Tax Guide for Americans Living Abroad in South Korea

Tax Guide for Americans Living Abroad in South Korea

Living as an Expat in South Korea

South Korea’s rich culture and thriving economy have made it one of the most popular destinations for Americans living abroad. But what are taxes like for Americans living in South Korea? Here’s what you need to know.

South Korean Taxes at a Glance

  • Tax Year:January 1–December 31
  • Tax Deadline: May 31
  • Currency: South Korean Won (KRW)
  • Population: 51.7 million
  • Number of US Expats: Estimated 150,000
  • Capital City: Seoul
  • Capital City: Seoul
  • Tax Treaty: Yes
  • Totalization Agreement: Yes

Do expats need to file taxes in South Korea?

The first question expats living in South Korea usually have is whether they should file their taxes with the South Korean government or the US. In most cases, the answer is both.

Every US citizen is required to file an annual US tax return no matter where they live. On top of this, most Americans living in South Korea will have local tax obligations, as well.

To give a clearer picture of what to expect, let’s take a look at how South Korean taxes impact foreigners living abroad.

Who Has to File Taxes in South Korea?

In South Korea, your tax liability will depend on whether you qualify as a tax resident or not.

  • If you are considered a resident of South Korea, you will have to report your worldwide income
  • If you are considered a non-resident of South Korea, you will only have to report income that came from a South Korean source

There is a third category as well: short-term residency. If you have only lived in South Korea five years out of the past ten, you will only be taxed on foreign-source (non-South Korean) income that has been remitted to or paid in South Korea.

Who Qualifies as a Tax Resident in South Korea?

Generally, you will be considered a resident of South Korea if:

  • You are physically present in South Korea for at least 183 days in a single year
  • You have a domicile in Korea for at least 183 days in a single year
  • You have an occupation that would reasonably require you to reside in South Korea for at least 183 days in a single year

You may also be considered a resident if you have close family members or substantial assets in South Korea, even if you are not in the country for 183 days in a single year.

If you do not meet the standards for residency in South Korea, you will be considered a non-resident for tax purposes.

The rules for tax residency in South Korea can be complicated. Consult an expat tax specialist to learn more.

Is Foreign Income Taxed in South Korea?

Generally, Korean residents are taxed on worldwide income. Non-residents pay Korean tax only on the income earned and received in Korea.

The IRS tax code is 7,000 pages. Want the cliff notes version for expats? Let us help.

What Types of Taxation Does South Korea Have?

Income Tax

In South Korea, income is taxed at progressive rates. As mentioned above, residents are generally taxed on their worldwide income, while non-residents are taxed on only their South Korea-source income. However, the tax rates for both categories are the same.

See the table below for the current South Korean income tax rates. (All amounts are given in KRW.)

South Korea Income Tax Rates

Earnings in KRWRate Applicable to Income Level (%)
0 – 12 million6.6%
12 million– 46 million16.5%
46 million – 88 million26.4%
88 million – 150 million38.5%
150 million – 300 million41.8%
300 million – 500 million44%
500 million – 1 billion 46.2%
1 billion or more49.5%

Tax Rate in South Korea for Foreigners

Certain foreign employees can opt to pay a 19% flat tax on their gross income instead of the standard tax rates.

Capital Gains Tax

For residents of South Korea, capital gains are included in your ordinary income and taxed at the same rate. Gains from foreign assets (except for foreign shares) are taxable only when you have been a Korean resident for five years or more at the time of the sale.

Non-residents are taxed at whichever of the following rates is lower:

  • 10% of the gross proceeds realized from the sale (11% when including the local surtax)
  • 20% of the net capital gain (22% including the local surtax)

As with ordinary income, non-residents are only taxed on capital gains derived from a South Korean source.

Some capital gains are exempt from taxation for both residents and non-residents. This includes:

  • Transfers of certain farmland and other types of real estate
  • Transfers of houses
  • Transfers of listed stock

Capital losses are deductible only against capital gains. Unused losses may not be carried forward.

Eligible gains and losses should be added up by category (e.g., real estate, stock, etc.) every year. The basic deduction is KRW 2.5 million per year. There is also a special deduction for long-term gains.

Value-Added Tax

South Korea levies a 10% value-added tax (VAT) on certain goods, services, and imports.

Inhabitant Tax

Americans living in South Korea must also pay a local surtax, known as the inhabitant tax. The rate for this local tax is 10% of your national income tax rate.

Property Tax

South Korea also imposes a tax on real property. The rate for this tax generally ranges from 0.24% to 0 .6% of the value of the property.

Corporate Tax

As with individual taxpayers, resident corporations are taxed on their worldwide income, while non-resident corporations are taxed only on their South Korea-source income. Non-resident taxation usually happens through a withholding tax on each separate stream of income.

The rates for the South Korean corporate tax are as follows:

Earnings in KRWRate Applicable to Income Level (%)
0 – 200 million10%
200 million – 20 billion20%
20 billion – 300 billion22%
300 billion or more25%

When Are South Korean Taxes Due?

Just like in the US, the South Korean tax year is the same as the calendar year: January 1 to December 31. Individual income tax returns must be filed by May 31 of the following year.

However, South Korean residents must also pay 50% of their tax bill by November 30 of the year for which those taxes are due.

Does the US Have a Tax Treaty with South Korea?

Yes. The US-South Korea tax treaty defines rules for which country a US expat will owe taxes to, thus reducing the risk of double taxation. Typically, you will owe taxes to whichever country can claim you as a tax resident.

Does the US Have a Totalization Agreement with South Korea?

Yes. The US has a totalization agreement in place with South Korea to clarify which country’s social security system an American expat may be obligated to contribute to. As with the US-South Korea tax treaty, this agreement is designed to ward off double taxation.

What Tax Forms Do Americans Living in South Korea Have to File?

As an American living abroad in South Korea, you will almost certainly have to file a South Korean income tax return. In addition to this, you will have to file at least one US tax form—and probably a couple more. Here are the most common tax forms US expats have to file.

IRS Form 1040: Individual Income Tax Return

Form 1040 is the standard US individual income tax return. All US citizens are required to file this form regardless of where they live.

For most US citizens, Form 1040 is due on April 15, but for expats, that deadline is automatically extended to June 15.

Pro Tip

If necessary, you can also request an additional filing extension to October 16 for this form.

IRS Form 8938: Statement of Specified Foreign Financial Assets (FATCA)

If you own non-US financial assets valued above certain thresholds, you must file a FATCA report. The specific threshold for your finances will depend on your filing status and whether you qualify as a bona fide resident of South Korea.

If you do have to file a FATCA report, just fill it out, attach it to your Form 1040, and file them at the same time.

FinCEN Form 114: Report of Foreign Bank and Financial Accounts (FBAR)

If you have at least $10,000 deposited in one or more non-US bank accounts, you’ll need to report it by filing FinCEN Form 114, also known as the FBAR.

Unlike the previous forms, you can’t file the FBAR by mail. You must file it electronically using the FinCEN BSA E-Filing System.

The FBAR is technically due on April 15, but if you miss that deadline, it automatically extends to October 15. You won’t even have to file an extension request.

What US Tax Deductions Are Available for Expats Living in South Korea?

Because of the US-South Korea tax treaty, most Americans living in South Korea are already exempt from double taxation. However, the IRS also provides several other potential tax credits and deductions for expats, such as:

Using these tax benefits, most expats are able to erase their US tax debt entirely.

What If I’m Behind on Filing My US Expat Taxes?

As we’ve discussed, every US citizen is required to file an annual US tax return. This applies regardless of whether you live in San Francisco or Seoul. However, if you didn’t know that, you’re far from alone. Many Americans living overseas are unaware of this tax obligation.

Fortunately, the IRS provides an amnesty program to help expats come into compliance without facing any penalties. It’s known as the Streamlined Filing Compliance Procedures.

To use this program, all you have to do is:

  • Self-certify that your failure to file was an accident, not a willful refusal
  • File the last three delinquent income tax returns and pay any delinquent taxes you owed during that time (with interest)
  • File Foreign Bank Account Reports (FBARs) for the last six years

This will bring you into compliance with IRS regulations.

Get Expert Help with Your Expat Tax Return

We hope this guide has given you a better understanding of how South Korea’s tax policies impact US expats. If you’d like to learn more, our team of tax experts is here to help.

Don’t just guess. Get the best advice from one of our expat expert CPAs and EAs.
Whether you need tax advice to prepare for a move abroad, to buy property or even retire, Greenback can help. Consults upfront can help avoid costly mistakes and stress later.
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