Income tax for foreign nationals and overseas Koreans

Who this is for

• Overseas Koreans who have returned to Korea from the United States, or are about to
• People working in Korea who keep U.S. citizenship or a green card and so face filing duties in both countries
• Foreign executives and employees of Korean companies, and the HR and payroll staff who support them
• Anyone with foreign salary, dividends, interest, pension or rental income who is unsure whether it must be aggregated in Korea
• Non-residents receiving freelance or personal-service income in Korea
• Anyone facing the year in which residency changes — the year of arrival or departure

The 183-day line, and why it does not settle everything

The Income Tax Act defines a resident as an individual with a domicile in Korea or a place of residence there for 183 days or more, and a non-resident as anyone who is not a resident. The number looks clear, but disputes arise for two reasons. First, "domicile" is judged by where life is centred, independently of day count, so a person can be a resident without exceeding 183 days — if the family lives in Korea and the main assets and occupation are there, short physical presence may still support residence. Second, dual residence arises where both Korea and the United States treat the same person as their resident; the tie-breaker rules in the Korea–U.S. treaty then assign residence to one side. We first build a documented basis for the residency position from immigration records, where the family lives, housing owned or leased, and the location of occupation and assets. Until residency is settled, the scope of the return is not settled either.

What changes on becoming a resident — scope of aggregation and rates

A Korean resident aggregates foreign-source income as well as Korean income into global income, taxed progressively from 6% on a base up to KRW 14m to 45% above KRW 1bn. The proviso to Article 3(1) of the Income Tax Act is the exception: a foreign national resident whose periods of domicile or residence in Korea total five years or less in the ten years before the end of the tax year is taxed on foreign-source income only to the extent it is paid in Korea or remitted to Korea. It applies to foreign nationals only, not to Korean nationals returning from abroad, so nationality, the last ten years of Korean residence and whether foreign income was paid in or remitted to Korea must be checked together. A non-resident, by contrast, is taxed on an aggregated basis where there is a domestic place of business or domestic-source real-estate income, and separately by category of income where there is no domestic place of business. A payer of a non-resident’s domestic-source income not attributable to a domestic place of business must withhold on payment and remit by the 10th of the following month. So in non-resident matters the first question is whether you file or the payer’s withholding ends it, while in resident matters the critical question is whether all foreign income has been captured. Where status changes mid-year — on returning to Korea, for instance — the year is split and each part taxed on its own basis, which makes accurate records of the arrival and departure dates important.

Two mechanisms for unwinding double tax — the credit and the treaty

Where a Korean resident has paid or will pay foreign income tax on foreign-source income, that tax may be credited against Korean global income tax up to a limit. The limit is Korean tax multiplied by the share that foreign-source income bears to total global income. It is therefore not a full refund of foreign tax but a credit capped at the Korean-rate equivalent. The Korea–U.S. treaty sits on top of this: it governs residence tie-breakers, reduced rates by category of income and the allocation of taxing rights over particular income, so treaty application has to be tested before domestic law. What is most often missed in practice is substantiating the foreign tax. Without the U.S. federal return and payment evidence, a settled treatment of state taxes and a consistent exchange-rate date, the credit can be lost or the limit miscalculated. We set the U.S. and Korean returns side by side, map the income items to each other, and then compute the limit.

Returning from the U.S. — the duties that arrive with residency

Winding up life in the United States and moving back to Korea changes more than income tax. From the moment Korean residency begins, foreign-source income enters the aggregate, and accounts left behind abroad may trigger overseas financial account reporting: a resident or domestic corporation whose aggregate overseas account balance exceeds the threshold set by Presidential Decree on any month-end must report between 1 and 30 June of the following year. On the U.S. side, filing duties continue for as long as citizenship or permanent residence is retained, so both sets run at once. We map out which duties begin in which year from the date of return, and split the income periods for that first Korean filing year.

Documents to prepare

• Passport copy and certificate of entry and exit — the basic material for the residency determination
• U.S. federal return (Form 1040 and schedules) with payment evidence, and state returns where applicable
• Home-country tax residency certificate — required where treaty benefits are claimed
• Korean income records — withholding receipts for employment income, business and rental records, financial income statements
• Foreign income records — payslips, dividend and interest statements (1099s), pension statements, overseas lease agreements and receipts
• List of overseas financial accounts with month-end balances, to test whether the reporting duty applies