Special Tips for Companies Having Foreign (non-Korean) Employees

l At hire/initial payroll setup

Under the Individual Income Tax Law (“IITL”), the individual income tax liabilities of foreigner workers (excluding daily employed workers) on earned income from the rendering of his/her services to companies in Korea including foreign invested companies can be finalized by applying the 19% flat income tax rate (excluding local income tax by 10% of the income tax) on gross earned income for the first five (5) year period notwithstanding Article 55 (1) of the IITL (Article 18-2, Special Tax Treatment Control Law of Korea; STTCL). For foreigners who have already been working in Korea as at Jan 1, 2014, however, the 19% flat income tax rate application was allowed only up to December 31, 2018, and as such, the progressive tax rate should apply from Jan 1, 2019 and onward for the foreigners concerned.

When the flat 19% tax rate is applied, provisions concerning income taxation, such as tax exemption (non-taxable income), deduction, reduction or exemption, and tax credit allowed under the IITL as well as this STTCL shall not be applicable to the foreigners concerned. At the year-end settlement in February after each calendar year-end, annual settlement calculations under both the 19% flat rate and the progressive tax rate scheme will be simulated, and more favorable scheme based on the comparison will be applied for the foreign employees.

The employer (withholding agent) should submit the flat tax rate application form to the competent tax office by the 10th day of the following month.

l Statutory social insurance participation obligation by visa type

Statutory social insurance participation obligation may vary depending on the visa type, which can be summarized by most common visa types of foreigners in Korea as below:

Visa type		Medical insurance	National pension	Unemployment insurance	Industrial accident compensation insurance
D-2	Student 유학	statutorily required	NOT statutorily required	NOT statutorily required	statutorily required
D-7	Expatriate주재원		statutorily required	may elect to participate in the insurance at their discretion.
D-8	Investment기업투자
F-4	Overseas Korean 재외동포
D-10	Employment 구직			NOT statutorily required

Unless the foreign (non-Korean) employee concerned is eligible for waiver of statutory social insurances and submits waiver applications with proper supporting documents thereof required by the Korean social insurance agencies, the foreign employee shall be subject to participation in the statutory social insurance programs in Korea mandatorily.

l At permanent departure from Korea: Korean national pension refunds (lump-sum refunds)

Obligation to participate in the statutory national pension scheme in Korea and the possibility of withdrawal/refunds of contribution made into statutory national pension scheme in Korea upon permanent departure of an employee will vary depending on the employee’s nationality and the social security agreements entered into between the countries. Refunds of contribution made to statutory national pension in Korea is generally based on the “principle of reciprocity”.