Year-End Tax Settlement and Tax Refund

Who does this apply to?

• Everyone who got pay from a Korean company. This includes E-9 workers.
• If you are working for a company on December 31, that company does your year-end tax settlement in January–February of the next year.
• If you quit your job during the year, the company does the settlement when it pays your salary for the month you leave.
• If you leave Korea, the company does the settlement when it pays your salary for the month you leave the country.
• If you worked for two companies in one year, give your current company the 근로소득 원천징수영수증 (certificate of tax withheld from wages) from your old company. The two are settled together.

Steps

1. In mid-January, the year-end settlement simplified service (연말정산 간소화 서비스) opens on 홈택스 (Hometax, the National Tax Service website) (www.hometax.go.kr).
2. Sign up for Hometax and log in. You can sign up with your foreigner registration number (외국인등록번호).
3. In the simplified service, download your records, such as medical costs, insurance payments and credit card spending.
4. For records that do not appear in the simplified service, get the receipts yourself and keep them.
5. Give the documents to your company by the date the company sets. This is usually between the end of January and early February.
6. The company calculates the tax and applies the result to your February pay. At some companies, this happens in March or April.
7. Get your 원천징수영수증 (tax withholding certificate) and keep it.

19% flat tax rate and progressive tax rate

Under 조세특례제한법 제18조의2 (Restriction of Special Taxation Act, Article 18-2), foreign workers can choose a 19% flat tax rate.

• You can use it for up to 20 years, starting from the tax year in which you first worked in Korea. Before, it was 5 years, but now it is longer.
• If you choose the flat rate, your tax is your whole year's pay multiplied by 19%.
• But you cannot get any tax-free items, income deductions, tax credits or tax reductions. The health insurance and employment insurance money your company pays for you is also counted as taxable income.
• With the progressive tax rate, the more you earn, the higher the tax rate. You can get all deductions.
• If your pay is high and you have few deductions, the flat rate may be better. If your pay is average and you have many deductions for family members you support or medical costs, the progressive rate is often better.
• It is good to calculate your tax both ways and choose the better one. You can use the English automatic year-end tax calculator on the National Tax Service English website.
• To use the flat rate, give an application form to your company. Ask your company's staff in charge or call 126 about how to apply and whether you can choose again every year.

Residents and non-residents

• Under the Income Tax Act (소득세법), a resident is a person who has an address in Korea or has stayed in Korea for 183 days or more.
• Non-residents can get only some deductions, such as the basic deduction for yourself and the deduction for pension payments. They cannot get most deductions for medical costs, education costs and housing.
• If it is hard to know whether you are a resident or not, call 126.

When you leave Korea

1. Before you leave, ask your company to do your year-end tax settlement.
2. Make sure you get your last 급여명세서 (pay slip) and your 원천징수영수증 (tax withholding certificate).
3. Give your company the correct bank account number for your refund.
4. Do not close your bank account right away. Your refund may arrive late.

The national pension lump-sum refund is a different system

A tax refund and the national pension lump-sum refund (반환일시금) are different things. Check both.

• Nepali nationals are from a country that is excluded from the national pension by default (based on reciprocity, which means Korea treats them the same way their country treats Koreans). So they usually do not join the national pension and do not pay contributions. Because they paid nothing, they get no lump-sum refund. If your pay slip shows a national pension deduction, check with your company and 국민연금공단 (National Pension Service) (1355).
• In principle, foreigners who really paid into the national pension do not get a lump-sum refund, but there are exceptions. First, when your home country's law gives the same benefit to Korean citizens. Second, when there is a social security agreement (an agreement between two countries) about lump-sum refunds. Third, when you joined with an E-8, E-9 or H-2 visa status (국민연금법 제126조, National Pension Act, Article 126).
• So, if you have ever paid national pension contributions on an E-9 visa, you can get the lump-sum refund under the third exception, whatever your nationality. Check with the 국민연금공단 (1355) whether your case qualifies.
• You must apply within 1 month of leaving Korea. Go to a 국민연금공단 branch office and submit the lump-sum refund application (반환일시금 청구서) and the airport payment application (공항지급 신청서).
• You can receive the money in foreign currency at Incheon Airport Terminal 1 (인천공항 제1터미널) on the day you leave. It is not paid in Korean won. If you leave on a Saturday, Sunday or public holiday, you cannot get it at the airport.
• To get the money at the airport, your company must report that you left the job (loss of membership, 자격상실) by the day before you leave. Ask your company early.
• You can also apply from your home country after you leave. Call 1355 to check.

Important points

• If you claim deductions that are not true, you will have to pay more tax later, plus an extra penalty tax.
• If your company does not do your year-end tax settlement, you can do it yourself by filing a comprehensive income tax return (종합소득세 신고) in May of the next year. Call 126.
• You also need your 원천징수영수증 (tax withholding certificate) when you extend your visa or apply for E-7-4. Get it every year and keep it.
• Do not pay a broker to get your refund for you. Hometax and 126 are free.

Frequently asked questions

Q. Do I need to apply separately to get a refund? A. If your company does the year-end tax settlement, you do not need to apply separately. But you must give your deduction documents to your company yourself.

Q. Can I do it if I do not speak Korean? A. The National Tax Service English website has an English guidebook (Easy Guide) and an automatic calculator. There is also an English help line, 1588-0560.

Q. The result says I must pay more tax. A. This means the tax taken from your pay each month was less than the tax you really owe. The extra amount will be taken from your February pay.

Q. If I choose the flat rate, can I change it later? A. Ask 126 or your company's staff in charge about how to choose and whether you can change it.

Where to get help

• National Tax Service Tax Consultation Center (국세상담센터) 126 (weekdays 09:00~18:00)
• English tax help line for foreigners 1588-0560
• Hometax www.hometax.go.kr, National Tax Service English website
• 국민연금공단 (National Pension Service) 1355
• 외국인종합안내센터 (Immigration Contact Center) 1345 (many languages)