[Korea Tax Common Sense Series 1-B] When selecting a 19% single tax rate, tax deductions are forfeited.

If you choose the flat tax rate of 19%, you waive tax deductions.

The cost of the choice is significant. 

If you apply the flat tax rate, most tax-exempt income, income deductions, and tax credits will be excluded, and that income will not be combined with comprehensive taxation.

Key Summary

• Foreign workers can choose annually between 19% national tax (+ 10% local income tax) or progressive tax rates of 6% to 45%, whichever is more favorable. The effective rate is usually considered to be 20.9%. 
  

• The flat tax rate can be chosen for up to 20 years from the first day of employment in Korea (excluding employment in related companies). The first day of employment must be before December 31, 2026.

• The application can be made during monthly withholding or during the year-end tax settlement (it will be finalized as one method for that year).

Terms Explained Simply

• Flat Tax Rate (19%): A special provision calculated by multiplying foreign income by 19%. When chosen, deductions and tax credits are not possible.

• Progressive Tax Rate (6% to 45%): Applied at 6% to 45% depending on income brackets, with various deductions and tax credits possible.

• 10% Local Income Tax: An additional 10% of the calculated national tax (effective rate 20.9%).

• Excluding Related Companies: The special provision is not applicable if employed by a company where special relationships (e.g., control or ownership) exist with oneself or relatives.

• Application Period: The first day of employment in Korea must be before December 31, 2026, plus 20 years from that date.

30-Second Check

• You have many applicable deductions, such as for a spouse and children.

• Your expenditures, such as health and pension insurance premiums, rent, and donations, are large.

• Your annual salary is not high (deductions have a relatively large effect).
  👉 If 3 or more of these apply, the progressive tax rate is likely more advantageous. (The flat tax rate generally does not allow for most deductions.)

Points of Change

• When choosing the flat tax rate, most tax exemptions, deductions, reductions, and tax credits are excluded, and the relevant income is excluded from comprehensive tax calculation.

• If employed by a related company, the flat tax rate is not applicable.

• The choice is made during monthly withholding application or finalized during year-end tax settlement (cannot be mixed within the same year).

Case Comparison

• Applicable Scope: Annual salary of 30 million KRW, almost no deductions vs Annual salary of 60 million KRW, spouse + children, rent

• Key Difference: Whether deductions can be used and the effective tax rate

• Actual Impact: If there are almost no deductions, choosing the flat rate of 19% (effective rate 20.9%) might be simpler and more advantageous.
  If there are many deductions, the progressive tax rate of 6% to 45% might be more advantageous for refunds/tax savings.

What to Do Now

1. Consolidate your annual salary and bonuses, and estimated deductions (family, insurance, rent, donations) on one line.

2. Create a profit and loss comparison table to contrast the flat rate (19% + 10% local) versus the progressive rate (6% to 45%).

3. Decide which is more advantageous and apply for withholding tax or finalize it during year-end settlement.

4. Check if you fall under the category of related companies (if applicable).

Practical Examples

• A: Annual salary of 30 million KRW, minimal deductions → Likely simpler and more advantageous to choose the flat rate of 19%.

• B: Annual salary of 60 million KRW, significant deductions for spouse, children, rent, and insurance premiums → The progressive tax rate, by allowing deductions, can lead to lower tax burden.

Confusing Points

• "The flat tax rate is always advantageous" → If you have many deductions, the progressive rate is often more advantageous.

• "Deductions still apply with the flat tax rate" → They are mostly excluded.

• "There is no limit on the start date" → The 20-year special provision is only available if the first employment started before December 31, 2026.

Next Article

• Prevent Overpayment of Taxes with a 3-Minute Year-End Tax Settlement Check (Click)