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Income Tax

(1)Individual Income Tax
A.How is your income taxed in South Korea?
A person is either a resident or a non-resident of Korea depending on residence or domicile. A resident is liable to income tax on items of income derived from sources both within and outside Korea. On the other hand, a non-resident is liable to income tax only on items of income derived from sources within Korea. The Korean individual income tax system uses the unitary concept where incomes from all sources are aggregated and taxed at progressive rates. Deductions, personal exemptions and tax credits are allowed under certain conditions. A surcharge, inhabitant tax, is added to income tax in computing the total tax liability. Penalties may be assessed for failure of return-filing and tax payment.

B.According to the Income Tax Law, taxable income is divided into three categories: composite income, retirement income, and transfer income. Any income from sources other than those three is not taxed. The taxation system is as follows:
Composite Income
Composite income is the sum of seven separate types of income: interest income, dividend income, real estate rental income, business income, earned income, annuity income, and miscellaneous income. The composite income tax base shall be calculated by deducting necessary expenses, making income deductions, etc. from the composite income. A composite income tax rate ranges from 6-38% of income. Declaration of composite income tax is exempted for interest income, dividend income and miscellaneous income that can be separately taxed at the source, and for earned income whose duty of tax payment is terminated due to year-end settlement on earned income.

Tax rate depending on Composite income is as follows:



Not more than 12 million won

6% of tax base

12 – 46 million won

0.72 million won + 15% of the excess
over 12 million won

46– 88 million won 5.82 million won + 24% of excess
over 46 million won
88 – 300 million won 15.90 million won + 35% of the
excess over 88 million won
Over 300 million won 90.1 million won + 38% of the excess
over 90.1 million won


(2)Zero rate VAT

The following goods and services are VAT zero-rated and the input tax incurred is refundable. Zero-rating is applicable only to traders who are residents or domestic corporations. However, in the case of international transportation service by ships or aircraft, traders who are non-residents or foreign corporations are subject to zero-rating on a reciprocity basis.

Goods for exportation
Services rendered outside Korea
International transportation service by ships and aircraft
Other goods or services supplied for foreign exchange earning

(3)VAT Exemption

(a)The supply of the following goods or services is subject to exemption and the input tax incurred thereon is not refundable. However, traders may elect not to be exempted.
Basic life necessities and services
Social welfare services
Goods or services related to culture
Personal services similar to labor
Other goods or services
Duty-exempt goods

(b) Waiver of exemption
In the case where the supply of goods or services eligible for zero rating is exempt from value-added tax, the traders may, subject to the Presidential Decree, elect not to be exempt from value-added tax. A trader who waives the ordinary exemption is not entitled to the exemption for 3 years after the beginning day of the first assessable year in which the waiver is intended to be applied.