income tax korea

2010 (2009 )

Individual Income Tax and Benefit Guidefor Foreigners 2010

(For use in preparing 2009 returns)

2010(2009 )

2010. 5

National Tax Service

Individual Income Tax and Benefit Guidefor Foreigners 2010

(For use in preparing 2009 returns)

May, 2010


.

, .

, , , , .

2010 , .

2010 , .

2010 5

PREFACE

The National Tax Service of Korea would like to express our deep appreciation

for your faithful tax compliance and the contribution you made to the

development of the Korean economy.

As Korea's economy widely opens its door to foreigners, the number of foreigners

working or operating business in Korea has reached over a million.

In endeavoring to provide them more friendly tax services, the NTS has

implemented various customized services for foreign taxpayers such as Help-line

for Foreigners, Foreign Taxpayer Service Desk in district tax offices, our

English web-site, and Foreign Taxpayers' Guide to Korean Taxes which helps

foreign taxpayers understand their tax filing and payment obligations.

This year's guide offers a wide range of information including explanation of

major changes in the Korean tax law in both Korean and English languages so

that it can be of use to foreign taxpayers as well as Koreans.

We sincerely hope that this Guide will be of interest and benefit to all foreign

taxpayers for their 2010 Individual Income Tax filing. The NTS will continue

seeking ways to better serve our valuable customers by creating a business-

friendly tax administrative environment.

May, 2010

Yun Jun ParkAssistant Commissioner for International Taxation


2010

2009 / 801. 802. 82

2009 / 841. ? 842. 2009 ? 863. ? 884. ? 905. ? 926. ? 927. ? 948. 969. 98

/ 1081. 1082. 108

/ 1101. 1102. 1183. 122

/ 1261. 1262. 1303. 152

CONTENTS

What are Major Changes for 2010 ?

Part Introduction

Tax Base and Calculation Flow for 2009 Global income tax / 811. Tax Base and Calculation Flow for Residents 812. Individual Income Taxation on the Income of Non-residents 83

General Information / 851. Do you have to file a return ? 852. What date is your return for 2009 due ? 873. What do you include with your return and what records do you keep ? 894. Where do you have to file and pay ? 915. What penalties do we charge ? 936. When can you expect your refund ? 937. Do you report foreign income and other amounts ? 958. Double Entry Bookkeeping and Simplified Bookkeeping 979. What is the "Enforcement of StandardSimplified Expense

Rate System" 99

Part Outline of Individual Income Tax System

Taxpayer / 1091. Resident 1092. Non-Resident 109

Income / 1111. Taxable Income 1112. Non-taxable Income 1193. Tax-exempt Income 123

Tax Base and Deductions / 1271. Basic Rules for Calculating the Tax Base 1272. Calculation of Tax Base(Taxable Income) 1313. Deduction For Global Income 153

/ 1581. 1582. 158

/ 1641. 1642. 166

/ 1721. 1722. 1723. 1744. 174

/ 1761. 1762. 1763. 1764. 176

/ 1781. 1782. 178

/ 1821. 1822. 1823. 1824. 1845. 1846. 184

/ 1861. 1862. 186

/ 1901. 1902. 1903. 1984. 202

Tax Rates and Tax Credits / 1591. Tax Rates Structure 1592. Tax Credits 159

Return and Payment / 1651. Tax Return 1652. Tax Payments 167

Global Income Tax of Compliant SMEs / 1731. Application of Simplified Method for Tax Calculation 1732. Eligibility of Compliant SMEs 1733. Special Tax Treatment in Calculating Tax Base 1754. Special Tax Treatment for Tax Credits 175

Assessment and Collection / 1771. Determination and Correction of Tax Base and Tax Amount 1772. Notice on Tax Base and Tax Payable 1773. Collection of Tax 1774. Minimum Taxable Floor 177

Tax Withholding / 1791. Obligation of Tax Withholding 1792. Rates of Withholding 179

Tax Penalties / 1831. Penalty on Failure to File Returns 1832. Penalty on Non-payment or Underpayment of Tax 1833. Penalty Tax on Failures to Withhold Tax 1834. Penalty Tax on Failures to Report Withholding Payment Records 1855. Penalty Tax on Failures to Maintain Adequate Books and Records 1856. Penalty Tax on Failure to use Business Purpose Bank Account 185

Bookkeeping and Submitting payment records / 1871. Bookkeeping 1872. Submitting payment records 187

Part Individual Income Tax System for Non-resident

Taxation on Non-resident / 1911. General 1912. Income from Domestic Sources 1913. Domestic Business Place 1994. Tax Withholding on Non-resident 203

/ 2041. 2042. 2043. 2064. 208

/ 2121. ( ) 212

/ 230

40 (1) / 236 40 (4) / 290

1. 3002. 3023. 3084. 3105. 3126. . 312

Taxation on Wage & Salary Income of Non-resident / 2051. Non-resident with Class A Wage & Salary Income Only 2052. Non-resident with Class B Wage & Salary Income Only 2053. Non-resident with Class A and Class B Wage & Salary Income 2074. Taxation on Wage & Salary Income Flow of Non-resident 209

Part Practice & FAQ

Practice in Calculating / 2131. Example : Lecturer (Wage & Salary Income + Other Income) 213

Frequently Asked Question / 231

Part Forms

Individual Income Tax Return From 40-1 / 237

Individual Income Tax Return From 40-4 / 291

Part Appendix1. Income Tax Calculation Chart for Resident ESL Teachers 3012. Tax Office in Major Cities 3033. Taxpayers Association 3094. Treaties with foreign countries 3115. Contact Us 3136. Your Opinion Matter 313

14 2010

2010 2009 .

1. ( 47 50 55)

1.

2.

081,200 8%4,600 17%8,800 26%8,800 35%

2%p

09 101,200 6% 6%4,600 16% 15%8,800 25% 24%8,800 35% 33%

- 1 100

- 1 150

- 500 : 100% - 5001500 : 50% - 1,5003,000 : 15% - 3,0004,500 : 10% - 4,500 : 5%

- 500 : 80% - 5001500 : 50% - 1,5003,000 : 15% - 3,0004,500 : 10% - 4,500 : 5%

3. 2009.1.1.

What are Major Changes for 2010? 15

What are major changes for 2010 ? This section summarizes important tax changes that took effect in 2009.

1. Modification of the Global Income Tax Rate and Deductions

(Article 47 Article 50 Article 55 of the Income Tax Act)1. Purpose of Revision To stimulate the economy and encourage consumption through

reducing the burden of tax liabilities on people in the middle and lower income bracket

Advantageous taxation structure for taxpayers who have more dependants

2. ChangesBefore Now

Tax Rate

Tax Base RateUp to 12 million won 8%Up to 46 million won 17%Up to 88 million won 26%Over 88 million won 35%

Basic Deduction - 1mio KRW per year per person qualifying

for basic deduction Deduction for Wage and Salary Income - 5 million won or less : 100% - More than 5 million won but not more

than 15 million won : 50% - More than 15 million won but not more


than 45 million won : 10% - More than 45 million won : 5%

Down 2% for each income bracket

Tax Base 09 10Up to 12 million won 6% 6%Up to 46 million won 16% 15%Up to 88 million won 25% 24%Over 88 million won 35% 33%

Basic Deduction - 1.5mio KRW per year per person qualifying

for basic deduction Deduction for Wage and Salary Income - 5 million won or less : 80% - More than 5 million won but not more than

15 million won : 50% - More than 15 million won but not more


than 45 million won : 10% - More than 45 million won : 5%

3. Date of Enforcement Effective for income incurred on and after Jan. 1, 2009

16 2010

2.

( 51)

1. 60

08 65

2.

( 100 )

- 60( 55) - 20 60 - 20

- 60

- 6569 : 100

- 70 : 150

- 6569 :

- 70 : 100

3. 2009.1.1.


2. Adjustment in Personal Deductions

(Article 51 of the Income Tax Act)

1. Purpose of Revision Age of ascendants eligible for the basic deduction is 60 years old or

more for both men and women

A person whose age is 65 years old or more is eligible for the Basic Old Age Pesion from 2008. Regarding this, Additional deduction for Aged is reduced.

2. Changes Before Now

Dependent family members (with an annual

income of 1 million KRW or less) eligible for basic deductions :

- Linear ascendant aged 60 (or 55 for women) or over

- Siblings aged 20 or under, or 60 or over - Linear descendant and adopted child aged

20 or under

Additional deductions for the aged - When dependents qualifying for basic

deductions are aged 65~69 : Additional deduction of 1 million KRW per year

- When dependents qualifying for basic deductions are aged 70 or over : Additional deduction of 1.5 million KRW per year

Adjustment to age qualifications of dependent family member

- Linear ascendant aged 60 or over for both men and women

- (Same as before) - (Same as before)

Reduction in additional deduction for the aged - When dependents qualifying for basic

deductions are aged 65~69 : No additional deductions are granted

- When dependents qualifying for basic deductions are aged 70 or over : Additional deduction of 1 million KRW per year


18 2010

3.

( 52 9)

1.

16

2,500

2.

2,500

100

- ( )

- ( )

< >

3. 2009.1.1.


3. Abolition of Special Deduction for Marriage, Funeral, Relocation Expenses (Article 52(9) of the Income Tax Act)

1. Purpose of Revision In order to secure tax base based on the "broader tax resources and

lower tax rate" principle, the previous 16 kinds of special deductions were simplified.

The eligibility for deduction was limited to wage and salary earners with a total wage and salary income of 25 million KRW or less. However, such income cap was not effective for taxpayers below tax threshold, only to make deductions complicated.


Wage and salary earners with a total

wage and salary income of 25 million KRW or less are given a special deduction of 1 million KRW per each instance outlined below :

- Marriage/funeral of person eligible for basic deductions (no age cap)

- Relocation of filer (applicable only when the entire family relocates)

< Abolished >


20 2010

4.

( 52 1)

1.

*

* 2008 , , 200

2.

- :

- : 500

- ( )

- : 700

- : 1 200

- : 1 700

()

- : 1 300

- : 1 900

( )

3. 2009.1.1.


4. Upward Adjustment of Maximum Income Deductibility for Medical and Educational Expenses (Article 52(1) of the Income Tax Act)

1. Purpose of Revision The maximum income deductibility is adjusted upward so as to

allow a broader deduction for medical expenses of dependent family members.

The maximum income deductibility is revised upward for educational expenses, in consideration that high school fees* and tuition fees of private universities often exceed the maximum income deductibility.

* In 2008, after-school fees, costs of textbook purchase and school meals, etc. became deductible for education expenses. As a result, some high school fees exceeded 2 million KRW per year.


Maximum income deductibility for medical expenses

- Oneself, senior citizen, persons with physical disabilities : No maximum limit

- Dependent family member : Capped at 5 million KRW per year

Maximum income deductibility for educational expenses

- Pre-school/elementary/secondary school/high school students : 2 million KRW per year per person

- College/university students : 7 million KRW per year per person

There is no maximum limit for the filer's own educational expenses (including graduate-level studies)

Maximum income deductibility for medical expenses

- (Same as before)

- Dependent family member : Capped at7 million KRW per year

Maximum income deductibility for educational expenses

- Pre-school/elementary/secondary school/ high school students : 3 million KRW per year per person

- College/university students : 9 million KRW per year per person

(Same as before)

3. Date of Enforcement Effective for expenses paid on and after Jan. 1, 2009

22 2010

5.

( 50)

1.

-

2.

( 100)

- 60( 55)

- 20 , 60

- 20

< >

- 6 *

* 18

3. 2009.1.1.


5. Addition of Foster Child as Dependent Eligible for Basic Deduction (Article 50 of the Income Tax Act)

1. Purpose of Revision Providing tax support to encouraging foster care at private homes

- Since foster homes protect and care for children just as their own children, the foster children need to be treated similarly as their own dependent child for tax purposes.

If a foster child is included as dependent eligible for basic deduction, the child is also eligible for deductions for insurance, medical, and educational expenses.


< New >

Addition of dependent eligible for basic deductions

- Child in foster care* of the filer for a period of six months or more during the current tax year

* Children to be placed with foster families are determined, among children under the age of 18 who require care, by the Heads of administrative districts of "City", "Gun",

and "Gu."


24 2010

6.

( 186)

1.

2.

- 10

- 20

3. 2009.1.1.


6. Broadened Eligibility for Simplified Payment of Withholding Taxes

(Article 186 of the Enforcement Decree of the Income Tax Act)

1. Purpose of Revision Broadening the eligibility for half-yearly payment of withholding

taxes so as to help small-scale corporate taxpayers conveniently pay their taxes


Eligibility for half-yearly payment of

withheld taxes

- Withholding agents whose number of immediately preceding year's full time employees is 10 or less.

Broadened eligibility

- Withholding agents whose number of immediately preceding year's full-time employees is 20 or less.

3. Date of Enforcement Effective for approved half-yearly payment on and after Jan. 1, 2009

26 2010

7. ( 3)

1.

- 1

- 5

2.

( ) 1

() 10 5

() ,

3. 2009.1.1.


7. Reduced Scope of Taxable Foreign-Sourced Income of Foreign Residents (Article 3 of the Income Tax Act)

1. Purpose of Revision Providing tax support for qualified foreign workers residing in Korea

- Previously, foreigners domiciled in Korea or reside in Korea for one or more years were treated as resident, and taxed on their domestic and foreign-sourced income.

- Under the revised law, foreign residents are taxed on Korean- sourced income, and foreign-sourced income that have been paid in Korea or transmitted to Korea for up to five years.


A resident of foreign nationality is taxed

on his/her domestic and foreign-sourced income.

- (Applicability) A person domiciled in Korea or resides in Korea for one or more years.

Waiver for short-term foreign residents on their foreign-sourced income

- (Applicability) Foreign residents whose combined period of residence in Korea for the immediately preceding ten years from the final date of the current tax year is five years or less.

- (Taxable income) Korean-sourced income, and foreign-sourced income that have been paid in Korea or transmitted to Korea


28 2010

8. ( 20)

1.

-

2.

-

-

3. 2009.1.1.


8. Change in the Definition of Class B Wage and Salary Income (Article 20 of the Income Tax Act)

1. Purpose of Revision To match with the term "non-resident" used in the Income Tax Act,

the word indicating the scope of Class B wage and salary income payer is changed to "non-resident".


Class B wage and salary income :

- Income paid out by a foreign person or corporation residing in a foreign country

- The word "foreign person" is changed to "Non-resident"


30 2010

9.

( 124)

1.

2.

-

( )

-

3. 2009.1.1.


9. Clarification of Non-Residents' Filing and Payment of Wage and Salary Income (Article 124 of the Income Tax Act)

1. Purpose of Revision Previously, no reference was made on a non-resident's tax filing and

payment. Hence, the law is revised to specify that non-residents are allowed to file returns and pay taxes on wage and salary income pursuant to the provisions governing residents.


Calculation of the taxable income base

and taxes payable of non-resident wage and salary earner is made pursuant to relevant provisions governing residents.

- No reference was made on a non-resident's tax filing and payment obligations.

In practice, non-residents are imposed filing and payment obligations in the identical manner as residents.

- Tax filing and payment of a non-resident's wage and salary income is made pursuant to relevant provisions governing residents.


32 2010

10.

( 1822)

1.

() 17%, () 20%

2.

2

30%

17%

: 2009.12.31

( )

15%

: 2012.12.31(3)

3. 2009.1.1.


10. Reduced Rate of Non-Taxation

(Article 18-2(2) of the Restriction of the Special Taxation Act)

1. Purpose of Revision Lowering the rate of non-taxation granted to foreigners to the level

below that of neighboring countries so as to attract qualified foreign workers and foreign investment.

Maximum income tax rates in competing countries for foreign direct investment

Hong Kong: 17%, Singapore: 20%


Foreign wage and salary earners may elect to be applied one of the following two tax benefits :

Taxation at the current tax rate after applying a non-taxation treatment on 30% of the total wage and salary (sunset provision to expire on December 31, 2009).

Taxation at a flat rate of 17% of the total amount of wage and salary before deductions/credits. (Sunset provision to expire on December 31, 2009)

Reduced rate of non-taxation

(Same as before)

Taxation at a flat rate of 15% of the total amount of wage and salary before deductions/credits. (Sunset provision to expire on December 31, 2012)


34 2010

11.

( 462, 262)

1.

2.

(262)

: 200 * 200 200

:

: , , , , 5

: 500 * 500

500 :

:

3. 2010.1.1.


11. Payment of National taxes by credit card

(Art. 46-2 of the Framework Act on National Taxes, Art. 26-2 of the Enforcement Decree of the Framework Act on National Taxes)

1. Purpose of Revision To provide enhance more taxpayer-friendly environment for taxpayers

who are temporarily undergoing a liquidity crisis


Payment of National Taxes by credit card(Article 26-2 of the Enforcement Decree of the Framework Act on National Taxes)

Maximum limit : Notified amount of 2 million KRW

* Where the declared tax amount exceeds 2 million KRW, upto 2 million KRW can be paid by a credit card.

Eligible subject: Individual taxpayers

Eligible tax items: Individual intome tax, VAT, comprehensive real estate tax, individual comsumption tax and liquor tax

Expansion of the existing system

Maximum limit : 5 million KRW

* Where the notified or declared tax amount exceeds 5 million KRW, upto 5 million KRW can be paid by a credit card.

Eligible subject: Corporate taxpayers are added.

Eligible tax items: All tax items.

3. Date of Enforcement Effective on and after January 1, 2010.

36 2010

12. ( 2102 2, 2103 7)

1.

2.

15

1

*

1

3. 2010.2.18.


12. Extension of the period of the filing a report on refusal of transactions, etc. (Art. 210-2-2 and 210-3-7 of the Enforcement Decree of the Income Tax Act)

1. Purpose of Revision To enhance taxpayers' convenience and transparency in tax revenue

by conforming the reporting period of refusal of card transactions, etc. to the filing period of confirmation of cash transactions


In case that an amount related to refusal of transactions with credit cards or cash receipt issuance are different from the truth,

a person should file a report the competent tax office within 15 days after the day of the transactions

a person should file a report the competent tax office within 1 month after the day of the transactions

* Confirmation of cash transactions

When a person did not receive a cash receipt for his/her cash purchase, he/she can get the transaction confirmed as a verified cash transaction by reporting it to the NTS. within one month.

3. Date of Enforcement Effective for transactions on and after February 18, 2010

38 2010

13.

( 143 3, 2013 3)

1. ,

2.

*

* ( 7,500 ) ,

()

3. 2010.1.1.

2009 2010.2.18.


13. Calculating estimated income of a taxpayer who has conducted year-end tax settlement for his/her business income(Art. 143-3 and Art. 201-3-3 of the Enforcement Decree of Income Tax Act)

1. Purpose of Revision When taxpayers such as insurance solicitors or insurance salespersons who

have conducted year-end tax settlement for their business income file global income tax return for their other income, the amount of business income at year-end tax settlement and the amount reported at estimated-return filing are different. The purpose of revision is to reduce tax burden caused by this reason.


When a taxpayer* who has conducted year-end tax settlement for his/her business income files global income tax return for his/her other income, standard deduction ratio or simple expense ratio is applied in calculating an income amount.

* Taxpayers subject to simple bookkeeping (whose income is less than 75million KRW) are insurance solicitors and insurance salespersons.

Change in calculating estimated income

The income amount filed at year-end tax settlement is deemed an estimated income.

3. Date of Enforcement Effective for income incurred on and after January 1, 2010. For income incurred in 2009, the fore-mentioned revision is effective for

the income determined or reassessed or the final tax return of the tax base of comprehensive income taxation on and after Feb. 18, 2010.

40 2010

13.

( 74 14)

1. 10

2.

10

()

3. 2010.1.1.


13. Extension of income tax filing period of persons departing from Korea (Art. 74-1, 74-4 of the Income Tax Act)

1. Purpose of Revision It is impossible to file return for the income incurred during the last

10 days before the departure, so the period of filing return is extended.


Period of filing return on the tax base for persons departing from Korea

No later than ten days from the date of departure

Adjustment of filing period

No later than one day from the date of departure

3. Date of Enforcement Effective for the persons departing from Korea on and after January

1, 2010

42 2010

14.

( 182, 162)

1. 15%

2.

30%

- : 09.12.31

15%

- : 12.12.31.

()

3. 2010.1.1.


14. Rationalization of special taxation for foreign workers

(Art.18-2 of the Restriction of Special Taxation Act, Art.16-2 of the Enforcement Decree of the Restriction of Special Taxation Act)

1. Purpose of Revision To simplify taxation on foreign workers since a flat rate of 15% is

fair enough to enduce foreign workers

To clarify the scope of the foreigner and to balance taxation imparity which may arise between haves and have-notes of Korean nationality


Special taxation for foreign workers

Non-taxation treatment on 30% of gross earning

- Sunset: December 31, 2009

15% flat rate on earned income - Sunset: December 31, 2012

Special taxation for foreign workers

Not applicable to Korean national whose nationality is Korea as of the final day of the attributable taxation year.

3. Date of Enforcement Effective for income incurred on and after January 1, 2010

44 2010

15.

( 18)

1. ,

2.

-

-

- 5

100%

- 09.12.31.

-

- ( )

- 2

50%

2 - 09.12.31. 11.12.31.

3. 2010.1.1.

2009.12.31. 100%


15. Reduction of exemption treatment of earned income tax on foreign engineers

(Art. 18 of the Restriction of Special Taxation Act)1. Purpose of Revision To relieve taxation imparity between korean nationals and foreigners,

and between Engineers and non-engineers


Tax exemption for foreign engineers

Subjects - A foreign engineer who provides his/her

services within in Korea under a contract for the introduction of technologies, which are exempted from income tax or corporatetax

- technology-intensive industry, research institutesinvested by the scientific circles or government, etc.

Exemption treatment - 100% exemption treatment of the earned

income for his/her services for the first 5 years

Sunset - A foreign engineers who provided his/her

services before Dec. 31, 2009

Adjustment of subjects - A foreign engineer who provides his/her

services of high technology to a foreign invested company which is exempted from taxation for the introduction of high technologies

- (Same as the existing provision)

Reduction of exemption treatment - 50% exemption treatment of the earned

income for his/her services for the first 2 years

Extended sunset (2 years more) - Dec. 31, 2009 Dec. 31, 2011

3. Date of Enforcement Effective for services provided on and after January 1, 2010 Foreign engineers who provided services before Dec. 31, 2009 or under

a reported contract for the introduction of technologies, they are subject to the previous regulation, thus exempted 100% for the remaining period.

46 2010

16.

( 16 1)

1.

2.

*

*

3. 2010.2.18.


16. Adjustment of the scope of foreign engineers exempted from earned income (Art.16-1 of the Enforcement Decree of the Restriction of Special Taxation Act)

1. Purpose of Revision In the environment where international exchange of human capital is

free, Korean nationals who have permanent residency in other countries are excluded from the scope of foreign engineers.

To enhance fairness in taxation between taxpayers who have foreign permanent residency and those who do not have foreign permanent residency


Foreign engineers prescribed by the Presidential Decree

Foreigners who provide technology

* Korean nationals who have permanent residency in other countries are deemed foreigners by the regulation concerned

Adjustment the scope

Persons who does not have Korean nationality

* Korean nationals who have permanent residency in other countries are excluded from the scope of foreign engineers.

3. Date of Enforcement Effective for the income incurred in the taxation year to which Feb.

18, 2009 belongs

48 2010

17.

( 58)

1.

2.

-

30%

-

* ( ) * /

- 20%

( )

3. 2008.1.1.


17. Broadened Eligibility for Business Asset Loss Deductibility

(Article 58 of the Income Tax Act)1. Purpose of Revision Broadening the eligibility for tax deduction for business suffering asset

losses due to disaster so as to encourage their economic activities


Deduction for disaster losses - Eligibility

30% business asset loss

- Eligibility

20% or greater business asset loss

Calculation of deductible amount

- Deducting the asset loss rate* from income tax due for the tax year (capped at the amount of asset loss)

* Amount of asset loss/ Total asset prior to disaster

(Same as before)

3. Date of Enforcement Effective for disaster-related loss incurred on and after Jan. 1, 2008.

50 2010

18.

( 45 1602)

1.

5 7 20 5

2.

*

- 5

*

- 10

() : 5 ( ) :

5 31

3. 2009.1.1.


18. Extended Carryover Period for Net Operating Loss

(Article 45 and 160-2 of Income Tax Act)

1. Purpose of Revision Lowering tax burden for the self-employed business faced with

financial difficulties

Extending the relatively short carryover period for net operating loss, compared with that of foreign countries

Type/Country Korea Japan US Germany UK FranceCarryover

period 5 yrs 7 yrs 20 yrs Indefinite Indefinite 5 yrs

Depreciation Voluntary Voluntary Compulsory Compulsory Voluntary Compulsory

Extending the period for keeping books and expenditure records, and the statue of limitations period, in consideration of the carryover period for net operating loss

2. Changes

Before NowNet operating loss (NOL)* carryforward - Deducted from the income incurred during

the taxable period which terminates within five years from the end date of the tax year in which the loss is incurred.

* NOL is one incurred in the accounting process of business income and real estate rental income. It is a remainder after deficits are subtracted in calculating the global income tax base for the relevant year.

Extended deductible period

- 10 years

Period for keeping books and expenditure records

In general : Five years If carryover period is extended : By May 31 the following year to which

the eligible taxable period belongs.

3. Date of Enforcement Effective for deficits incurred on and after Jan. 1, 2009

52 2010

19.

( 55)

1.

- (1 )

2.

-

- ( )

3. 2009.1.1.


19. Extended Scope of Necessary Expenses for Insurance Premium of the Self-Employed Insured (Article 55 of the Enforcement Decree of the Income Tax Act)

1. Purpose of Revision

Improving the previous unfair tax treatments of insurance premiums between the employee insured and the self-employed insured.

- Under the previous law, necessary expense was recognized for insurance premiums paid by the employee insured under the National Health Insurance Act and Long-Term Care Insurance for the Aged Act.

However, insurance premiums paid by the self-employed insured persons (a single person enterprise) were not recognized as necessary expense.

2. Changes

Before Now

Extended scope of necessary expenses

- (Same as before)

Insurance premiums paid by the self-employed insured under the National Health Insurance Act and the Long-Term Care Insurance for the Aged Act

3. Date of Enforcement Effective for insurance premiums attributable to the tax period to

which the date of Jan. 1, 2009 belongs

54 2010

20.

( 9)1.

- 1,200 1996 50%

2.

:

- 1

- 1200

- ( )

- 1800

3. 2009.1.1.


20. Upward Adjustment of Maximum Non-Taxation of Farm Household Sideline Income

(Article 9 of the Enforcement Decree of the Income Tax Act)1. Purpose of Revision Increasing the upper limit for non-taxable sideline income of farm

households so as to lower their tax burden.

- The previous upper limit for non-taxable sideline income was 12 million KRW, which has applied since 1996. The cap is now raised by 50%, in consideration of inflation, etc.

2. Changes

Before Now Farm household income from sideline

activities :The following income, among income incurred fromstock breeding, fish farming, straw goods manufactur-ing, private house lodging, sale of foods, local specialitymanufacturing, traditional tea manufacturing, or othersimilar activities

- Income from stock breeding as a sideline business of a farm household in attached Table 1

- Income, other than that from stock breeding in the scale of a farm household sideline business, which is 12 million KRW or less

Extended scope of farm household income from sideline activities

- (Same as before)

- Income, other than that from stock breeding in the scale of a farm household sideline business, which is 18 million KRW or less

3. Date of Enforcement Effective for income incurred on and after Jan. 1, 2009.

56 2010

21.

( 77)

1.

- (45)

- 45 2

2.

- : 1 - : 45 - 2 : 1 2 : 50%

- ( ) - : 2 - ( )

3. 2009.1.1.


21. Extended Period for Installment Payment of Income Tax


1. Purpose of Revision Enhancing taxpayer convenience by extending the period of installment

payment of income tax - Preventing taxpayer inconveniences and calculation errors: Previously, the installment payment period was determined on a

daily basis (45 days), which caused taxpayers to calculate their due period, and often to make errors in calculations.

- Reducing financial costs by extending the period from previous 45 days to two months.

2. Changes

Before Now

Installment payment

- Eligibility : Filers whose tax payable exceeds

10 million KRW

- Payment period : For 45 days after the payment

due date expires.

- Eligible Amount If tax payable is 20 million KRW or

less : Excess of 10 million KRW If tax payable exceeds 20 million

KRW : Amount equals to or less than

50% of tax payable

Installment payment

- (Same as before)

- Extended period of installment payment

: For 2 months after the due date expires

- (Same as before)

3. Date of Enforcement Effective for tax returns and payment on and after Jan. 1, 2009

58 2010

22.

( 87)

1. ,

- 80%

- , : - , , : 80%

2.

- ,

100 80

- ( )

100 80 ,

3. 2009.1.1.


22. Extended Scope of Necessary Expenses for Other Income


1. Purpose of Revision With regard to other income, such as prize money, additional prize

won by a public-service corporation with approval of the competent administrative office, or money and valuables received in return for servitude and/or superficies created or leased:

- The amount of the necessary expenses actually incurred exceeds 80% of income on occasions. Hence, the excess should rightly be recognized as necessary expense.

Necessary expenses recognized for other income - Prize money from slot machine, coin-tossing machine, etc.: The amount of

money put into the machine - Manuscript fee, lecture fee, and remuneration for commentation and performance:

80% of income

2. Changes

Before Now

Necessary expenses for other income

- Necessary expenses for other income, such as prize money and additional prize won by a public-service corpo-ration with approval of the competent administrative office; prize money and additional prize won by a prize winner in a contest in which a multiple number of people participate; or money and valuables paid in return for servitude and/or superficies created or leased.

Recognized for 80/100 of the amount received by resident

Necessary expenses for other income

- (Same as before)

If necessary expenses actually incurred exceeds 80% of income, the excess, too, is recognized as necessary expense.


60 2010

23.

( 22)

1.

-

2.

-

-

3. 2009.1.1.


23. Clarification of the Scope of Early Retirement Allowances for Public Officials (Article 22 of the Income Tax Act)

1. Purpose of Revision Making the scope of retirement income clearer - Since early retirement allowances to both the public officials and

public school personnel, etc. is retirement income, early retirement allowance to private school personnel, etc. is newly placed under the category of retirement income.

2. Changes

Before Now

Scope of retirement income

- Includes early retirement allowance paid to public officials

Extended scope of retirement income - Added early retirement allowance paid to

private school personnel, etc. in the scope of retirement income


62 2010

24.

( 47 2)

1. 2002 6 8

- ,

: ( - 10) 8%() - ( 55%)

2.

- 8

- 10

3. 2009.1.1.


24. Upward Adjustment of Maximum Daily Wage Deductibility

(Article 47 (2) of the Income Tax Act)

1. Purpose of Revision The amount of income deduction for daily hired workers has

remained capped at 80,000 KRW per day, since it was last revised upward from 60,000 KRW in 2002.

- It is necessary to relieve the economic burdens of low income brackets hit by the deteriorating economic conditions, such as high oil prices; and to create jobs in the construction sector, etc.

Calculating the income tax for daily hired workers: (Daily Wage-100,000 KRW)

8% (Flat Tax Rate) - Income Tax Deduction (55% of the amount of calculated tax)

2. Changes

Before Now

Income deduction for daily hired workers

- 80,000 KRW per day

Income deduction for daily hired workers

- 100,000 KRW per day

3. Date of Enforcement Effective for income incurred on Jan. 1, 2009

64 2010

25.

( 17 3)

1. : 15% 12%(09) 11%(11)

08 09~10 11

0.13/(1-0.13)=15% 0.11/(1-0.11)=12% 0.10/(1-0.10)=11%

() 13% 11% (0809) 10% (10)

2.

-

- : 15%

[ +

(15%)]

- ()

- 09 : 12% 11 : 11%

3. 2009.1.1.2010.12.31. 12% 2011. 1. 1.

11%


25. Adjustment of Dividend Gross-Up Rates Following Corporate Income Tax Reduction(Article 17 (3) of the Income Tax Act)

1. Purpose of Revision Dividend gross-up rate adjustment following the corporate income tax

(CIT) reduction : 15% (Current) 12%(09) 11%(11)

Year 08 09~10 11~Dividend Gross-up

Rates 0.13/(1-0.13)=15% 0.11/(1-0.11)=12% 0.10/(1-0.10)=11%

CIT Adjustment Plans(Lower Tax Rate) 13% 11% (0809) 10% (Since 10)

2. Changes

Before Now Dividend tax credit

- Dividend tax credit is granted to shareholders to compensate for double taxation

- Dividend gross-up rate: 15% Double taxation relief [Global Income + Dividend Gross- up

(Dividend Income Gross-up Rate of 15%)] Basic Tax Rate - Dividend Tax Credit (Dividend Gross-up)

Dividend tax credit

- Income incurred on and after '09: 12% Income incurred on and after '11:

11%

3. Date of Enforcement A gross-up rate of 15% applies for dividend income incurred

between Jan. 1, 2009 and Dec. 31, 2010, and a 11% rate applies for dividend income incurred on and after Jan. 1, 2011.

66 2010

26.

( 22)

1.

2.

1

(1-7)

- -

*

1

, 1


26. Determining residence of an individual

(Article 2-2 of the Enforcement Decree of the Income Tax Act)

1. Purpose of Revision A point in time at which an individual becomes a resident or a

non-resident of Korea, which was previously governed by general provisions, is now prescribed by the Enforcement Decree of the Income Tax Act.

2. Changes

Before Now

New A point at which an individual becomes a resident or non-resident

The time a non-resident becomes a resident of Korea

- The day he/she has a domicile in Korea - The day after the occurrence* that

causes a resident to be deemed to have no domicile in Korea

A taxpayer has an occupation that requires at least a year of continual residing in Korea.

A taxpayer's family members reside in Korea, and is likely to reside in Korea for one or more years in view of his/her occupation or assets status in Korea.

68 2010

- 1

-

-

1

,

3. 2009.2.4.


Before Now - The day of one year period of having a

domicile in Korea

The time a resident becomes non-resident of Korea

- The day after a resident's departure to relocate his/her domicile or a place of residence overseas

- The day after the occurrence that causes a resident to be deemed to have no domicile in Korea.

A taxpayer has occupation that requires at least a year of residing overseas.

A taxpayer of foreign nationality has

no family residing in Korea, and is unlikely to return to Korea and reside mainly in Korea in view of his/her occupation and asset status in Korea.

3. Date of Enforcement Effective for income incurred during the taxable period to which the

date of Feb. 4, 2009 belongs.

70 2010

27.

( 3)

1.

2-2067, 2004.10.11. (100% )

2.

100%

3. 2009.2.4.


27. Exception to Determining Residence


1. Purpose of Revision Promoting fair tax treatment of domestic corporations' overseas

businesses and incorporating the NTS interpretation in determining residence.

By Document Team 2, - Ruling No. 2067, Oct 11, 2004

Employees dispatched by domestic corporations to overseas local corporations (100% invested by domestic corporations) are also residents of Korea.

2. Changes

Before Now

Exception to determining residence

Public officials or residents working overseas, or executives or employees of domestic corporations dispatched to the overseas place of business, etc. are deemed a resident.

Foreign subsidiaries which are 100% invested by domestic companies



72 2010

28. ,

( 117)

1. , ,

2.

(57-942)

,

:


28. Clarification of the Scope and Methods of Foreign Tax Credit


1. Purpose of Revision The scope of foreign tax credit, the period for deduction, methods for

appropriation of refund, which were previously governed by general

provisions, are now clarified by legislation.

2. Changes

Before Now

Excluded from the eligible scope of foreign corporate income tax for foreign tax credit are:

Additional taxes and additional charges on the tax payable and the VAT, levied based on corporate income, etc.

Deduction period for foreign tax credit

: The taxable period or business year in which the foreign-source income is included in the tax base of corporate income tax.

74 2010

(57-02)

* 45

* , ,

(57-02) 9445(

, , ) 51

51

51

( ) ( )

3. 2009.2.4.


Before Now

New Any refund incurred shall be appropriated or provided in accordance with Article 51 of the Framework Act on National Taxes

Article 51 (2) of the Framework Act on National Taxes

Appropriation or refund of taxes shall be made in the following order:

Taxes before the due date (Taxpayer's consent required) Overdue taxes Taxes to be voluntarily paid (Taxpayer's consent required)



76 2010

29.

( 156)

1. ( 25% 09 22%, 10 20%)

-

-

2.

( 156) - : 25% - , : 2% - : 20% - : 10%

25%

20%

10% 20%

3. 2009.1.1.


29. Lowered Withholding Tax Rate Following Corporate Income Tax Reduction


1. Purpose of Revision Securing the fair tax treatment between domestic and foreign

companies, as the corporate income tax rate is revised downward (from current 25% 22% on FY 09 income, 20% on FY 10 income)

- To this end, withholding tax and branch tax rates are lowered for foreign companies.

In most developed countries, the withholding tax and branch tax rates for non-residents equal to or lower than the nominal corporate income tax.

- Withholding tax and branch tax rates are revised by considering those of key tax jurisdictions.

2. Changes

Before Now

Withholding tax rates for non-residents (Article 156 of the Income Tax Act)

- Interest, dividend, royalty, and other: 25% - Business income, ship and aircraft lease:

2% - Personal service: 20% - Transfer of real estate and securities: 10%

of the value of transfer, or 25% of transfer gains, whichever is smaller

Lowered withholding tax rate

20%

10% of the value of transfer, or 20% of transfer gains, whichever is smaller

3. Date of Enforcement Effective for income paid on and after Jan. 1, 2009.

80 1

2009

1.

(-)

() (6% 35%)

(-)

()

(-)

(+)

. . . .

Part Introduction 81

Tax Base and calculation flow for 2009 Global Income Tax

1. Tax Base and Calculation Flow for Residents

Financial Income

Interest Income

DividendIncome

Real EstateRental Income

Business Income

Wage Income

Pension Income

Other Income

Income Deduction

Joint Return

Tax Rate(6% 35%)

Tax Base

Tax Calculated

Tax ExemptionCredit

Tax payable

Tax Prepaid

Penalty Tax

The Korean individual income tax system uses the unitary concept where incomes from all sources are aggregated and taxed at progressive rates. Deductions and tax credits are allowed under certain conditions. Local income tax is added to income tax in computing the total tax liability. Penalties may be assessed for failure of return-filing and tax payment.

82 1

2.

?

?

?

?

?


2. Individual Income Taxation on the Income of Non-resident

Income Accruing

Is there Tax

Treaty?

No

Tax-free Income?

Is there Domestic

Source Income based on Tax

Treaty and Domestic

Law?

Yes

No

Yes

Yes

No

Yes

No

Domestic Business Place?

Is the Income Attributable to Domestic

Business Place?

Yes

No with a few exceptions

with a few exceptions

Domestic Law applied

Tax Treaty has priority

Non-taxable in Korea

Tax Exempted

Tax Withholding

Return-filingGlobal Taxation

84 1

2009

1. ?

.

.

, , 1 , .

.( 73 1)

1) 2) 3) 4)

7,500 ,

5) 6) 7) 4) 8) , , ,

9) 1) 7) , , ,


General Information

1. Do you have to file a return ?

If you are a foreign resident in Korea, you have to file a tax return in the same way as a Korean resident does.

Furthermore, if you maintain a business place (usually termed as a permanent establishment in tax conventions) in Korea or have only real estate income arising from Korean sources, you must also file a tax return even though your status is considered to be a non-resident.

Individual income tax is categorized as global income, retirement income, transfer income and assessed on yearly basis. The global income includes interest income, dividend income, real estate rental income, business income, earned income, pension income, and other income

Exceptions to Final Return on Tax Base

Any resident falling under any of the following subparagraph, may not need to make any final return on the tax base on income (73-1 Income Tax Act):

1) A resident having only wage & salary income2) A resident having only retirement income3) A resident having only pension income4) A resident having only business income subject to year-end settlement Insurance solicitors and insurance salespersons who have only business

income and whose income is less than 75million KRW.5) A resident having only wage & salary and retirement income6) A resident having only retirement income and pension income7) A resident having only retirement income and the income mention in the fourth

subparagraph 8) A person who has interest, dividend, pension or other income only, which is

subject to separate taxation

9) A person who has interest, dividend, pension or other income only, which is subject to separate taxation and falls from the first to seventh subparagraph

86 1

2. 2009 ?

, .

11 1231 1, 51 531. , .

( ) 11 . .


2. What date is your return for 2009 due ?

The regular return period for the income accruing for the tax year concerned begins on May 1 and ends on May 31 of the next year. For tax purposes, individual tax payers must use the calender year as their taxable year. When the due date for filing a return and paying tax falls on a Sunday or a legal holiday, the next business day is the due date.

If a resident becomes a non-resident for the reason that he/she leaves Korea, the taxable period is from January 1st to the day of departure. Due date of filing period is by one day before the day of departure.

88 1

3. ?

40(1) 40(4) 2 .

40(1) .

, , 40(4) .

, , .

.

5 .

.

, ,

. 90 . , .


3. What do you include with your return and what records do you keep ?

Which Form to file

There are 2 forms you can choose when you file your final tax return : Form 40-1 and Form 40-4. Form 40-1 is for the final return of global income tax base and self-assessment. You should use Form 40-2 when you file a return by estimation if you have only either business income or real estate income and subject to simple expense rate.

What Supporting Documents are Needed

If you are filing a return, your return forms and its guide explanations will tell you what supporting documents are to be attached, such as certificates, forms, schedules, or official receipts. If you make a claim without the required receipt, certificate, schedule, or form, we may disallow your claim. It could also delay the processing of your return.Even if you do not have to attach certain supporting documents to your return, keep them in case we select your return for review. Generally, you should keep your supporting documents for five years.

The following documents should accompany your tax return: - Copy of alien registration card issued by the local immigration office, if necessary; - Application for tax credits and exemptions, if any, and documents attesting that you

are entitled to the income deductions and tax credit, etc.; - Documents which are necessary for calculating the total gross income amount and the

necessary expenses including balance sheet, income statement, and trial balance if you are engaged in trade and business ;

- Other necessary documents may be requested by the tax authority according to the relevant provision of the Income Tax Act.

Alien Registration Requirement

An alien who is planning to stay in Korea for more than 90 days is required to obtain a Certificate of Alien Registration from the Immigration Office. The Alien Registration Number is given by the immigration office. It is important to use this number on each and every tax-related document because it is also used as the alien's identification number for tax purposes during his or her stay in Korea.

90 1

4. ?

. . .

. .

, .

. , (www.hometax.go.kr) .

.

2009 5 31 . .

? , () . (ARS) (, ) . .


4. Where do you have to file and pay ?

Where to file your return

You have to file your return with the district tax office (DTO) having jurisdiction over your domicile. In principle, the place of income tax is your domicile. If you don not have a domicile in Korea, then your place of residence becomes a place of income tax.

For your inquiry and reference, our tax offices in major cities are listed on Appendix (However, for your convenience in terms of English language, we recommend you to use the contact number of the page 15 of this guide). If you live in a local county or city, you may first contact the regional tax office to find out the location of your relevant DTO. However, your tax return filed in an unqualified DTO will be automatically transferred to the relevant DTO that has jurisdiction over your current domicile.

Submitting you return can be done via post. You may also file electronically, through our website(www.hometax.go.kr)

Home Tax Service is available only in Korean.

Where to pay your tax

Taxes can be paid at any bank or post office by May 31. You may also use the electronic payment system by phone (phone banking : ARS) or on-line banking

What is the electronic payment system?The electronic payment system allows you to pay your tax via online banking or credit cards without ever visiting a bank or post office. Account transfer using online banking or phone banking(ARS) can be used.Tax payment can also be made thru Hometax system.

92 1

5. ?

. 2 ( 182) .

6. ?

6 .

, 2 () .

. . , , .

, , 2 HSBC . . .


5. What penalties do we charge ?

The penalty for both failure-to-return and failure-to-pay is assessed if a return or a payment is not accomplished by the due date. For details, refer to Part . Tax Penalties(page 183).

6. When can you expect your refund ?

When a refund is due to the taxpayer at the time of filing the Global Income Tax returns, the Head of the relevant District Tax Office will transfer the refund to the filer's bank account or post office savings account by the end of June.

Therefore, when filing results in a refund, the filer must indicate in the appropriate entry line in the tax return his/her account number to which the refunds are transferred. When the amount of the claimed refund is 20 million won or more, the filer must fill in a separate Declaration of Account Opening/Change and submit a copy of the bank account.

Refunds cannot be paid in cash when a bank or post office account is unavailable. In this case, refunds will be made at the post office. A Notification of National Tax Refund issued by the relevant District Tax Office and identification is required. When someone else receives the refund on behalf of the taxpayer, a Notification of National Tax Refund, identification of both the taxpayer and the person acting on behalf of the taxpayer, and a letter of attorney prepared and stamped by the taxpayer are required.

Bank accounts that cannot be used for purposes of receipt of refundsRefunds cannot be transferred to non-bank financial institutions (e.g., Korean Federation of Community Credit Cooperatives, National Credit Union Federation of Korea, Korea Federation of Savings Banks) and certain foreign financial institutions (e.g, HSBC). Refunds also cannot be made to bank accounts opened at banks outside Korea. Therefore, foreign taxpayers scheduled to leave Korea right after claiming a refund are advised to keep their Korean bank account for purpose of receiving the claimed refund.

94 1

7. ?

, . ( ) , .

, .

, 2009 1 1 , 10 5 .

. .


7. Do you report foreign income and other amounts ?

Under the Income Tax Law, individuals are categorized as either resident or non-resident for tax purposes, depending on which the scope and method of taxable income differs. Residents are subject to income taxation for all income ("global income") that have accrued, whereas non-residents are subject to income taxation only for that income that was derived from Korean sources.

Therefore, if a foreign taxpayer is a resident of korea, he/she must pay taxes on all income that have been created, both within Korea and outside Korea. The income derived from foreign sources must be converted to Korean won using the currency exchange rate that was applied on the date the income had arisen.

However, for income accruing on or after January 1, 2009, only the income from Korean sources or foreign sources that have been paid out in Korea or have been transferred to Korea are taxable for foreign taxpayers whose total length of residency or domicile in Korea is not over five years during the ten year period ending the final day of the tax year to which the income is attributable.

When the foreign source income has been added to a resident's global income or retirement income, and taxes equivalent to Korea's income taxes on that portion of the income derived from foreign sources have been paid or confirmed to be paid to a foreign tax jurisdiction, the taxpayer may claim foreign tax credits.

96 1

8.

( 160)

.

, .

.

.

1) (2009) 2)

1. , , , , , 2 3

3

2. , , , , , ,

15

3., , , , ,

7500

, . , , , , , , , , , , , , , , , ,


8. Double Entry Bookkeeping and Simplified Bookkeeping

Record-keeping and bookkeeping requirements(Article 160 of the Individual Income Tax Law)

Businesses are required to keep documents supporting their income and to keep books following the double-entry system as a way of recording all transactions that occur during the regular course of their operations.

However, this requirement is waived for certain businesses that are eligible to keep records under the simplified bookkeeping regime.

Double-entry bookkeeping and simplified bookkeeping requirements

All businesses that are not eligible for simplified bookkeeping are subject to double-entry bookkeeping requirements.

Businesses eligible for simplified bookkeeping are: 1) Businesses that have been newly established in the current tax year. 2) Businesses whose total sum of income attributable for the immediately preceding tax

year is under the double-entry threshold, indicated by industry in the table below.

Industry Threshold

1. Farming and forestry, fishing, mining, wholesale and retail trade, real estate brokerage and industries that do not fall under 2 and 3.

300 million won

2. Manufacturing, lodging and food service, electronics, gas, water- supply, construction, transport, telecommunication, financial service and insurance

150 million won

3. Real estate rental, business services, education services, health and social welfare, entertainment culture sports services, public services, repairing services, personal services, and household services

75 million won

Persons in the following professional occupational fields are not eligible for simplified bookkeeping, regardless of the income threshold :

Medical services, veterinary services, pharmacist Services of attorneys, judges, patent attorneys, legal affairs, certified public accountants,

tax accountants, management consultants, technical consultants, appraisers, loss assessment, customs, technolgy, construction, ferries, measurement

98 1

9.

.

.

(, , ) , .()

= - ( ) - ( )

, .()

{- ()}(2.2 2.8)

2009 : 2.2, 2.8

(2008 ) , .

MIN - ( )


9. What is the "Enforcement of StandardSimplified Expense Rate System"?

Concept Generally, taxpayers who have gross shall file their tax returns based on bookkeeping.

For those taxpayers who file their returns without bookkeeping, taxable income is calculated by applying a presumptive expense ratio (so-called Standard or Simplified Expense Rate in Korea) to the previous year's gross revenue.

Calculation by Standard Expense Rate A taxpayer who are subject to this system has to show the amount of their Primary

Expenses(purchase, rental and wage expenses) through the relevant evidence documents. Then, the rest of the expenses, for the purpose of individual income tax, shall be determined as Necessary expenses, which is calculated according to Standard Expense Rate.

Income Amount = Gross Revenue - Primary Expenses - (Gross Revenue Standard Expense Rate)

However, in order to help taxpayers avoid drastic increase of their tax burden, the ceiling of income amount is applied as follows :

Income Amount (according to standard expense rate)

Gross Revenue -(Gross Revenue Simplified Expense Rate) Ratio decided by NTS (2.2 or 2.8)

The ratio for the 2009 individual income tax return is determined by the NTS; 2.2

for business subject to simplified bookkeeping and 2.8 for business subject to double entry bookkeeping

Calculation by Simplified Expense Rate For those taxpayers eligible for Simplified Expense Rate for the income accruing for the

preceeding tax year, taxable income is calculated by applying a Simplified Expense Rate to the previous year's gross revenue and by deducting the amount calculated from the revenue.

Income Amount MIN Gross Revenue - (Gross Revenue Simplified Expense Rate)Income Amount under Standard Expense Rate

100 1

/

.

1)

2) (2008 )

1. , , , , , 2 3

6,000

2. , , , , , ,

3,600

3. , , , , ,

2,400

. (, , , , , , ) (3) ( 3 & 100 5)

.

1) 2)

(2008 )


Scope of Standard Simplified Expense Rate System

Taxpayers subject to Standard Expense Rate

1) taxpayers which do not keep records and books and are not subject to simplified expense rate*

2) taxpayers with the sum of gross revenue of preceding tax year not less than the amount below who does not maintain books on records

Industry Threshold

1. Farming and forestry, fishing, mining, wholesale and retail trade, real estate brokerage and industries that do not fall under 2 and 3. 60 million won

2. Manufacturing, lodging and food service, electronics, gas, water- supply, construction, transport, telecommunication, financial service and insurance

36 million won

3. Real estate rental, business services, education services, health and social welfare, entertainmentculturesports services, public services, repairing services, personal services, and household services

24 million won

* Taxpayers not subject to simplified expense rate Professional occupation (lawyer, tax accountant, accountant, customs broker, doctor,

pharmacist, veterinarian etc.) An individual business which is required but failed to register as a cash receipt

issuance store during the required subscription period (3 months) A taxpayer regularly refusing to issue credit card sales slipscash receipts

(amounting to 1 million won or more for 3 times per year, or for 5 times per year)

Taxpayers subject to Simplified Expense Rate

1) Newly established business in the current tax year. 2) Total sum of income attributable for the immediately preceding tax year is under the

double-entry threshhold, indicated by industry in the table above.

102 1

, , .

,

1) , , ( ) , .

2) .

, .

(2008 ) 4,800 20% .

4,800

, .

107 1 (, ) , .

= + (100%-) 20%


When applying the Standard Expense Rate All businesses, regardless of bookkeeping requirements, must disclose expenditures on

major items, such as purchase expenses, rental expenses, and wage expenses. These types of expenses (called "basic expenses") are easily supported by documents.

Basic expenses need to be backed up by documents. Specifically, 1) Purchase expenses and rental expenses need to be backed up by tax invoice, invoice,

summary of purchases on credit card (and Cash Receipt). simplified tax invoice or regular purchase receipts need to be backed up by a "Statement of Basic Expenditures."

2) Wage expenses need to be backed up by Receipt of Tax Withholding or Statement of Wage Payment, which has to be either submitted to the District Tax Office or kept by the taxpayer.

Application of the Simplified Expense Rate by a taxpayer subject to Standard Expense Rate has the effect of understating his/her income and payable taxes. Therefore, penalties for under-reporting of income or under-payment of taxes will be imposed to the portion under-reported.

When a taxpayer with the gross revenue of the preceding tax year not less than 48 million won files his/her return by estimation according to Standard (Simplified) Expense Rate, a penalty of 20% of the calculated tax amount will apply for non-bookkeeping.

Small-sized businesses exempt from the above penalty are : - Businesses established in the current year - Businesses with revenue of less than 48 million won in the immediately preceding year - Insurance brokers and door-to-door salespersons whose business income has been

declared through the year-end tax settlement regime

When applying the Simplified Expense Rate When applying the simplified expense rate, the eligible taxpayer may declare the

lesser of the following two amounts : 1) Income computed using Simplified Expense Rate, or 2) Income computed using the Standard Expense Rate Taxpayer eligible for Simplified Expense Rate shall compute his/her rate as follows

when he/she is a physically disabled person as defined in Article 107 (1) of the Individual Income Tax Law, as long as the disability is supported by a Certificate of Disability and that the business concerned is managed directly by the said disabled person.

Simplified Expense Rate = Simplified Expense Rate + (100% - Simplified Expense Rate) x 20

104 1

4 4 .

, .

()

(940903)

50,000,000 61.7 % 46.4 %

50,000{40,000 61.7%(50,00040,000) 46.4%} 20,680

* 1 1 12 ( 1 1 , 1 )


Special Case Applicable to the Personal Service Income Earners In case of personal service income earners applying the Simplified Expense Rate,

Excess Rate is applied to amounts exceeding won 40 million.

Since personal service income earners do not require separate human resources or physical facilities, their income structure is similar to that of a salary income. Therefore the Excess Rate has been introduced to account for the inequality in terms of tax burden between personal service income earners and salary income earners who has much higher rate of taxable income to salary revenue as the salary revenue increases.

An example of the application of the Excess Rate

BusinessCategory Classification

Revenue Amount(Business Persongoing concern)

Simplified Expense Rate

BasicRate

ExcessRate

Lecturer(940903)

Subject toSimplified

Expense Rate50,000

Thousand won 61.7% 46.4 %

Taxable Income = 50,000 - {40,00061.7% + (50,000 - 40,000) 46.4%} = won 20,680 Thousand

However, in case of business person who started personal service business on the previous year, the taxable income amount is calculated by annualizing the actual revenue amount during the business period by dividing the amount by 12 and multiplying it by the number of months the business has existed, since the actual time the business has been operating is less than one year (the number of month is calculated based on calendar month and the month which is short of a full month is still counted as a full month).

108 2

.

1.

1 .

, . .

. 1

1

() .

2.

, .

Part Outline of Individual Income Tax System 109

Taxpayer

Taxpayer, who is liable to pay the income tax on his/her income, is classified into Resident and Non-resident in terms of whether Korea has the taxing right on his/her worldwide or just domestic income, and the scope of income deduction pursuant to the provisions of Income Tax Act of Korea.

1. Resident

Principally, a resident is any individual who has his/her domicile in Korea or a place of residence for 1 year or more in Korea. The domicile shall be judged by the objective facts of living relationship, such as the existence of a family living together in Korea and of the property located in Korea.The 'place of residence' means the place where a person has dwelt for a long time besides his address.

A taxpayer who falls under the following cases is deemed to have a domicile in Korea. Who has an occupation which would require him/her to reside in Korea for 1 year or

more; or Who has his/her family in Korea and is likely to reside in Korea for 1 year or more

in view of his/her occupation or assets held in Korea.

A resident is subject to income tax on all incomes derived from sources both within and outside the country.

2. Non-Resident

Any individual other than a resident is a non-resident, who is liable to income tax only on the income derived from sources within Korea.

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Income

1. Taxable Income

Regarding taxation method, income derived by residents and non-residents is subject to global and separate taxation.

Income tax is imposed using a progressive tax rate on the sum (i.e., aggregate) of all income attributable to an individual. Such method of taxation is called Global Taxation, and apply to income, dividend, real estate rental income, business income, wages and salaries, pension income, and other income.

Certain types of income subject to Global Taxation ("Global Income") are not aggregated with other income types (by either taxable period or by taxpayer), but are withheld at the time of payment by the payer. In this case, all tax liabilities are settled at the time of withholding. Such types of income include interest, dividends, pension, others, wage income (of daily workers).

Classified Taxation applies to income that are not aggregated with Global Income, but are taxed respectively. This includes retirement income and capital gains.

Global Income Retirement Income Capital Gains

Income subject to Global Taxation Income subject to Separate Taxation

Interest Financial income

Separately-taxed interest income

Dividends Separately-taxed dividend

Real estate rental income

Business income

Wage income Separately-taxed wage income (wages of daily workers)

Pension Separately-taxed pension

Other income Separately-taxed other income

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Global income

The following lists global income. :

Interest

- Interest and discount amounts received during a tax year from debentures and securities issued by a nations government/its local authorities, or a domestic/foreign corporation

- Interest and discount amounts received during a tax year from deposits and installment savings payable both within and outside Korea

- Interest from non-commercial loans

- Savings-type insurance premiums with a maturity of less than ten years

Dividends

- Dividends, distributions of surplus, and interest received from a domestic or foreign corporation during construction

- Distributions of profits received from a non-corporate entity such as private associations or foundations

- Deemed dividends and distributions - Amounts designated as dividend by the Corporation Tax Act - Distributions of profits arising from securities investment trusts, except for profits or

losses arising from the transfer or revaluation of securities listed on the Korean Stock Market or the Korean over-the-counter trading market (KOSDAQ)

Real estate rental income

- Income from leasing land, from fixtures thereon, and rights pertaining thereto - Income from leasing mining and factory foundations or from mining rights

Business income

- Profits from livestock, forestry and fishing industries - Profits from mining and quarrying - Profits from manufacturing - Profits from provision of electricity, gas, and water services - Profits from construction business

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- Profits from wholesale or retail trade, operation of a hotel, or catering - Profits from transporting or communications - Profits from banking, insurance, and real estate dealing - Profits from real estate business, leasing, and business services - Profits from educational services - Profits from health and social welfare services - Profits from social and personal services - Profits from household services

Wage and salary income

- Class A: Wage, salary, remuneration, allowance, bonus, and any other allowance of a similar

nature received in return for services Income, other than retirement income, received due to retirement

- Class B: Wages and salaries received from a foreign agency or from the U.N. Forces in

Korea (excluding the U.S. Armed Forces)

Wages and salaries received from a foreigner or foreign corporation outside Korea, excluding those claimed as a deductible expense for a Korean place of business of a non-resident or a foreign corporation

Pension income

- national pension - public official pension - retirement pension - private pension, as set out in the Restriction of Special Taxation Act - incomes similar to those above, which are paid in the form of annuities.

Other income

The term "other income" denotes specifically designated categories of income other than interest, dividends, real estate rental income, business income, wages and salaries, pension income, retirement income and capital gains. Other income includes the following:

- prize money and other similar money or goods, - money or goods received from participation in a lottery, and any other prize won in

a contest,

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- money or goods received as a prize in a lottery, drawing, or any other contest, including the purse payable to the buyer of a winning ticket for horse racing, cycle racing, motorboat racing, bull fighting and sports betting game,

- fees for use of copyrighted materials received by any person other than the creator of the material,

- royalties given as consideration of using films or tapes for radio or television broadcasting, or from such use of other similar assets or rights,

- gains from the alienation of mining rights, fishing rights, industrial property rights, individual information, industrial secrets, trademarks, goodwill(including certain leases of stores), rights derived from the permission to exploit earth, sand, and stone, the right to exploit and use subterranean water, etc.

- rent derived from a temporary lease of real estate or personal property, goods, or places, and

- damages or indemnity payments for breach or cancellation of a contract.

Non-global income (Classified income)

Non-global income includes the following. :

Retirement income

- Class A: Retirement allowances: retirement allowance from the reserve of the National Pension Fund received by a Class A wage and salary income earner

- Class B: Retirement allowance received by a Class B wage and salary income earner

Capital gains

- Income arising from the transfer of land or buildings - Income arising from the transfer of rights related to real estate - Income arising from transfer of shares in a company listed on the Korean stock

exchange and the KOSDAQ (Korean Securities Dealers Automated Quotation) sold by large shareholder and sold not via securities markets.

- Income arising from transfer of shares in a company not listed on the Korean stock

exchange and the KOSDAQ

* Gains realized by an individual taxpayer on the transfer of shares in a company

listed on the Korean stock exchange and the KOSDAQ are not taxable.

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2. Non-taxable Income

Non-taxable income is the income for which the Government waives its taxing rights. Whether an application for non-taxation is made or not, this kind of income is not taxable. A few examples for each income are addressed as follows.

Income dedicated to public goods Profits from property placed in trusts for public welfare

Rents from certain categories of real estate Income from the lease of rice fields or dry fields etc.

Interest and dividend income - Interest or dividends from long term home savings account opened on or before

December 31, 2009 - Interest accrued bbetween January 1, 2007 to December 31, 2012 from savings of

less than 30 million won, to Mutual Financial Institutions of associations

- Interest or dividends from cost-of-living savings account of less than 30 million won

of the elderly or the disabled, opened on or before December 31, 2011

- Dividends from stock received on or before December 31, 2010 of up to a combined

30 million won at par value owned for more than 3 years

Business income

- Profits from auxiliary businesses of livestock businesses - Profits other than auxiliary businesses of livestock businesses that are not more than

18 million won per year - Profits from the trade of traditional liquor manufactured in those administrative

regions of "eup" and "myeon" that are located outside the Seoul Metropolitan area and whose profits are not more than 12 million won per year

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Wage and salary income and retirement income- Pay received by certain enlisted men in the armed forces, or persons mobilized under law- Compensation or other payments made for consolation received by those injured or

debilitated while furnishing a service- Education fees as prescribed by 11 of the Enforcement Decree of the Income Tax Act - Payments in the nature of reimbursement for expenses actually incurred (Day/night

duty payment, travel expenses, uniforms, etc.)- Wages received by the person working in a foreign government or an international

organization(the United Nations and its affiliated organs) ; in case of a foreign government, the principle of reciprocity is applied

- Wages receivable by furnis