Expat Tax Guide for Americans Living in South Korea
- Living as an Expat in South Korea
- South Korea at a Glance
- Do Expats Need to File Taxes in South Korea?
- Who Has to File Taxes in South Korea?
- Who Qualifies as a Tax Resident in South Korea?
- What Types of Taxation Does South Korea Have?
- When Are South Korean Taxes Due?
- Does the US Have a Tax Treaty with South Korea?
- Does the US Have a Totalization Agreement with South Korea?
- What Tax Forms Do Americans Living in South Korea Have to File?
- What US Tax Deductions Are Available for Expats Living in South Korea?
- What If I’m Behind on Filing My US Expat Taxes?
- Navigating Tax Compliance for US Expats in South Korea
Living as an Expat in South Korea
South Korea has emerged as a top destination for Americans living abroad, thanks to its unique blend of traditional culture and modernity. The country’s economic growth has made it an attractive hub for professionals, entrepreneurs, and students alike.
Additionally, South Korea is known for its safety, quality healthcare, and efficient public transportation system, making it an ideal place to settle down. But what are taxes like for Americans living in South Korea? Here’s what you need to know.
South Korea at a Glance
- Primary Tax Form for Residents: Year-end Tax Settlement (YETS)
- 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
- 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 like Greenback to learn more.
Is Foreign Income Taxed in South Korea?
In general, South Korean residents are subject to tax on their worldwide income, including income earned outside of the country. However, there are tax credits available for foreign taxes paid on that income.
On the other hand, non-residents are only taxed on the income earned and received within South Korea. This means that if you’re living in South Korea temporarily, you’ll only be taxed on the income earned within the country.
What Types of Taxation Does South Korea Have?
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 KRW||Rate Applicable to Income Level (%)|
|0 – 12 million||6.6%|
|12 million– 46 million||16.5%|
|46 million – 88 million||26.4%|
|88 million – 150 million||38.5%|
|150 million – 300 million||41.8%|
|300 million – 500 million||44%|
|500 million – 1 billion||46.2%|
|1 billion or more||49.5%|
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.
South Korea levies a 10% value-added tax (VAT) on certain goods, services, and imports.
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.
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.
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 KRW||Rate Applicable to Income Level (%)|
|0 – 200 million||10%|
|200 million – 20 billion||20%|
|20 billion – 300 billion||22%|
|300 billion or more||25%|
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 and South Korea have a tax treaty in place to avoid double taxation for individuals and businesses operating in both countries. The treaty defines the rules for determining which country has the primary right to tax income, thus reducing the risk of double taxation.
As a US expat living in South Korea, the treaty provides a framework to determine where you owe taxes. Generally, you will owe taxes to the country where you are considered a tax resident. However, the treaty provides guidelines to determine your tax residency status and avoid potential conflicts.
Additionally, the US-South Korea tax treaty includes provisions to reduce or eliminate taxes on certain types of income, such as dividends, interest, and royalties. This can help lower the overall tax burden for individuals and businesses operating across borders.
It’s important to understand the provisions of the tax treaty to ensure compliance with the law and take advantage of any available benefits.
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.
The Totalization Agreement between the US and South Korea establishes rules that help prevent expatriates from being subject to dual social security taxation, which occurs when a worker is required to pay into both the US and South Korean social security systems for the same work. This could result in an undue burden on individuals and employers alike, as well as potential distortions in trade and investment.
In essence, the agreement allows American expats working in South Korea to be exempted from contributing to the Korean social security system for a limited period, provided they have paid into the US system. The same rule applies to South Korean expats working in the US, who can be exempted from contributing to the US social security system for a specific time frame, provided they have paid into the Korean system.
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.
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:
- Foreign Earned Income Exclusion
- Foreign Tax Credit
- Foreign Housing Exclusion (or Deduction)
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.
Navigating Tax Compliance for US Expats in South Korea
Navigating tax compliance as a US expat in South Korea can be a complex and overwhelming process. With the unique tax laws and regulations in South Korea, it’s important to stay informed and up-to-date to avoid any potential penalties or issues.
Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.