Major Changes in 2021 Year-End Settlement of Payroll Withholding Taxes
l Revision in scope of taxation of salary and wage earned income and provision of legal ground for nontaxation of salary and wage paid for employee welfare
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2020 |
2021 |
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n Scope of salary and wage earned income • Benefits from receiving housing Excluding benefits from receiving company housing for officers who are not shareholders, employees who are not officers, etc. • Benefits from receiving loans for purchase or lease of housing with low or zero interest Excluding benefits received by employees of Small and Medium Enterprises (SMEs) • Insurance premiums borne by the employer for the benefit of its employees or their family members as beneficiaries Excluding the insurance premiums paid by the employer for group guarantee-type insurances and group refund guarantee insurance of maximum KRW 700,000
< Newly added > |
n Deleted non-taxable income removed from the scope of salary and wage earned income
Deleted
n Non-taxation of salary and wage earned income paid for employee welfare • Benefits from receiving company housing for officers who are not shareholders, employees who are not officers, etc. • Benefits from receiving loans for purchase or lease of housing with low or zero interest for employees of SMEs • Insurance premium for group guarantee-type insurance and group refund guarantee insurance of maximum KRW 700,000
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This revised provision will be applicable for earned income incurred on or after January 1, 2021.
l Application of income deduction for housing purchase/lease funds for foreign employees who are tax residents of Korea
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2020 |
2021 |
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n Employees eligible for Income deduction of housing purchase/lease funds* * Income deduction for housing lease funds, Income deduction for long-term housing mortgage interest payment Tax credit for monthly rents
• Employee who is the head of a household having salary earned income, but not owning a house (including employee who owns 1 house for income deduction case above) * Where the household head does not receive deduction, the household member shall be eligible
< Newly added >
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n Foreigner(non-Korean) employees are newly added to be eligible.
• Same
• Foreigner(non-Korean) employees* who does not own a house are newly added (including employee who owns 1 house in the case of above) * Foreigner employee shall be defined as (i) Foreigner (non-Korean) who is registered under the Immigration Control Law or Ethnic Korean holding foreign citizenship who is registered under the Overseas Korean Act of Korea, and (ii) Where a foreigner’s spouse or a foreigner’s lineal descendants and ascendants who share livelihood with the foreigner employee do not receive income deduction for housing funds.
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This revised provision is intended to provide residential stability for foreigner(non-Korean) employee who are non-homeowners, and will be applicable for the principal and interest repayment on housing lease loan, long-term housing mortgage interest payment, and monthly rents paid on or after January 1, 2021.
l Increase in maximum income tax rate
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2020 |
2021 |
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n Tax base and tax rates for individual income tax
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n Raised the maximum tax rate and adjusted tax brackets as below.
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This revised provision is intended to improve equality in taxation and strengthen re-distribution of income, and will be applicable for earned income incurred on or after January 1, 2021.
l 2021 additional income deduction for increased spending on credit card use
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2020 |
2021 |
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n Income deductions for credit card use, etc.:
• (Eligibility) Applicable to the amount exceeding 25% of gross salary earned income • (Deduction rate) Income deduction rate varies depending on payment method as below.
< Newly added >
• (Deduction cap) The cap of income deduction: KRW 2 ~ 3 million depending on earned income level:
(Additional cap) KRW 1 Million for each payment method* * book purchase, qualified entertainment, art museum, traditional markets, public transportation, etc.
• (Application period) Applicable up to December 31, 2022 |
n Newly added additional income deduction for increased spending on credit card use: • Same
Deduction on increased credit card spending, etc.: Where credit card spending, etc. in 2021* increased by over 5% from 2020, 10% of the amount in excess of 5% shall be deducted. * Total of ~
• Same
Additional KRW 1 Million applied for deduction on increased credit card spending, etc.
• Same
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This revised provision will be applicable for year-end settlement of earned income for 2021 and after.
l Expansion of tax credit for monthly housing rent
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2020 |
2021 |
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n Tax credit for monthly housing rent:
• (Eligibility) Employees having annual gross salary earned income of KRW 70 Million or less (having global income of KRW 60 Million or less) • (Deduction rate) Employees having annual gross salary of KRW 70 Million or less (for employees having global income of KRW 60 Million or less): 10% Employees having annual gross salary of KRW 55 Million or less (for employees having global income of KRW 40 Million or less): 12% • Max deduction: KRW 7.5 Million |
n Adjustment in threshold for taxpayers having global income: • Same
• Same Same
Global income threshold of KRW 40 Million raised to KRW 45 Million or less)
• Same |
l Amendment of income tax reduction/exemption scheme for foreigner(non-Korean) engineers
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2020 |
2021 |
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n Income tax reduction/exemption for foreigner(non-Korean) engineers
• (Eligible foreigner engineer) Foreigner engineers or researchers Person who provides engineering technology under an engineering technology* induction contract (contact value of USD 300,000 or more) * Machinery, shipbuilding, aerospace, telecommunications, chemicals, etc. Person who satisfies and below: Personnel qualifications: Researchers
Hiring institutions: R&D center of foreign-invested companies* * The portion of foreign share ownership is 30% or more
• (Tax reduction/exemption allowed) 50% of income tax exemption for 5 years * For raw materials, parts and equipment specialized leading companies, 70% tax exemption for 3 years and 50% exemption for 2 years |
n Personnel qualifications are strengthened, but the scope of hiring institutions is expanded
• (Eligible foreigner engineer) Same
Same
Person who satisfies and : (Strengthened personnel qualifications): Researchers with bachelor’s degree or higher in engineering and science and who have worked for a foreign science and technology research institute for five years or longer* * two years for a doctoral degree holders
(Expanded scope of hiring institutions) Domestic corporate-affiliated research centers, research departments, government-funded research institutes, etc.
• Same |
This revised provision will be applicable for employment contract established on or after February 17, 2021.
l Temporary increase of tax credit on donations
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2020 |
2021 |
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Tax credit rate for donations
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Temporarily increase the tax credit rate for donations for 5% for 1 year period (Jan 1, 2021 ~ Dec 31, 2021) as below
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