and who has no income or an income of not more than ￦1,000,000

In the case of a foreign taxpayer, a certified copy of the foreign registration certificate of spouse or dependent is required for Basic Deduction.

The determination on whether a person falls on the dependents or handicapped person shall be depend on the situation as of the 31st of December.

2) Additional Deduction

When a person who is qualified for Basic Deduction〔oneself, his/her spouse, dependents〕falls under any of the following situation, the amount calculated by multiplying the number of persons by the amount below, shall be deducted each year from the taxpayer's income under each case.

ⅰ) where the person is 65 years old or more: ￦1,000,000 per capita

- 70 years old or more: ￦1,500,000 per capita

ⅱ)  where the person is handicapped, as prescribed by the Presidential decree: ￦1,000,000 per capita

ⅲ)  where the person is a married woman having her spouse, or a head of family having dependents having no spouse: ￦500,000 per capita

ⅳ)  where every employees who has lineal descendant under the age of 6 years: ￦1,000,000 per capita

3) Additional Allowances for Small Number of Dependents

If the number of persons eligible for basic deduction is one or two, ￦1,000,000 or ￦500,000, respectively will be allowed for additional deduction.

C.	Pension Premium Deduction

Pursuant to the Article 51-3 of the Income Tax Law, the total of the following pension contribution paid for pension insurance in the name of the taxpayer him/herself is deducted.

a.  Pension insurance contribution paid by the taxpayer him/herself based on National Pension Law

b.  Contribution paid by the taxpayer him/herself based on Soldier Pension Law, Civil Service Pension Law etc.

※ National Pension Scheme

♣ Foreigners and Coverage

The general coverage criteria for the National Pension are age and residence, not income of all residents in Korea from over 18 to under 60 years of age, regardless of their income, are covered under this Scheme. Accordingly, foreigners from 18 to less than 60 years of age residing in Korea are covered under the Scheme except for special cases.

♣ Rates and Calculation of Contribution

The Scheme is mainly financed by contributions paid by insured persons and their employers. The contribution of Workplace-based Insured Persons is equally shared by the employer and the employee (the Insured Person).

The contribution is calculated by multiplying the Insured Person's‘Standard Monthly Income’by contribution rate of which maximum limit is 9%. Under the Scheme, the Standard Monthly Income is the amount specified within the range of 45 grades (1st grade [￦220,000] to 45th grade [￦3,600,000]) on the basis of the Insured Person's monthly income, which has a function similar to that of the Simplified Tax Table for income tax withholding.

The employer is obliged to pay his portion of the contribution with the employee's contribution deducted from wage. The income deduction is applied to contributions paid from the year 2004 as foresaid.

D.	Special Deduction

Under the changes to the Individual Income Tax Law in 1996, the following listed items (insurance premiums, medical expenses, educational expenses, contribution expenses, etc.) were consolidated into the Special Deduction. Under Standard Deduction System, a taxpayer who has not submitted supporting documents for deduction or has a special deduction amount under ￦600,000 may receive ￦600,000 income deduction a year without submission of the supporting documents. If a salary income earner wishes to have a separate income deduction rather than the Standard Deduction, he/she must submit the necessary supporting documents respectively to receive the income deductions as mentioned above.

1) Insurance Premiums

Qualified insurance premiums include those paid by a Wage & Salary income earners to Korean insurance companies (including Korean branches of foreign insurance companies) located in Korea relative to the following types of insurance (beneficiary can be either the taxpayer or the dependents who have no income for the year): Life insurance, Life insurance for the handicapped, Damage & Accident Insurance, Fire and Burglary Insurance and insurance similar thereto.

Types of Insurance	Deduction Amount
Medical Insurance Premium	total amount
Employment Insurance Premium	total amount
Other Security Insurance	up to 1,000,000
handicapped Only Security Insurance	up to 1,000,000

Maximum amount available for income deduction is generally ￦1,000,000 per annum on average and this upper limit does not apply to medical care insurance premium as seen below.

To apply for the deduction, supporting documents (i.e., original insurance premium receipts, not copies) must be attached to the Report of Exemption and Deduction from Wage & Salary Income. Insurance premium receipts issued by the insurance company will indicate whether or not such insurance premiums qualify for an income tax deduction. If supporting documents are not readily available, then a certificate of payment of insurance premium issued by the concerned insurance company must be attached to the Report.

2) Medical Expenses

Qualified medical expenses are those paid out to hospitals or drug stores in Korea for the taxpayer him/herself and his/her dependents who resided in Korea with him/her.

Limit for deductions of medical expenses by taxpayer him/herself, the aged, and the handicapped is abolished. Otherwise, deduction for qualified medical expenses are allowed up to a maximum of ￦5,000,000 to the extent that such expenses exceed 3% of earned income. For deduction, supporting documents (i.e., original receipts) must be attached to the report.

3) Education Expenses

Qualified education expenses are those expenses, such as school entrance fees, tuition and any other school payments, paid by a Wage & Salary Income earner for the taxpayer him/herself or his/her qualified spouse or dependents (except for the graduate school expenses paid for the qualified spouse or dependents).

Limitation for this deduction is as follows :

ⅰ)  Employee himself(herself) : No limitation, Graduate school is included in the qualified educational facilities for taxpayer himself(herself).

ⅱ)  Kindergarten : ￦2,000,000 /person

ⅲ)  Elementary School, Secondary & High School : ￦2,000,000 /person

ⅳ)  University & College : ￦7,000,000 /person

Education expense from the overseas educational institutes that is equivalent to the school of Korea under the Elementary and Secondary Education Act or the Higher Education Act may be deducted also.

For tax deduction, supporting documents (i.e., original receipts, not copies) must be attached to the Report. Where supporting documents are not readily available, then a certificate for payments of tuition fees issued by the principal of the respective school must be attached.

4) Housing Funds

This deduction includes Housing Savings Deduction, Repayment Deduction for Principal&Interest for Housing and Long-term Mortgage Interest Deduction. The limitation for this deduction is a total of ￦10,000,000.

In case an employee get a long-term mortgage for more than 15 years for the purpose of Kukmin(small-size) house, on which the loan is secured, interest and its equivalent qualified for deduction is up to ￦10,000,000 won a year.

5) Charitable Donations

Qualified charitable donations include amounts disbursed in Korea for the following purposes :

ⅰ) 100% tax deductible donations

⦁Donations to the Korean government or local autonomous government bodies (either in cash or in kind)

⦁Donations for national defense purposes (in cash)

⦁Donations to welfare facilities prescribed by the Presidential Decree, which are available for public use free of charges or at practical charges from among welfare facilities installed under the Social Services Act.

⦁Donations to government relief funds relative to disasters, earthquakes, floods, etc. (either in cash or in kind)

⦁Consideration for the voluntary support served in Special Disaster Area

⦁Donations made to cover costs required for facilities, education, scholarship, or research in private schools under the Private School Act, technical colleges under the Technical College Act, hospitals attache to national universities, College of Seoul National University and Industrial&Educational Corporation Corps. were added.

ⅱ) 50% tax deductible donations

⦁Certain other charitable donations as allowed by the Article 73 of the Special Tax Treatment Control Law e.g., donations made to qualified charitable organizations such as schools, Red Cross(registered with the competent government authorities) or others

ⅲ) 30% tax deductible donations

⦁Employee Stock Ownership Association Contribution Deduction.

ⅳ) 10% tax deductible donations

⦁Donations prescribed in the Article 34 ① of the Corporation Tax Law e.g., donations for the purpose of public interest of religion, art, education etc.

To obtain the deductions, supporting documents (i.e., original receipts, not copies) must be attached to the Report.

6) Deductions of Marriage, Funeral Service and Moving Expenses

Any resident whose gross wage income is not more than 25 million won may deduct 1,000,000 won for marriage, funeral service and/or moving expenses from the wage & salary income of the relevant year.

E.	Other Income Deductions

These are itemized deductions which includes Individual Pension Savings Deduction, Investment Association Deduction, and Credit Card Usage Deduction.  Among these deductions, the Credit Card Usage Deduction is canvassed herein, relevant for the purpose of this book.

1) Credit Card Usage Deduction

Expenditures by credit cards include the payments by credit cards, department store cards, debit card, prepaid card with name registered, which are issued only in Korea in the name of taxpayer or his/her qualified spouse or dependents who have income less than ￦1,000,000. The credit cards payments used only in Korea are subject to credit card usage deduction. Deduction amount and limit is as follows.

Calculation of Deduction Amount

①  Usage of Credit Card etc. = Credit Card + Debit Card + Prepaid Card + Tuition fee payment for Educational institutions(Hakwon) through Giro transfer

② Deduction Amount = [ ① - (total wage&salary Income of the year × 10%) ] × 20%

③  Limit of Deduction Amount= lesser of (20% of total wage&salary income, 5 million won)

However, the payments by credit cards for the following purposes are not entitled to the credit card usage deduction.

ⅰ)  Payments for company's expenses (i.e. entertainment made by an employees credit card and reimbursed by the employer),

ⅱ) Payments for national or local taxes,

ⅲ) Payments for utilities (i.e. gas, telephone, etc.),

ⅳ) Payments for social costs such as medical insurance, pension, etc., and

ⅴ) Payments for education expenses.

vi ) Other Payments

– telephone charges include internet bill

– toll, apartment management fee, pur-chase price for valuable papers such as gift certificates, lease rate

To obtain the deductions, supporting documents (i.e. certificates of credit card usage amount issued by the respective credit card companies) must be attached to the report.

F.	Calculated Income Tax

1) Tax Base (Taxable Income)

Taxable Income is calculated after Personal Deduction, Pension Premium Deduction, Special Deduction and Other Income Deduction have been made from the amount of Adjusted Wage & Salary Income.

2) Tax Rates and Tax Amount

After Tax Base is calculated from Adjusted Wage & Salary Income minus Income Deductions, the amounts of income tax is calculated by applying progressive marginal tax rates to respective tax base, as seen in the following table.

Tax Base	Tax Rates	Progressive Deduction
Up to ￦10,000,000	9%	-
￦10,000,000～￦40,000,000	18%	￦900,000
￦40,000,000～￦80,000,000	27%	￦4,500,000
over ￦80,000,000	36%	￦11,700,000

G.	Tax Credit

1) Tax Credit for Wage & Salary Income

The following amount shall be credited against total tax on Wage & Salary Income. Where the amount of credit exceeds ￦500,000, the credit is limited to ￦500,000

Tax Amount	Amount of Tax Credit
up to ￦500,000	55% of total tax
more than ￦500,000	￦275,000 + 30% of amount over ￦500,000

2) Class B Taxpayer Association Credit

In the case of Class A income, it is subject to withholding tax by, and is the responsibility of, the employer. However, as the employer paying Class B income does not necessarily reside in Korea, the employee him/herself is responsible for his/her personal income tax. A Class B income earner may either join a Taxpayers' Association to pay monthly taxes, thereby enjoying 10% tax credit, or may wait and file an annual tax return by the end of May of the following year with no benefit of credit. If an employee has only Class B income, and has paid his/her taxes through a Taxpayers' Association, or if he/she has both Class A income and Class B income on which income tax is withheld monthly through Taxpayers' Association, he/she is not required to file an annual tax return.

However, if a Class B income earner choose seprate taxation with 17% flat rate under Article 18-2 ② under the Restriction of Special Taxation Act, this class will not be applied.

3) Foreign Tax Credit

In case where any foreign source Wage & Salary Income is added to the domestic Wage & Salary Income amount of a taxpayer, if the foreign income tax amount as determined by the Presidential Decree is paid or payable in a foreign country with respect to such income of the foreign source, the taxpayer is eligible for foreign tax credit.

The foreign income tax amount may be credited from the calculated income tax amount in the current year, within the limit of the amount calculated by multiplying the calculated total income amount in the current taxable period calculated under Article 55 of Income Tax Law by the ratio of the foreign source income to the total income amount in the current taxable period.

For application of this credit, supporting documents such as Foreign Tax Credit Statement, Foreign Tax Credit Receipt are required to be submitted to NTS.

4) Other Tax Credits

Other than three credits above, there are Home Mortgage Interest Credit, Long-term Stock Savings Credit.

․Home Mortgage Interest : 30% of interest paid

․Donation for political fund: limit is ￦100,000/year (amount over ￦100,000 may be deducted from gross income)

※ Tax Exemption for Foreign Engineers

A foreign engineer who falls under the Enforcement Decree of RSTA §16 ① shall be allowed to be exempted from income tax on employment income derived from the provision of his services to a national within Korea if such employment income has been earned until the month whereto belongs the date on which 5 years have passed since the first date on which the foreign engineer provided his services in Korea. (RSTA §18 ①)

A foreign engineer shall be allowed to be exempted from income tax on employment income derived by providing his services to a national within Korea under a contract for the introduction of technologies as  referred to in the Foreign Investment Promotion Act. In this case  the exemption amount shall be limited to the income earned until the month whereto belongs the date on which 5 years have passed since the date of delivery of the certificate of report on a contract for the introduction of such technologies. (RSTA §18 ②)

Foreign engineer shall file a written application for tax exemption to the tax office not later than the 10th of the month next to that whereto belongs the day on which he has provided a service.

H.	Taxes Due

1) Calculation of Payable / Refundable Tax

After tax credit is made, the calculated tax amount comes out. Then, the pre-paid income tax amount, which has been withheld by an employee's withholding agent based on Simplified Tax Withholding Table and paid to NTS monthly, is deducted from the adjusted tax amount to work out the amount payable or refundable.

2) Special Tax for Rural Development

Under the Law of Special Tax for Rural Development, an individual whose tax liability has reduced under the Restriction of Special Taxation Act, Local Tax Law, or Customs Law has responsibility of paying the Special Tax for Rural Development(STRD). Accordingly, STRD is levied as a surtax on the amount of exemption of individual income tax and is calculated by multiplying 20% by tax base of STRD, which is the total of Home Mortgage Interest Credit and the reduced tax amount through Investment Association Deduction herein.

3) Inhabitant Tax

Inhabitant Tax has two types : per capita and pro rata. The tax base of Pro rata Inhabitant Tax is the amount of income tax to be paid pursuant to the provisions of Income Tax Law. That is, individuals liable to the payment of income tax have a responsibility to pay inhabitant tax. A surcharge, pro rata inhabitant tax, is added to income tax in computing the total tax liability (10% of income tax).

	Ⅲ. Examples of Income Tax Calcualtion

1. Example one

Ⅲ. Examples of Income Tax Calcualtion

< Information >

⦁Adam working for a private English school had Wage&Salary Income during 2004 as follows: He earned ￦3,000,000 every month. (For the sake of convenience, he is assumed to have no bonuses)

⦁His family members are as follows: Adam (age 40), Mary (Adam's wife, age 35), David (Adam's son, age 5), Wilkins (Adam's Father, age 67)

⦁He paid ￦500,000 for life insurance premium, ￦300,000 for national pension contribution, and ￦1,000,000 for education fee for David in Korea.

⦁He chose 30% exemption method under the article 18-2 of the RSTA.

⦁The amount withheld monthly by his withholding agent (the school) is as follows: Based on the Simplified Tax Withholding Table(2004), the amount withheld matching his situation is ￦22,120 (other than Inhabitant tax) every month.

< Calculation of Income Tax >

Total Income Non-taxable income Gross wage & Salary Income Deduction for his Wage & Salary Income Personal Deduction – Basic Deduction – Additional Deduction Pension Premium Deduction Special Deduction – life insurance premium – educational expense Taxable Income Tax amount (9%) Tax Credit for Wage & Salary Income Tax determined Prepaid Tax Payable Tax	￦36,000,000 (3,000,000×12) ￦10,800,000 (900,000×12) ￦25,200,000 11,530,000 4,000,000 (1,000,000×4) 2,000,000 (1,000,000×2) 300,000 500,000 1,000,000 ￦ 5,870,000 ￦ 528,300 ￦ 283,490 ￦ 244,810 ￦ 265,440 ￦ △20,630 □□□□□□□□□□□□

2. Example two

< Information >

1) Taxpayer & his Employer

⦁Taxpayer: John P. (600101-1234001)

⦁Employer: ABC Co. (123-81-45678)

2) Taxpayer's Family

⦁John has his spouse, 2 children (age 13, age 5) and mother (age 75)

3) Details of Wage&Salary income for each source

⦁ Gross payroll (current job): ￦51,000,000

-  Salary: ￦40,000,000

- Bonus: ￦10,000,000

- Allowance: ￦1,000,000

⦁Gross payroll of the previous job (Woori co. 123-81-56789): ￦15,000,000

⦁Tax Withheld (current + previous): ￦800,000 (other than Inhabitant tax)

4) Detailed Items of Expenditures

⦁National Pension contribution: ￦1,000,000

⦁Insurance premium

- Medical Care Insurance Premium: ￦300,000

- Life Insurance Premium ￦600,000, Car Insurance Premium: ￦500,000

⦁Medical expenses

- Expense to hospital for spouse: ￦2,000,000

- Entrance Fee to hospital for mother: ￦1,000,000

- Payment to drugstore for mother: ￦400,000

- Purchase of a pair of glasses for sight recovery for mother: ￦300,000

⦁Education expenses

- Kindergarten Fee for a child: ￦1,000,000

- Middle School Fee for a child: ￦1,500,000

⦁Donation to government relief funds relative to floods: ￦900,000

⦁Credit Card Usage: ￦15,200,000

(Cash Credit Service ￦2,500,000 is included.)

< Calculation of Income Tax >

30% Exemption Method

Total Income Non-taxable income Wage & Salary Income Deduction for his Wage & Salary Income Personal Deduction - Basic Deduction - Additional Deduction Pension Premium Deduction Special Deduction - insurance premium ․Medical Care Insurance ․Other Premium - medical expense - educational expense - donation - credit card usage Taxable Income Tax amount (18%) Tax Credit for Wage & Salary Income Tax determined Prepaid Tax Payable Tax	￦66,000,000 ￦19,800,000 ￦46,200,000 13,810,000 5,000,000 (1,000,000×5) 2,500,000 1,000,000 300,000 1,000,000 2,314,000 2,500,000 900,000 1,616,000 ￦15,260,000 ￦ 1,846,800 ￦ 679,040 ￦ 1,167,760 ￦ 800,000 ￦ 367,760 □□□□□□□□□□□□

Separation Taxation Method with 17% Flat Rate

￦11,220,000 (Tax amount) = 66,000,000 × 17%

[Tax Form 24(1)] [2004.3.5.Amended]                                                           （page1)

	Control No.			□ Receipt for Wage & Salary Income Taxes Withholding □ Statement on Wage & Salary Income Payment (Copy to report by issuer)		Residency	Resident 1/Non-Resident 2
		Nationality	Citizen 1/Foreigner 9
				Application of Flat tax rate	Yes 1 / No 2
						State of Residence		State Code
Employer	①Company Name	ABC Co.	②Representative Name	P. Paul
③Tax Reg. No.	123-33-34432	④Resident Reg. No.	560405-9342344
⑤Address	101-1 Jongro-1ga, Jongro-gu, Seoul
Employee (Taxpayer)	⑥Name	John P.	⑦Resident(Alien) Reg. No.	660405-9342344
⑧Address	1012 Jongro-1ga, Jongro-gu, Seoul
⑨Period Attributable (mm/dd/yy)	From To	⑩Period of Tax Exemption	From To
Details of Income by Company	Description	Current Job	Previous Job	Previous Job	Taxpayer Association	Total
⑪ Company Name	ABC Co.	Woori Co.
⑫ Tax Reg. No.	123-33-33432	123-35-12342
⑬ Gross Payroll	40,000,000	15,000,000
⑭ Gross Bonus	11,000,000	0
⑮ Deemed Bonus	0	0
Total	51,000,000	15,000,000
Non-taxable Income	Overseas Allowances	Night Duty Allowances	Other Allowances	Total (++)
		19,800,000	19,800,000
Items	Gross Wage & Salary ()	46,200,000	Special Deduction by Special Taxation Treatment	Per'l Pension Savings Deduction
Deduction for Wage & Salary Income	13,810,000	Pension Savings Deduction
Adjusted Wage & Salary Income	32,390,000	Investment Assn Deduction
Deduc- tions	Basic Deduction	Employee	1,000,000	Credit Card Usage Deduction	1,616,000
Spouse	1,000,000	Employee Stock Ownership Deduction
Dependents (3)	3,000,000
Additional Deduction	The Aged (1)	1,500,000	Sub-Total	1,616,000
The Handicapped		Taxable Income (Tax Base)	15,260,000
Women		Calculated Income Tax	1,846,800
under 6 years old (1)	1,000,000	Tax Exemption	Income Tax Act
For Small Dependents		RSTA
Pension Contribution	1,000,000
Special Deduction	Insurance	1,300,000	Total Exemptions
Medical Expenses	2,314,000	Tax Credit	Tax Credit for Class A	679,040
Education Expenses	2,500,000	Taxpayer Assn. Credit
Housing Fund		Home Mortgage Interests
Donation	900,000	Foreign Tax Credit
Marriage,Funeral,Moving		Political Money Donation
Sub-Total	7,014,000
Standard Deduction		Sub-Total	679,040
Income after Deduction	16,876,000	Final Tax Liability (--)	1,167,760
Tax	Classification	Income Tax	Inhabitant Tax	Special Tax for Agriculture	Total
Final Tax Liability	1,167,760	116,776		1,284,536
Prepaid Tax	Previous Job	300,000	30,000		330,000
Current Job	500,000	50,000		550,000
Taxes Due	367,760	36,776		404,536
We acknowledge the withholding (or payment) of above taxes (or payroll income). January . 2005 Taxes withheld by (Signature or seal)
※1. State of residence and code is applied only to foreigners and it should follow the abbreviation name and code by ISO. 2. Withholding agent shall submit the statement on wage & salary income payment by the end of February next to the year of payment. (In case of closing or suspension of business, by the end of the month next to the month of closing or suspension.)

[Form Form 37]                                                                               (page1)

Report of Exemption & Deduction from Income/ Report of Exemption & Deduction from Wage & Salary Income (For the Year-end Settlement of 2004 Income)
Employee	Name	John P.	Resident (Alien) Reg. No.	6	6	0	4	0	5		9	3	4	2	3	4	4
Employer	Name (Company Name)	ABC Co.	Tax Registration No.	1	2	3		3	3		3	3	4	3	2
Personal Deduction	Basic Deduction	Additional (If applicable, mark “○”)
Relationship	Name	Resident (Alien) Reg. No	Address	Aged	handicapped	Woman	under 6 years old
65-69	over 70
Myself			101-1 Jongro-1ga Jongro-gu, Seoul
Spouse	Mrs. A	620102-2234001
Dependent	Father
Mother	Mrs. B	300103-2456003	101-1 Jongro-1ga Jongro-gu, Seoul		○
Child	Tom F	900505-1234004
Child	Judy P.	980505-2234005						○
The child should be the one who was born after Jan. 1, 1984 for the child deduction.
Pension Deduction	Pension Premium	Place of duty	Premium Paid	Limit	Deduction Amt.
Previous Place		Total Amt.
Current Place	1,000,000	Total Amt.	1,000,000
Total	1,000,000		1,000,000
Special Deduction	Items	Breakdown of Payment	Class	Amt. Paid	Limit	Deduction Amt.
Insurance Premium	Health Ins.	Previous	premium		Total Amt.
Current	premium	300,000	Total Amt.	300,000
Employment Insurance	Previous	premium		Total Amt.
Current	premium		Total Amt.
General Ins. (life, accident, etc.)	premium	1,000,000	1,000,000	1,000,000
Insurance for the Handicapped	premium		1,000,000
Total		1,300,000		1,300,000
Medical Expenses	For Dependents	expenses	2,000,000	-	614,000
Him/herself․the Aged․ the Handicapped	expenses	1,700,000	-	1,700,000
Total medical expenses		3,700,000		2,314,000
Education Expenses	Him/Herself (include the graduate student)	Tuition		Total Amt.
For Child before entering an elementary school ( 1 )	Tuition, etc.	1,000,000	2 mil./person	1,000,000
For Students ( 1 ) (elementary, secondary, high)	Tuition	1,500,000	2 mil./person	1,500,000
For Undergraduates ( ) (college or university)	Tuition		7 mil./person
For the handicapped ( )	Tuition etc.		Total Amt.
Total education expenses		2,500,000		2,500,000

297㎜×210㎜

(Page2)

Special Deductions	Items		Breakdown of Payment				Class				Amount Paid		Limit			Deduction Amt.
	Housing Funds		Housing savings				deposit						￦
			Housing loans with savings				principle and Interest						￦
			Mortgage loan (over 10 years)				interest						￦
			Total Housing Fund Deduction
	Donation		Donation for 100% deductible				Donation Amt.				900,000		Total Amt.			900,000
			Donation for 50% deductible				Donation Amt.						-
			Donation for 30% deductible				Donation Amt.						-
			Donation for 10% deductible				Donation Amt.						-
			Total Amount													900,000
	Marriage,Funeral, Moving Expenses
Other Deductions	(Personal) Pension Plan Deduction		Signed after Jan. 1, 2001				contribution						￦
			Signed before Dec. 31, 2000				contribution						￦
			Total
	Investment Assn. Deduction		Invested after Jan. 1, 2002				investment						￦
	Credit Card Usage Deduction		Issued in the your name				Amt. used				12,700,000
			Issued in the name of your qualified spouse or dependents.				Amt. used
			GIRO receipt of private teaching institutes				Amt. used
			Cash receipt (after Jan.'05)				Amt. used
			Total Deduction													1,616,000
	Employee Stock Ownership Assn. Contribution						contribution						-
Tax Credit	Kinds of tax credit				Breakdown								Rate
	Tax Credit	Foreign Tax			Amt. paid (￦)
					Amt. paid (＄)								-
					Country								Date of Payment
					Date of Submission of Application								Overseas Working Place
					Working Period								Position
		Home mortgage interest			Interest Paid in 2004								30%
		Donation for Political money			Total Donation								100,000 Limit
	Foreign Employee	Purpose of Entry			□ Convention b/w governments □ technology Importation contract □ Exemption under RSTA
		Date of tech. importation or beginning of service							Expiration Date of Exemption
		Exemption Application for Foreign Employment Income			Date of Acceptance							Date of Submission
In accordance with the Article 140 of the Income Tax Law, I hereby file this report. Date: Jan. 20, 2004 Taxpayer : John P. (Signature)
Do you submit an application form for flat rate tax of foreign employee?														Yes □ No □
Previous Company Name (Tax Reg. No.)				Woori Co. (101-81-00021)		Total Wage&Salary		￦ 15,000,000						The Receipt attachs ? (Yes)
※ You should report final composite tax return unless you combine wage & salary income from previous company attaching "Receipt for Wage & Salary Income Taxes Withholding" issued by former employer, otherwise you may be if you received.

297㎜×210㎜

	Ⅳ. Examples of Actual Q&A on NTS website

1. Question on taxes deducted from salary by employer

Ⅳ. Examples of Actual Q&A on NTS website

A. Question

I am currently teaching as an English teacher in Korea. I am earning ￦1,900,000 per month, and am being taxed at a rate of 7% per month....￦133,000 is deducted from my pay each month. I have been informed that this amount is incorrect, and I should only be getting 3.5% deducted per month. Can you tell me if this information is correct?

If I suspect that my Employer has not registered me with the NTS, and are not paying my taxes at all, is there any way I can find out. I do not wish to work for a dishonest employer. I have tried requesting a copy of my tax certificate from my Employers, but this has been denied.

Your advice and answers would be appreciated.

B. Answer

As far as individual income tax is concerned, when you have earned monthly income of ￦1,900,000, the income tax amount to be withheld from your wage is ￦28,830 monthly according to the Simplified Tax Withholding Table (assuming the number of your family is one, just yourself, which means you have no qualified spouse or dependents who live together with you in Korea).

However, to take into account the contribution amount under the National Pension Scheme, the amount to be deducted from your monthly income may increase. Although, National Tax Service is not in charge of the National Pension Scheme, We would like to outline the system briefly for your convenience.

Generally speaking, foreigners working at the workplace with more than 5 full-time employees are included in the mandatory coverage of the Scheme, with some exceptions (For further information, contact National Pension Corporation to the number 1355 without dialing code). The contribution of workplace-based insured persons is equally shared between the employer and the employee.

The contribution rate for the insured person is 9%, which is normally calculated by multiplying the insured person's Standard Monthly Income shown on the National Pension Contribution Table, which has a similar function to Simplified Tax Withholding Table for income tax withheld, by contribution rate.

In the case of monthly income of 1.9 million won, the portion of contribution an employee should assume, which is to be deducted from his/her wage, is ￦83,700. To sum up, in your case, the amount deducted from your monthly salary will be at least ￦112,530(Income Tax withheld + National Pension Contribution). Moreover, a bit of residence tax and medical insurance fee may be added.

To add one thing, your employer should accept your request to present a copy of your tax certificate(Receipt for Wage & Salary Income Tax Withholding). When you retire from your current job before the end of this year, your employer would have responsibility to have your tax status settled for you at the time of your retirement. So, you could get tax refunded or pay more tax then from(to) your employer.

2. Question on tax return of a taxpayer who has income(s) other than earned income.

A. Question

I have been an employee in a company and earned salary income since August this year, and, happened to earn some performance fee from a TV broadcasting company. In this case, do I have to file the final tax return next year in addition to the year-end tax settlement of the end of this year?

B. Answer

You may be treated as a resident (taxpayer) when you have an occupation which requires you to reside in Korea one year or more. Then, you are supposed to file an income tax return for your worldwide income including your Korean source income. Therefore, when you do not have any foreign-source income, you only have to file a return on your Korean source income.

If you had Wage and Salary Income only, your income tax liability would be settled through the year-end settlement. However, in your case, as you had an occasional income (Other Income) from a television broadcasting company (80% of the amount will be deducted as necessary expenses when calculating taxable income) as well as Wage&Salary Income, you are subject to file income tax return for the two kinds of income by the end of May next year to the district tax office concerned.

3.  Difference in tax treatment between resident and non-resident

A. Question

I've been here in korea just for three months working at a company incorporated in Korea. Recently the company requested me to hand in an application of tax allowances for year-end tax settlement. My question is whether there is any kind of discrimination against foreign labor-income earners.

B. Answer

A person is for the tax purpose either a resident or a non-resident of Korea depending on his status on residence or domicile. Thus, you have to identify whether you are to be treated as resident or non resident (Having a job which substantially needs more than 1 year of stay in Korea, you may meet the criterion for resident even if you have resided in Korea less than 1 year).

A resident is liable to income tax on items of income derived from sources both within and outside Korea. On the other hand, a non-resident is liable to income tax only on items of income derived from sources within Korea. Under the income tax law, income earned by both residents and non-residents is subject to global and schedular taxation. Under global taxation, real estate rental income, business income, earned income, temporary property income, and miscellaneous income attributed to a resident are aggregated and taxed progressively.  Interest and dividends are subject to tax withholding. Non-residents are similarly taxed on income from Korean sources. The tax rates on individual income range from 9% to 36%.

Although most of the provisions concerning the tax base and tax amount of residents shall apply to a non-resident who has earned wage and salary income in Korea, the non-resident taxpayer is not entitled to basic deduction(except for oneself), additional deduction(except for oneself) and special deduction.

4.  Other Frequently Asked Questions

What kind of taxes are there in Korea?

Taxes in Korea comprise national and local taxes. National taxes are divided into internal taxes, customs duties, and three earmarked taxes; the local taxes include province taxes and city & county taxes as shown below.

The national internal taxes consist of direct and indirect taxes, and each consists of six and five taxes, respectively. Of these eleven taxes, Income Tax, Corporation Tax, and Value Added Tax make up the bulk of the Korean tax revenue.  There also exist three national earmarked taxes, Transportation Tax, Education Tax, and Special Tax for Rural Development; the revenues from these sources go directly to pre-designated government programs.

There are seventeen local taxes, and they are divided into province and city & county taxes. At the province level, there are four ordinary taxes and three earmarked taxes. At the city & county level, there are eight ordinary taxes and two earmarked taxes. In the six large specially designated cities that are run as autonomous local administrative units, the tax composition is slightly different from that of the provinces and cities or counties, although the residents are required to pay the same taxes.

What is the concept and functions of Taxpayer Associations for Class B wage and salary income earners?

Class B wage and salary income earners may organize taxpayer associations through which they may pay taxes. A taxpayer association shall collect income tax from the members each month. And income tax for each month collected by a taxpayer association will be paid to the government by the 10th day of the following month. Tax credit for payment of tax by taxpayer association is 10%.

Would you explain withholding tax settlement for Class A wage and salary income in brief?

If wage or salary is paid monthly, the tax amount to be withheld is calculated by the "Simplified Tax Table" attached at the end of the Income Tax Law. Then a person subject to tax withholding must calculate the total annual tax amount in January of the following year or at the time of the last payment of income in the year (i.e., when the income earner completes employment during the year) and collect or refund the difference between the tax amount payable. This amount is calculated by applying the basic tax rates and the tax amount withheld, already through the Simplified Tax Withholding Table

What are penalty taxes to my employer on failures to withhold tax and on failures to report withholding invoices?

If a person subject to tax withholding fails to withhold tax at source or fails to pay the government tax withheld within the payment period, a penalty of 10% of the amount of tax not withheld is added to the amount of withholding tax. On the other hand, if a concerned person fails to submit a payment report  within the reporting period or if the reported facts concerning payment are found to be unclear as specified by the Presidential Decree, a penalty in the amount of 2% of the payment due shall be charged.

Is there a way we can get a refund for last year's income tax?

The tax amount taken off your wage is treated as a credit against the overall amount of tax payable by you for the tax year in question. In January of the following year or at the time of the last payment of income in the year, your tax liability is settled and finalized through exact calculation by applying the related tax rates. And then, the balance between the sum of the amount of tax withheld monthly and final tax due to be paid is collected or refunded to you, which means you have to check your tax settlement with your employer.

Helpline for Foreigners

02-397-1440

	Ⅴ. Forms

Ⅴ. Forms

1. Receipt for Wage & Salary Income Taxes Withholding (Statement on Wage & Salary Income Payment)

2. Report of Exemption & Deduction from Wage & Salary Income

[Tax Form 24(1)] [2004.3.5.Amended]                                                           （page1)

	Control No.			□ Receipt for Wage & Salary Income Taxes Withholding □ Statement on Wage & Salary Income Payment (Copy to report by issuer)		Residency	Resident 1/Non-Resident 2
		Nationality	Citizen 1/Foreigner 9
				Application of Flat tax rate	Yes 1 / No 2
						State of Residence		State Code
Employer	①Company Name		②Representative Name
③Tax Reg. No.		④Resident Reg. No.
⑤Address
Employee (Taxpayer)	⑥Name		⑦Resident(Alien) Reg. No.
⑧Address
⑨Period Attributable (mm/dd/yy)	From To	⑩Period of Tax Exemption	From To
Details of Income by Company	Description	Current Job	Previous Job	Previous Job	Taxpayer Association	Total
⑪ Company Name
⑫ Tax Reg. No.
⑬ Gross Payroll
⑭ Gross Bonus
⑮ Deemed Bonus
Total
Non-taxable Income	Overseas Allowances	Night time Allowances	Other Allowances	Total (++)
Items	Gross Wage & Salary ()		Special Deduction by Special Taxation	Per'l Pension Savings Deduction
Deduction for Wage & Salary Income		Pension Savings Deduction
Adjusted Wage & Salary Income		Investment Assn Deduction
Deduc- tion	Basic Deduction	Employee		Credit Card Usage Deduction
Spouse		Employee Stock Ownership Deduction
Dependents
Additional Deduction	The Aged		Sub-Total
The Handicapped		Taxable Income (Tax Base)
Women		Calculated Income Tax
under 6 years old		Tax Exemption	Income Tax Act
For Small Dependents		RSTA
For Pension Contribution
Special Deduction	Insurance		Total Exemptions
Medical Expenses		Tax Credit	Tax Credit for Class A
Education Expenses		Taxpayer Assn. Credit
Housing Fund		Home Mortgage Interests
Donation		Foreign Tax Credit
Marriage,Funeral,Moving		Political Money Donation
Sub-Total
Standard Dedcution		Sub-Total
Income after Deduction		Final Tax Liability (--)
Tax	Classification	Income Tax	Inhabitant Tax	Special Tax for Agriculture	Total
Final Tax Liability
Prepaid Tax	Previous Job
Current Job
Taxes Due
We acknowledge the withholding (or payment) of above taxes (or payroll income). January . 2005 Taxes withheld by (Signature or seal)
※1. State of residence and code is applied only to foreigners and it should follow the abbreviation name and code by ISO. 2. Withholding agent shall submit the statement on wage & salary income payment by the end of February next to the year of payment. (In case of closing or suspension of business, by the end of the month next to the month of closing or suspension.)

[Form Form 37]                                                                               (page1)

Report of Exemption & Deduction from Income/ Report of Exemption & Deduction from Wage & Salary Income (For the Year-end Settlement of 2004 Income)
Employee	Name		Resident (Alien) Reg. No.
Employer	Name (Company Name)		Tax Registration No.
Personal Deduction	Basic Deduction	Additional (If applicable, mark “○”)
Relationship	Name	Resident (Alien) Reg. No	Address	Aged	handicapped	Woman	under 6 years old
65-69	over 70
Myself
Spouse
Dependent	Father
Mother
Child
Child
The child should be the one who was born after Jan. 1, 1984 for the child deduction.
Pension Deduction	Pension Premium	Place of duty	Premium Paid	Limit	Deduction Amt.
Previous Place		Total Amt.
Current Place		Total Amt.
Total
Special Deduction	Items	Breakdown of Payment	Class	Amt. Paid	Limit	Deduction Amt.
Insurance Premium	Health Ins.	Previous	premium		Total Amt.
Current	premium		Total Amt.
Employment Insurance	Previous	premium		Total Amt.
Current	premium		Total Amt.
General Ins. (life, accident, etc.)	premium		1,000,000
Insurance for the Handicapped	premium		1,000,000
Total
Medical Expenses	For Dependents	expenses		-
Him/herself․the Aged․ the Handicapped	expenses		-
Total medical expenses
Education Expenses	Him/Herself (include the graduate student)	Tuition		Total Amt.
For Child before entering an elementary school ( 1 )	Tuition, etc.		2 mil./person
For Students ( 1 ) (elementary, secondary, high)	Tuition		2 mil./person
For Undergraduates ( ) (college or university)	Tuition		7 mil./person
For the handicapped ( )	Tuition etc.		Total Amt.
Total education expenses

297㎜×210㎜

(Page2)

Special Deductions	Items		Breakdown of Payment				Class				Amount Paid		Limit			Deduction Amt.
	Housing Funds		Housing savings				deposit						￦
			Housing loans with savings				principle and Interest						￦
			Mortgage loan (over 10 years)				interest						￦
			Total Housing Fund Deduction
	Donation		Donation for 100% deductible				Donation Amt.						Total Amt.
			Donation for 50% deductible				Donation Amt.						-
			Donation for 30% deductible				Donation Amt.						-
			Donation for 10% deductible				Donation Amt.						-
			Total Amount
	Marriage,Funeral, Moving Expenses
Other Deductions	(Personal) Pension Plan Deduction		Signed after Jan. 1, 2001				contribution						￦
			Signed before Dec. 31, 2000				contribution						￦
			Total
	Investment Assn. Deduction		Invested after Jan. 1, 2002				investment						￦
	Credit Card Usage Deduction		Issued in the your name				Amt. used
			Issued in the name of your qualified spouse or dependents.				Amt. used
			GIRO receipt of private teaching institutes				Amt. used						￦
			Cash receipt (after Jan.'05)				Amt. used
			Total Deduction
	Employee Stock Ownership Assn. Contribution						contribution						-
Tax Credit	Kinds of tax credit				Breakdown								Rate
	Tax Credit	Foreign Tax			Amt. paid (￦)
					Amt. paid (＄)								-
					Country								Date of Payment
					Date of Submission of Application								Overseas Working Place
					Working Period								Position
		Home mortgage interest			Interest Paid in 2004								30%
		Donation for Political money			Total Donation								100,000 Limit
	Foreign Employee	Purpose of Entry			□ Convention b/w governments □ technology Importation contract □ Exemption under RSTA
		Date of tech. importation or beginning of service							Expiration Date of Exemption
		Exemption Application for Foreign Employment Income			Date of Acceptance							Date of Submission
In accordance with the Article 140 of the Income Tax Law, I hereby file this report. Date: Jan. , 2004 Taxpayer : (Signature)
Do you submit an application form for flat rate tax of foreign employee?														Yes □ No □
Previous Company Name (Tax Reg. No.)						Total Wage&Salary								The Receipt attachs ? (Yes)
※ You should report final composite tax return unless you combine wage & salary income from previous company attaching "Receipt for Wage & Salary Income Taxes Withholding" issued by former employer, otherwise you may be if you received.

297㎜×210㎜

297㎜×210㎜

<Appendix> Class B Taxpayer Association

Name	Tel	Location
United States Embassy	397-4348	82 Sejongno, Jongno-gu, Seoul
Embassy of Japan	733-5626	18-11 Junghak-dong, Jongno-gu, Seoul
Abroad Employment	757-9582	163-3 Euljiro 2-ga, Jung-gu, Seoul
Kukje	6676-2460	13th Fl. Hanhwa Securities Bldg. 23-5 Yeoeuido-dong, Yeongdeung-gu, Seoul
Samil	796-7000	21st Fl. Hanil Bldg. 191 Hangangno 2-ga, Yongsan-gu, Seoul
Korea	3271-3104	21th Fl. First Bank Bldg. 100 Jongno 1-ga, Jongno-gu, Seoul
Namsan	3438-2488	15th Fl. Construction Bldg. 71-2 Nonhyeon-dong, Gangnam-gu, Seoul
Seoul Regional	784-9265	4th Fl. Bridge Securities Bldg. 25-10 Yeoeuido-dong, Yeongdeungpo-gu, Seoul
Kangnam	2112-0924	9th Fl. Star Tower 737 Yeoksam-Dong, Gangnam-gu, Seoul
Seyang	3703-8745	12th Fl. Jeokseon Hyundai Bldg. 80 Jeokseon-dong, Jongno-gu, Seoul
Amkor	460-5448	280-8 Seongsu 2-ga, Seongdong-gu, Seoul
KwangGyo	(031) 255-8500	3rd Fl. Daedo Bldg. 128-13 Maesanno 3-ga, Gwonseon-gu, Suwon
Korean Mariners	(051) 462-3633	84-14 Jungangdong 4-ga, Jung-gu, Busan
Youngnam	(051) 636-3893	541Ho Jayu Market Bldg., 830-24, Beomil-dong, Dong-gu, Busan
DongJIn	(051) 462-7691	1406 Tongun Bldg. 1211-1 Choryang-dong, Dong-gu, Busan
Busan Gyeongnam	(051) 552-3147	7-602 Hanyang Apt. Nangmin-dong, Donglae-gu, Busan

National Tax Service provides following foreign taxpayer services.

Foreign Taxpayer Help-line (English)		☎ +82-2-397-1440
Q&A, Foreign Taxpayer Advocate (English)		www.nts.go.kr/eng
English Web Page of NTS		www.nts.go.kr/eng
National Tax Consultation Center		☎ 1588-0060
NTS Hometax Service		www.hometax.go.kr

Easy Guide for Foreigners' Year-end

Tax Settlement

□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□

∙Issue Date : December, 2004

∙Publisher  : International Tax Resources Management Division,

National Tax Service of Korea

∙Edited by  : Director  Chae Gyung-soo

Deputy Director Nam Pan-Woo

Tax Inspector Ryu Jong-Jin, Ju Hyeon-cheol

This book was published to present a brief overview of the taxation of Wage & Salary Income Earner. Its contents are also provided on the NTS website. If any discrepancies are found between its contents and the current Korean Tax Code, the latter shall prevail. If you have any questions regarding the foregoing or if we can be of any assistance in connection with your 2004 year-end exact computation of Korean income tax, please do not hesitate to contact us at (02) 397-1440 or 720-4105(Facsimile). This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published, without the prior consent of the publisher.