The Aussie Expat’s Guide to Tax in South Korea

South Korea is a cracking expat posting: the world’s fastest internet, food worth flying for, and a tech and finance scene anchored by giants like Samsung and LG. If you’ve landed a gig in Seoul, you’re in for an adventure. But before you get too deep into the kimchi and the karaoke, there’s the small matter of tax, because as an Aussie working in Korea you’ve got two systems to keep happy, and Korea’s is heftier than some of the low-tax hubs Australians flock to.

Here’s a plain-English run-through of how Korean tax works for Australians, and how it collides with your Australian obligations, which is the half that usually trips people up.

Are you a tax resident of South Korea?

Broadly, you’re a Korean tax resident if you have a domicile in Korea or a “place of residence” there for 183 days or more. Having a job or family ties that keep you in Korea for that long generally points the same way. As always, the 183-day mark is the line to watch, and your residency status drives everything that follows.

And if you end up looking like a resident of both Korea and Australia at once, that’s not a deadlock: the tax treaty between the two countries has tie-breaker rules to decide which one you’re treated as a resident of for treaty purposes. More on that below, because it’s the bit that really matters for your Australian tax.

Does Korea tax your worldwide income?

Here’s a point the old guides often get muddled, so let’s be clear. As a Korean tax resident, you’re generally taxable on worldwide income. But there’s a generous concession for foreigners: if you’re a non-domiciled foreigner who has lived in Korea for five years or less out of the last ten, you’re only taxed on Korean-source income, plus any foreign income actually paid in or remitted to Korea. Cross the five-year threshold and your full worldwide income comes into the Korean net.

Non-residents, by contrast, are taxed only on their Korean-source income. So the five-year rule is the one for longer-term expats to keep an eye on.

Korea’s tax rates: not a low-tax hub

Korea is a higher-tax country than many of the Asian hubs Australians gravitate to, so it’s worth knowing the numbers. Korea taxes residents on a progressive scale of 8 brackets running from 6% up to 45%, and then adds a local income tax surtax of 10% of the income tax payable, which pushes the effective top rate to about 49.5%. That 45% top bracket bites on income above 1 billion won (very roughly AUD 1 million). These are not Singapore or Dubai numbers; for high earners, Korea is a genuinely high-tax country.

But here’s a concession worth its weight in gold. Foreign workers can elect to pay a flat 19% rate (about 20.9% including the local surtax) on their gross employment income instead of the progressive rates, for up to five years from the start of their Korean employment. You forgo deductions and credits if you choose it, but for a well-paid expat, that flat election can slash the bill dramatically. Whether it beats the progressive system depends on your income and deductions, so it’s worth running both, but it’s a powerful option that’s easy to overlook.

Why your Australian obligations don’t vanish

Australia and Korea have one of Australia’s longest-standing tax treaties, in force since the early 1980s, designed to stop the same income being taxed twice and to allocate taxing rights between the two countries.

If you remain an Australian tax resident, the starting point is that Australia taxes your worldwide income, including your Korean salary. The saving grace is that a foreign income tax offset generally credits the Korean tax you’ve paid against your Australian bill, so you’re not taxed twice on the same dollar. And because Korea’s rates are relatively high, that credit will often cover most or all of the Australian liability, the opposite of the shortfall problem Aussies face in low-tax hubs like Singapore.

But the treaty can change the outcome entirely. If you’re a resident of both countries, the tie-breaker decides your treaty residence, and where that lands you on the Korean side, the treaty can give Korea the primary right to tax your employment income earned there, potentially keeping it out of your Australian return. So whether, and how much of, your Korean income is taxed in Australia turns on your residency under both countries’ rules and the treaty. That’s a determination to get right up front, not guess at. We cover the residency question in our guide on whether you need to lodge an Australian return while overseas.

Social security: the National Pension, and the agreement that can exempt you

Korea runs a comprehensive social insurance system: National Pension, National Health Insurance, Employment Insurance and Workers’ Compensation. The big one for retirement is the National Pension, where employee and employer each contribute 4.5% of salary (9% in total), subject to a monthly contribution cap that’s adjusted periodically.

Here’s a genuinely useful point for Aussies. Australia and South Korea have a bilateral social security agreement. Where it applies, an Australian sent to work in Korea can stay in the Australian system and be exempted from compulsory Korean National Pension contributions for a period, avoiding paying into both countries’ retirement systems at once. Whether you qualify depends on your circumstances and the agreement’s terms, so it’s worth checking before you simply let the Korean deductions start. And if you do contribute and later leave Korea, a lump-sum refund of National Pension contributions may be available on departure, depending on your situation.

National Health Insurance, by contrast, is generally compulsory for foreign workers, with the premium split between employer and employee.

The Korean tax year and filing

Korea’s tax year is the calendar year, 1 January to 31 December. The annual income tax return is generally filed in May of the following year (broadly, 1 to 31 May). Most employees have tax withheld through payroll and settled via a year-end settlement, so many don’t need to lodge a separate return at all. You file individually; like Australia, Korea doesn’t do joint spousal returns.

And the now-familiar headache: Korea’s January-to-December tax year never lines up with Australia’s July-to-June year, so reconciling the two takes some care.

Any other taxes to know about?

A few worth flagging. Korea taxes capital gains (including on shares and, increasingly, other assets), so unlike Singapore or Hong Kong there’s no blanket CGT-free environment here. There’s an acquisition tax when you buy assets like property or vehicles (for real estate, commonly around 4.6% including local surtax), an annual property tax, and inheritance and gift taxes that are among the heavier ones in the region. None of these should derail a Korean posting, but they’re worth knowing exist.

The bottom line

Korea is a higher-tax posting than the Asian low-tax hubs, with resident rates to 45% (about 49.5% with the local surtax), though the foreign flat-tax election can soften that considerably for the first few years. The five-year rule governs when your worldwide income comes into the Korean net, the Australia-Korea treaty and your residency decide what Australia can tax, and the social security agreement may spare you from doubling up on pension contributions. Get the residency and the elections right, and a Korean posting is very manageable.

Tread your own path. Just work out which country gets to tax each step of it first.

Working in South Korea? The Australian side is our department.

Korea’s own taxes are handled by your local adviser, but the moment your residency status and the Australia-Korea treaty come into play, the picture gets serious. Whether Australia can tax your Korean income, how your foreign income tax offsets work, and whether you should make the flat-tax election are exactly the questions that decide how much you keep.

Our specialist expatriate tax team works with Aussies in Korea and right across the globe, entirely remotely, so wherever you are, your Australian tax is in good hands.

Book an appointment with our expat tax specialists today and get your Australian position squared away. A short conversation now can save a world of bother later.

General information only. This article doesn’t consider your personal circumstances and isn’t tax or financial advice. Korean tax rules change over time and are administered by Korea’s National Tax Service. Speak to our specialist expatriate tax team about the Australian side, a qualified Korean tax adviser about the Korean side, or another registered tax agent, before acting.

References

1. PwC Worldwide Tax Summaries, “Korea, Republic of: Individual taxes on personal income” (progressive rates of 6% to 45% plus the 10% local income tax surtax, and the foreign flat-tax election): taxsummaries.pwc.com
2. PwC Worldwide Tax Summaries, “Korea, Republic of: Individual residence” (the 183-day test and the five-year rule for worldwide income): taxsummaries.pwc.com
3. PwC Worldwide Tax Summaries, “Korea, Republic of: Individual other taxes” (National Pension contributions of 4.5% each, the contribution cap, and exemption where a social security agreement applies): taxsummaries.pwc.com
4. Services Australia, “Australia and Korea social security agreement” (the bilateral agreement covering pension/retirement contributions and benefits): servicesaustralia.gov.au
5. Australian Taxation Office, “Foreign income tax offset” (credit for foreign tax paid against Australian tax on the same income): ato.gov.au