Major Changes in 2018 Year-End Settlement of Payroll Withholding Taxes

■ Major Changes in 2018 Year-End Settlement of Payroll Withholding Taxes

l Top marginal tax rate raised to 46.2% for the highest tax bracket of over KRW 500 million tax base

(Korean Won)

2017		2018
Tax Base	Tax Rate	Tax Base	Tax Rate
Up to 12 Million	6%	Up to 12 Million	6%
Over 12 Million - 46 Million	15%	Over 12 Million - 46 Million	15%
Over 46 Million – 88 Million	24%	Over 46 Million – 88 Million	24%
Over 88 Million – 150 Million	35%	Over 88 Million – 150 Million	35%
Over 150 Million – 500 Million	38%	Over 150 Million – 300 Million	38%
Over 500 Million	40%	Over 300 Million – 500 Million	40%
		Over 500 Million	42%

(*) Local (provincial) income tax shall be added at 10% of the income tax liability, top marginal income tax rate being 46.2%.

l Tax credit rate increased for monthly housing rent depending on annual salary level

2017		2018
Annual Salary	Tax Credit Rate	Annual Salary	Tax Credit Rate
KRW 70 Million or less	10%	KRW 55 Million or less	12%
Over KRW 70 Million	Nil	Over 55 Million – 70 Million	10%
		Over 70 Million	Nil

l Income deduction for credit card, etc. expanded for use on books or performance expenditures

2017

2018

Income deduction for credit card use, etc.

o Deductible amount: Excess credit card use amount over 25% of gross salary income

o Deduction rates:

Credit cards: 15%

Debit cards: 30%

Traditional markets/public transportation: 40%

o Max deduction: KRW 2 Million - 3 Million

Additional KRW 1 Million for traditional markets or public transportation use

o Effective up to 12/31/2018

Deduction rate increased for use on traditional market and public transportation and additional deduction for use on books or performance expenditures

o Same

o Deduction rates:

Same

Books and performance expenditures (defined) (applicable only to employees having annual gross salary of less than KRW 70 Million: 30%

o Same

Additional KRW 1 Million for books or performance expenditures for employees having annual gross salary of less than KRW 70 Million

o Extended up to 12/31/2019

l Income tax reduction benefit expanded for youth employees of an SME in Korea

Previously, in case where a youth defined under the STTCL, a person aged 60 or older, a person with disability, or a career-interrupted female was employed by an SME, such employee was entitled to income tax reduction in the amount equivalent to 70% of income tax.

Under the amended STTCL that came into force earlier last year in May 2018 and additionally in August 2018, the tax reduction benefit for youth employees has been expanded as summarized below.

	Before amendment	After amendment
Employees eligible for this income tax reduction benefit	Youth employees aged 29 or younger, employees aged 60 or older, employees with disability, and career-interrupted female employees who are hired between Jan 1, 2012 and Dec 31, 2018	Youth employees aged 34 or younger, employees aged 60 or older, employees with disability, and career-interrupted female employees who are hired between Jan 1, 2012 and Dec 31, 2018 (or Dec 31, 2021 for youth employees)
Income tax reduction rate	70% (up to KRW 1.5 mil max limit for each taxable period)	70% (90% for youth employees) (up to KRW 1.5 mil max limit for each taxable period)
Reduction period	3 years from the initial date of hire	3 years from the initial date of hire (5 years for youth employees)

For youth employees who are aged 34 or younger, income tax reduction benefit shall be applied for 5 years from the date of initial hire and this 5-year extended reduction period shall be applicable to youth employees who are hired no later than December 31, 2021.

These amended STTCL provisions that came into force in 2018 shall apply only prospectively from 2018 earned income of youth employees whose service period at an SME is less than 5 years.