Korean Gov't to Levy More Taxes on Highly-paid Dispatched Workers

The South Korean government announced some changes in tax law on August 2, saying that relevant amendments will be submitted to the National Assembly by September 1. According to the changes, high-paid foreign workers in South Korea have to pay more taxes from July next year.

At present, a domestic corporation in worker dispatch contract with a foreign corporation has to pay each worker dispatched according to the contract not directly but via the foreign corporation. The worker has to report and pay his or her labor income tax personally or via a tax payment association. Some workers, however, took advantage of the current law to return to their home countries without paying taxes.

In this regard, the government has introduced a withholding tax on highly-paid dispatched workers. According to the tax law amendments, the government is going to increase the withholding tax rate by two percentage points to 19%.

At the same time, more domestic corporations become subject to the mandatory withholding tax on workers dispatched from abroad. At present, the rule is applied to each domestic corporation in the air transport, construction, or professional scientific and technological service industry with at least 150 billion won (US$135 million) in sales or 500 billion won (US$450 million) or less in total asset value along with more than three billion won (US$2.7 million) in labor-related annual payment to at least one foreign corporation. The government is planning to add the shipbuilding and financial sectors to the scope and reduce the annual payment limit to two billion won (US$1.8 million).

Taxation on non-residents’ and foreign corporations’ gains from the transfer of listed shares is strengthened, too. According to current law, those gains are subject to taxation without exception and whole taxation is applied to over-the-counter trading of listed shares whereas taxation is applied only to major shareholders in the case of floor trading. In this case, the major shareholders refer to those with a shareholding ratio of at least 25%. In the amendments, however, the ratio is 5% or more.

Once the National Assembly passes the amendments, the new law is applied to every listed stock transferred on or after January 1, 2018 whereas the previous rule is applied until the end of next year to shares acquired before the implementation of the new law.

Furthermore, any foreign bank account with a balance of more than 500 million won (US$450,000), instead of more than one billion won, has to be reported according to the new law. Likewise, the maximum refund rate is adjusted from 14% to 10% when it comes to taxes paid abroad with regard to interests and dividends derived from overseas investment via funds and the like.