Year-End Tax Settlement in Korea: What Foreign Employees Should Know
Working in Korea means following Korea’s tax system. Every winter, foreign employees face year-end tax settlement, a process that determines whether they receive a refund or pay additional tax. Understanding the rules early can prevent costly mistakes.
Do Foreigners Need Year-End Tax Settlement?
Yes. Foreign employees working in Korea are generally subject to year-end tax settlement if income tax has been withheld from their salary. This applies regardless of nationality, as long as the individual is classified as a salaried worker.
Most foreign employees complete year-end tax settlement through their company, just like Korean employees. The key difference lies in which tax option they choose and which deductions are available.
Two Tax Options for Foreign Employees
Foreign employees in Korea can usually choose between two taxation methods. This choice has a major impact on the final tax amount.
Standard Progressive Tax Rate
This option follows the same tax brackets as Korean nationals. Eligible deductions such as housing, insurance, medical expenses, and education costs can be applied.
Flat Tax Rate (19%)
Some foreign employees can choose a flat tax rate of 19% on taxable income. While simple, this option does not allow most deductions. It is often chosen by high-income earners or those with minimal deductible expenses.
What Deductions Apply to Foreign Employees?
Deductions available to foreign employees depend on their tax choice and residency status. Under the standard tax system, the following are commonly applicable:
Credit and debit card spending, monthly rent (for eligible housing), insurance premiums, pension contributions, and medical expenses may all reduce taxable income.
However, certain deductions tied to family dependents or specific welfare programs may be limited depending on visa type and residency classification.
Common Mistakes Foreign Employees Make
One of the most common mistakes is assuming that foreigners are automatically exempt from year-end tax settlement. This is not true.
Other frequent issues include missing document submission deadlines, choosing the flat tax rate without understanding long-term cost, or failing to communicate clearly with HR about tax status.
Preparing early and confirming your tax option with your company can prevent unnecessary payments or lost refunds.
Dr. Beau’s Note
For foreign employees, year-end tax settlement is not just paperwork. It reflects how well you understand Korea’s system. Knowing your options early gives you financial clarity and avoids unpleasant surprises at the beginning of the year.
