Individual Income Tax Compliance Tips


l 2022 individual income tax return filing due by May 31, 2023

Residents, regardless of their nationalities, are subject to Korean income tax based on worldwide income including global income (employment income, business profits, dividend, pension, interest, rental, and other miscellaneous income), severance pay, and capital gains.

However, under the revised Individual Income Tax Law (IITL), in the case where the period that a foreigner, who is a tax resident of Korea, has his address or abode in Korea does not exceed 5 years in aggregate during the past 10 years from the end of the concerned tax year, his/her foreign source income earned from January 1, 2009 shall be taxed in Korea only if such income is paid in Korea or such income is remitted into Korea.

Taxpayers making monthly tax payments and having only one source of worldwide income (i.e., either Class A or Class B) are generally not required to file a global income tax return since the employer (for Class A income earners) or the Class B taxpayers' association (for Class B income earners) finalizes the individual's tax liability at the end of the year for and on behalf of the employee concerned. Taxpayers having more than one source of income, however, are required to file a global income tax return for the year and pay taxes due on such income on or before May 31 of the following year, or prior to permanently leaving Korea.

The filing of 2022 annual individual income tax return is coming due by May 31, 2023 together with necessary tax payments.

l RSU tax reporting requirements of employer and its employees in Korea

Restricted Stock Unit (RSU) related tax treatment at company level as well as individual employee level can be summarized as below.

Korean company

Employees of Korean company

At company level

(1) If the RSU satisfies all 4 conditions listed below, such RSU costs shall be deductible for corporate income tax purpose in accordance with Article 10-2 of the Enforcement Decree of the Korean Corporate Income Tax Law:

a. The parent/affiliate company provides such RSU within 10% of its total issued and outstanding shares;

b. There is a written agreement on charge-back of RSU costs between the parent/affiliate company and the Korean subsidiary company;

c. The parent or an affiliate company is defined as a foreign(non-Korean) company listed on a domestic or foreign securities exchange, which holds not less than 90% of the shares in the Korean subsidiary company directly or indirectly; and

At individual employee level

(1) Where employees receive RSU granted from the parent company/affiliated company and the RSU costs are charged back to the Korean subsidiary company, the related RSU income of employees shall be subject to monthly Korean payroll income taxes and payment obligations at the time of vesting (not at the time of grant). The employer as the withholding agent shall be obligated to withhold payroll taxes and report to the tax authorities together with regular payroll.

(2) If RSU costs are not charged back to the Korean company or do not qualify for deduction for Korean corporate income tax purposes, the employees concerned shall be required to report such RSU income and pay income taxes thereon to the Korean tax authorities voluntarily either:

d. In the case where a RSU recipient is a board member or a statutory auditor of the Korean subsidiary, their total annual compensation shall not exceed the ceiling amount as approved at the shareholders’ meeting or at the board of directors’ meeting.

(2) If RSU does not satisfy all 4 conditions above, such RSU costs shall be treated non-deductible for corporate income tax purpose in Korea.

(i) through a taxpayers’ association by the 10th day of following month of RSU vesting) (in which case 5% income tax credit with annual maximum cap of KRW 1.0 Million will be allowed) OR

(ii) alternatively through filing annual global income tax return (종합소득신고 in Korean) which is due by May 31 of the following year (in this case, a 5% tax credit shall not be allowed).

In this case, the employer shall not be obligated to withhold/report payroll taxes.

To be deducted when RSU is vested.

To be taxed when RSU is vested.