Taxes on expats to increase this year

Expats earning less than 100 million won ($86,133) a year will likely pay more taxes this year than last year because the government is ending a special tax benefit that foreigners had received.

A temporary tax benefit for foreigners enacted in 2004 had enabled foreigners to choose either to have 30 percent of their annual taxable income exempted from taxation or paying tax on only 15 percent of their total annual income including non-taxable income. Either way, most foreigners paid lower taxes than Koreans earning the same income. The revision in the tax act, however, ruled out the 30 percent tax exemption. A rule of thumb is that getting 30 percent of taxable income exempt is a better option for foreigners earning less than approximately 100 million won a year.

An example introduced by the National Tax Service was that of a 38-year-old foreigner who earns 50 million and pays 1.58 million won in taxes when he chooses the 30 percent exemption. If he chose the 15 percent rule, he would have to pay 7.5 million won.

“It varies from person to person, but it is likely that foreigners with less than 100 million won in income will pay more taxes from this year,” said an NTS official.

The government said the 30 percent exemption expired as planned. It said it is also in line with its move to expand the tax base in reaction to the rising fiscal deficit stemming from the expansionary policies last year.

“The tax break for foreigners was introduced temporarily to attract foreign talent here, and the government is seeing it is O.K. to close one of the breaks now,” said an official of the Finance Ministry. The 15 percent rule is scheduled to expire in 2012, the ministry said. The ministry said the decision was also made out of consideration for Koreans who feel it’s unfair to pay higher taxes than foreigners.

Expats, however, say the news is disappointing. A Canadian working at a local company, who identified herself by her first name, Pamela, said she recently heard about the change from her company. “It doesn’t make a whole lot of sense,” she said. “It is the country, trying to attract qualified foreigners, focusing on being international and host of the G-20 summit, and is at the same time doing something that could dissuade foreigners from coming to Korea.”

The ministry official denied the claim, saying the government still has many other policies to attract foreign financial and human capital. He said the government may extend the remaining 15 percent rule beyond 2012 if judged to be necessary.

By Moon Gwang-lip [joe@joongang.co.kr]