(Background)

The special taxation system for foreign workers is a system that allows foreigners to apply a low level of flat tax rate (19%) to their earned income when they provide work as executives or employees in Korea.

If the special taxation system is not extended, the general tax rate will be applied to foreign workers, with a maximum tax rate of 45%.

(Grievance)

When a foreigner who previously lived abroad comes to Korea to work for a short period of time, additional costs such as relocation costs, housing costs, and other costs necessary for local adaptation are incurred. When living in Korea for a short period of time, there are difficulties in applying various deduction systems compared to long-term residents. As a result, foreign workers complain that their effective tax burden is higher than that of domestic workers.

Meanwhile, the special taxation for the flat tax rate (19%) (Article 18-2 of the Act on Restriction on Special Cases Concerning Taxation) is a temporary system with a sunset date of December 31, 2023.

(Resolution)

OFIO conducted an objective analysis of the reality that the effective tax rate on earned income is higher than that of competing countries when the general tax rate is applied based on the results of simulating major countries' special taxation systems for foreigners and effective tax rates compared to competing countries by salary level through <Comparing income tax in major countries>.

Considering that foreign workers have a higher tax burden than domestic workers, we requested that the special taxation application period, which was originally 5 years, be abolished.

In addition, in order to stimulate foreign investment, we asked the Ministry of Economy and Finance to extend the deadline for the special taxation system, which will expire on December 31, 2023.

(Result)

With the revision of the act in 2022, the application period for special taxation system has been extended from 5 years to 20 years from the initial date of domestic employment.

With the revision of the act in 2023, the sunset period prescribed in the Article 18-2 of the Act on Restriction on Special Cases Concerning Taxation has been extended by three years to December 31, 2026.