Foreigner's Taxes Change When Choosing a Flat Tax Rate of 19%

Foreign workers can choose a flat tax rate of 19%+ (local tax 1.9%) on their earned income for up to 20 years.

(Excluding some cases such as employment by related parties) 

However, if selected, most tax exemptions, deductions, reductions, and credits under the Income Tax Act are excluded.

Key Summary

• The flat tax rate is a choice between "simple, fixed rate (20.9%) vs progressive rate with deductions."
• The flat tax rate is more advantageous when the average tax rate exceeds 19% and deductions are smaller.
• Selection and withdrawal can be processed by application during monthly withholding or year-end tax settlement.

Terms Explained in One Line

• Flat tax rate (19%): Only applies 19% national tax to foreign earned income (effective rate of 20.9% with 10% local tax added)
• Basic tax rate (progressive): 6% to 45% progressive rate + various deductions and tax credits applied
• Local income tax: An additional 10% of the determined national tax is imposed
• Related parties: Some are subject to exclusion from the flat tax rate
• Application timing: Submit application during monthly withholding or year-end tax settlement

30-Second Check

• (Simple) Last year's determined tax amount ÷ gross salary × 100 ≈ Your average tax rate ▷ Does this value exceed 19%?
• Is this year's total estimated deductions (medical, education, donations, etc.) not large?
• Do you have few or no dependents or deduction items?
  👉 If you answer 3 or more "Yes", the flat tax rate may be more advantageous.

1-Minute Quick Comparison Table

Actual advantage depends on individual deductions, bonuses, and allowance structures (finalized during year-end tax settlement).

Points of Change

• Selecting the flat tax rate excludes most deductions and exemptions → Simplifies filing but reduces potential refunds.
• The application period is extended to a maximum of 20 years from the first year of employment in Korea (effective Jan 1, '23).
• Selection is possible during monthly withholding, and re-selection/settlement is possible during year-end tax settlement (application required).

Case Comparison

• Applicable range: A: Flat Tax Selection vs B: Progressive Tax Selection
• Key difference: Whether deductions apply is directly reflected in the net pay.
• Actual impact: For the same gross salary, the flat tax rate is advantageous if deductions are fewer, while the progressive rate is advantageous if deductions are many.

What to Do Now

1. Compare the average tax rate calculated from last year's determined tax amount / gross salary with 19%.
2. Organize this year's estimated total deductions (insurance, medical, education, donations, housing, etc.) and dependent family situation.
3. Note any fluctuations in taxable income such as bonuses and overtime pay.
4. Submit the Application for Flat Tax Rate to your company or via Hometax (choose between monthly withholding/year-end tax settlement).

Practical Examples

• A: Annual income of 90 million KRW, single, few deductions → Estimated average tax rate above 19% → Flat tax rate is advantageous
• B: Annual income of 50 million KRW, spouse + 1 child, significant medical/education expenses → Average tax rate below 19% → Progressive + deductions are advantageous

Confusing Points

• "19% is always advantageous" → Depending on the scale of deductions and number of family members, the progressive rate may be more advantageous.
• "If you choose, there is no year-end tax settlement" → The procedure still exists and is finalized during the annual calculation.
• "The period is only 5 years" → With the '23 revision, it has been expanded to 20 years.

Next Article

• Monthly Salary Taxes Differ Based on 0, 1, or 2 Dependents (The actual impact of reporting on net pay)