Our guide to Payroll in South Korea

Investing in South Korea

The Government encourages foreign investors with attractive incentives to invest. South Korea provides investors with a highly skilled workforce and a stable political environment to operate within.

Basic Facts about South Korea

How to say

• Hello: 안녕하세요

• Good morning: 좋은아침입니다

• Do you speak English? 영어할줄아세요?

• Good bye: 안녕히가세요

• Thank you: 감사합니다

• See you later: 나중에봐요

Registrations and Establishing an Entity

A new company is required to apply for registrations for its employees within 15 days of the first month which allows the company to start paying monthly withholding payroll tax by the 10th day of the next month.  In addition, a new company is subject to tax registration within 20 days after the start day of business to comply with all Korean tax laws, including withholding payroll tax.

The timescale for completion of this process is four weeks.

Banking

It is not mandatory to make employee salary payments from an in-country bank account, however it is mandatory to make third party authority payments from an in-country bank account. For money movement services, all funds have to be transferred from a local Korea bank account.  
The banks in South Korea open at 9:00am and close at 4:00pm, however, online or telebanking transactions are possible regardless of the hour.

Working Week

The tax year runs from 1st January to 31st December.

Whether you are classified as a resident or non-resident will determine whether you pay taxes in Korea on only the income earned domestically or on your worldwide income.

Resident Classification

• Having an occupation which requires residing in Korea for one year or more (even if you have not yet resided in Korea for the full year)

• Having family residing in Korea for one year or more due to your occupation or assets

• Having a job overseas for more than one year but with family or property in Korea

Non-resident Classification:

• Being a resident of another country and not a resident of Korea

• Having worked in Korea for a period of less than one year on a project deemed to be of short duration (less than one year)

A person deemed to be a resident of Korea is subject to taxation on her/his worldwide income, while a non-resident will pay taxes on only the income earned from employment in Korea.

An employee's wage and salary income subject to Korean income taxation is the amount received as payment for labour performed in Korea.

The basic income tax rate is from 6% to 45%, but the monthly withholding tax amount is calculated by the ‘Simplified Tax Withholding Table’ presented byNational Tax Service (NTS) NTS. Employers should withhold and pay monthly income tax to the district tax office, and file a year-end tax settlement which will finalize the employees’ tax liability in Korea by the end of January the following year, or the month employee retire.

Flat Tax: A foreign employee who started working in Korea before January 1, 2014, can no longer apply 19% of flat tax rate since Jan 1, 2019. Meanwhile, a foreign employee who started working in Korea after January 1, 2014 may select to apply 19% of flat tax rate up to five consecutive years from the year the employee started working in Korea.

Foreign employees, who chose the flat rate option for their individual income tax, would then pay 20.9% when the resident surtax is added. Those who chose the progressive rate would pay 6.6%, 16.5%, 26.4%, 38.5%, 41.8%, 44%or 46.2% when the resident surtax is added.

Resident Tax: All residents (including foreigners) pay a resident surtax, which is 10% of their taxable income.

Employers are required to deduct withholding tax from each employee’s salary each month. Employers must withhold the taxes for each employee to NTS by the 10th day of the following month. Employers who have less than 20 regular employees can, with the permission of the tax office, pay the taxes withheld twice a year instead of every month - although the tax will still be deducted from each pay.

Social Security

The Long-Term Care Insurance rate is changed from HI*0.9082/7.09 to HI*0.9182/7.09

The Industrial Accident Insurance rate varies according to several factors including the size and type of business. The IACI rate range is from 0.5% to 1.85% as per bureau.

Monthly social security contributions are to be paid on the 10th of the following month. This due date will be deferred to the following date if 10th is either weekend or public holiday during a month

Reporting

Monthly

Employers are required to report on the 10th of each month regarding each employee's income and withholdings of the previous month. For example, the employer will report on 10th of February regarding January's income/withholding.

Yearly

Annual Reconciliation should be done for the previous tax year during the month of February, and reports must be submitted by March 10.

Every employer has to submit a ‘Receipt for Wage & Salary Income Taxes Withholding’ form by March 10. At that time, or if you are leaving your employer (for whatever the reason), ask for a copy of the form. This document is proof of the taxes paid. (Some employers have been known to deduct the amount owed for taxes from their employees’ salaries, while forgetting to remit the sum to the Tax Office.)

Payroll Process

It is legally acceptable in South Korea to provide employees with online pay slips, though it is not mandatory.

Reports

Payroll reports must be kept for at least five years. 

Payslip Example

New Employees

When an employee is hired, the company should register or report the change to the social security authorities by the 15th day of the month.
The authorities require the employment contract, a company’s payroll policy including severance pay, employees’ information such as start date, each resident registration number etc. and payroll calculation formula, if any.

Expat New Starts

Common documents for all social security authorities include:

• Certificate of alien registration (legal alien check)

• Health insurance: If he/she wants to be excluded, copy of insurance terms and Korean translated copy which covers local medical expenses.

• National Pension: In case of the nations which made a national pension agreement with Korea they will need to include the nations’ national pension joining certificate.

• Employment insurance which will be different according to alien types.

For health insurance exclusion applier, documents should be submitted as soon as possible since exclusion is applied from the submission day.

Leavers

Payment for leavers should be made within the month when retirement took place and in case of severance pay, it should be paid within 14 days after termination.

For social insurance, the employee’s final payment must be reported by the 15th day of the month. Furthermore, the company should finally calculate the leavers’ yearly income and report it with the leavers’ list at the 10th of every month on the withholding bill (to National Tax Service). From 2016 this will be electronically reported with year-end tax adjustment documents.

Employment Law

Holiday Accrual / Calculations

It usually depends on the company’s payroll policy.

Maternity Leave

Female employees are entitled to 90 days of maternity leave, of which 60 are fully paid. The other 30 days are paid at a percentage of the mother's monthly income. The starting date can be agreed by employer and employee, but at least 45 consecutive days of maternity leave must be taken after the birth.

Paternity Leave

Male employees whose spouses give birth are entitled to 5 days paid-paternity leave. Paternity leave requests must be made within 30 days of childbirth.

Sickness

Sick payment entitlement in South Korea usually depends on a company’s payroll policy.

National Service

National Military service is taken seriously in South Korea, all able-bodied Korean men aged 18-35 are required to serve for two years.

Minimum Wage

Minimum wage per hour: 10,030 KRW

Minimum wage per month: 2,096,270 KRW (based on 209 hour) 

Employee Benefits

General expenses

The following is a brief listing of the items that may form part of an expatriate’s compensation package and are considered taxable earned income. This listing is not intended to be comprehensive:

• Salaries and wages, bonuses, allowances, and other compensation for services rendered

• Termination payments other than qualified severance pays (that is retirement income), such as retirement bonuses for meritorious service

• Reimbursement of expenses related to entertainment, confidential representation, and taxes without a clear business purpose

• Fixed monthly or annual allowances for transportation or travel reimbursements for transportation or travel where proof of expense is not presented

• Allowances for housing, food, clothing, health, family, inflation, overtime, and so on

• Overseas allowances received by expatriates

• Insurance premiums paid by the employer for the benefit of the employee

• Wages paid in-kind, at market value.

Car mileage

Reimbursement of vehicle operating expenses up to KRW200,000 per month when an employee uses his/her own vehicle for business purposes is non- taxable to the employee.  Other than that, car allowance is taxable.

Company cars

The use of car provided in kind by the employer for business purposes is non-taxable to the employee. 

Tax-exempt income

The following items generally are considered to be either non-taxable reimbursements or tax exempt earned income. This listing is not intended to be comprehensive:

• Meal allowance up to KRW200,000 per month

• Reimbursement of vehicle operating expenses up to KRW200,000 per month when an employee uses his/her own vehicle for business purposes

• Cost of uniforms provided to those required by law to wear uniforms

• Cost of work clothes worn only at the workplace by employees in certain industries

• Reimbursements for social membership and entertainment expenses incurred for business purposes

• Qualified employee’s education fees paid by the employer

• Cost of housing of the expatriate employee, paid by the employer directly on behalf of the employee where the rental contract was entered into between employer and landlord

• For childcare leave, a non-taxable benefit of up to KRW 200,000 per child under the age of six can be applied.

Generally, foreigners who stay over 90 days in Korea should obtain ARC (Alien Registration Card) issued by the Immigration Office.

This process requires appropriate VISA: type (d-7) or (d-8) is generally accepted by the office for inbound expat.

Further Information

For more information, or assistance with South Korea tax enquiries please contact: gi@activpayroll.com 

About This Payroll and Tax Overview

Please note that this document gives general guidance only and should not be regarded as an authoritative or complete statement of the law, regulations or tax position in any country.  You should always seek specific advice for each specific situation.  This document should not be relied upon as professional advice and activpayroll accepts no liability for reliance on its contents.