South Korea has proposed an increase to the flat income tax rate available to eligible foreign employees, alongside an extension of the regime’s sunset date.
The changes form part of the 2026 Tax Reform Proposal announced on 3 August 2026 and are proposed to take effect from 1 January 2027. For employers managing internationally mobile employees in South Korea, the proposals could affect payroll calculations, tax equalisation and the cost of international assignments.
Under the current regime, eligible foreign employees who first begin working in South Korea before 31 December 2026 can elect a 19% flat income tax rate instead of the general progressive rates of 6% to 45%. Including 10% local income tax, the combined flat rate is currently 20.9%.
Under the proposal, the flat income tax rate would increase from 19% to 21%, taking the combined rate to 23.1%. This represents an increase of 2.2 percentage points.
The proposal would also extend the regime’s sunset date by three years, from 31 December 2026 to 31 December 2029. This would allow qualifying foreign employees who begin working in South Korea by 31 December 2029 to continue accessing the regime, subject to the relevant requirements.
The flat tax rate can be applied for 20 consecutive tax years from the initial commencement of employment or assignment, on employment income earned while working in South Korea. Eligible employees would continue to be able to compare the flat-rate method with the progressive-rate method and elect the more favourable treatment.
For employers, the proposed increase could have practical implications for payroll, withholding and international assignment costs.
Payroll And Withholding
If enacted, the higher flat rate would need to be reflected in payroll and withholding calculations from 1 January 2027. Employers may therefore need to identify employees currently using the flat-rate election and consider whether their payroll processes and calculations will need to be updated.
Tax Equalisation and Assignment Costs
The increase from a combined 20.9% to 23.1% could also affect tax equalisation or tax protection arrangements where employers bear or manage employees’ tax costs.
The impact will depend on the individual employee’s circumstances and whether the flat-rate or progressive-rate method provides the more favourable outcome. Employers may therefore need to reassess relevant assignments as part of their mobility cost planning.
Global Mobility Planning
The proposed extension to 31 December 2029 provides a longer timeframe for qualifying foreign employees to access the flat-rate regime. At the same time, the higher rate from 2027 should be factored into assignment modelling and future mobility planning.
Payroll Operations Manager, APAC Operations, Berliza Laurente, said:
“For employers managing internationally mobile employees in South Korea, the proposed changes highlight the importance of reviewing tax treatment alongside wider assignment costs. Early assessment can help payroll and mobility teams understand the potential impact on withholding, tax equalisation and assignment planning.”
The 2026 Tax Reform Proposal also includes changes affecting foreign engineers and foreign trust reporting.
Foreign Engineer Tax Relief
Under the current regime, qualifying foreign engineers may receive a 50% reduction in employment income tax for five years, or 60 months, from the employment commencement date, subject to the relevant requirements.
The proposal would tighten the educational qualification threshold from a bachelor’s degree to a doctoral degree or higher in specified natural sciences, science and engineering, or medical fields. The proposed change would take effect from 1 April 2027.
Additional employer-level requirements would also apply where a foreign engineer works in a corporate-affiliated research institute or R&D department. These relate to qualifying technologies and applicable R&D or technology-related criteria.
Foreign Trust Reporting
South Korea introduced an overseas trust reporting obligation for qualifying tax residents and domestic corporations from 2026. The Overseas Trust Statement requires information including details of the trust, the parties involved and the value of the trust assets.
Under the proposal, the maximum penalty for failing to file or submitting false information would increase from KRW 100 million to KRW 1 billion from 1 January 2027. The penalty can be up to 10% of the value of the trust assets.
Employers with internationally mobile employees in South Korea should consider:
The proposals remain subject to the legislative process, and the final provisions and effective dates may be subject to change.
For employers managing employees and payroll in South Korea, keeping track of tax and employment changes is an important part of maintaining accurate payroll and supporting compliant international mobility programmes.
Our Global Insights provide access to country-specific information to help organisations understand developments affecting their international workforce.
As South Korea’s 2026 tax reform proposals progress, employers should assess how the proposed changes could affect their payroll, tax and global mobility arrangements.
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