Korea

1.1.2.1. Standard reliefs

• Employment income deduction: the following deduction from gross income is provided to wage and salary income earners:

• Basic allowance: a taxpayer can deduct KRW 1 500 000 from his/her income for each person who meets one of following conditions:

  • the taxpayer him/herself;

  • the taxpayer’s spouse whose taxable income (gross earnings net of employment income deduction) is less than KRW 1 000 000;

  • the taxpayer’s (including the spouse’s) dependents (parents, siblings, children) within the same household whose income after accounting for the employment income deduction is less than KRW 1 000 000 and whose age is:

    1. parents: 60 years or older;

    2. brother/sister: 60 years or older or 20 years or younger;

    3. children: 20 years or younger (if both partners in the household earn wage-income, this Report assumes that the principal wage earner will claim the allowance).

• Additional allowance: a taxpayer can deduct KRW 1 000 000 (500 000 in the case of [c], KRW 2 000 000 in the case of[b])from his/her gross income when the taxpayer or his/her dependents fall into one of the following categories (for this report, only cases [c] are modelled):

  • a person aged 70 years or older(a)

  • a handicapped person (b)

  • a female wage earner who is the head of a household with dependents (but without spouse) or a female wage earner with spouse when her taxable income is not more than KRW 30 million(c)

  • a single parent with descendants including adoptees1(f)

• National pension deduction: employees can deduct 100% of their National Pension contributions

• Working Tax credit: wage and salary income earners obtain the following tax credit, :

1.1.2.2. Main non-standard tax reliefs

Wage and salary income earners may deduct from gross income the expenses for the following items during the tax year:

• Insurance premiums: the Medical insurance premium and the Unemployment insurance premium can be entirely (100%) deducted from taxable income.

• Saving/Payment for housing: 40% of deposits of an account for purchasing a house, which is held by a person who does not own a house, or owns only one house that is smaller than 85 square miles in size and whose price is KRW 300 million or less, 40% of repayments of loans including interest borrowed for the purpose of the lease by a person owning no house may be deducted up to three million won per year.

• Credit card purchases: Employees may deduct 15% of their credit card (30% of their debit card, prepaid card or cash receipt) purchases that exceed 25% of their total income up to lesser of KRW 3 000 000 or 20% of their total income. However, for expenditures spent for traditional markets and public transportation, the allowed deduction is equivalent to 30% of the expenditure and the ceiling is raised by an additional KRW 1 000 000 respectively.

1.1.2.3. Child tax credit

• Where a resident with taxable income has dependent children including adoption, he/she gets annual tax credit of KRW 150 000 for having a child, KRW 300 000 for having two children and KRW 300 000 plus KRW 300 000 per an excess child over two children in case of having more than three children.

• Resident gets additional tax credit of KRW 150 000 per a child who is under 6 years of age from second child;

• Resident gets tax credit of KRW 300 000 per child for birth and adoption of the year;

1.1.2.4. Credit for Pension insurance premiums

• A resident who paid pension contributions to a pension account may deduct the amount equal to 12% of the premiums paid from his/her global income tax amount, only up to KRW 4 million for pension account as well as KRW 7 million for sum of the pension account and retirement –pension account

• A resident whose labour income is not exceeding KRW 55 million when he has labour income only or whose global income is not exceeding KRW 40 million would deduct 15% of the premium.

1.1.2.5. Special tax credit

Wage and salary income earners may obtain following tax credit during the tax year:

• Insurance premiums (a):12% of the general insurance premium up to KRW 1 000 000 can be deducted from his/her income tax amount.

• Medical expenses (b):15% of the medical expenses exceeding 3% of taxable income can be deducted from his/her income tax amount. The medical expenses for taxpayer’s dependents who are eligible for the basic deduction is limited KRW 7 000 000 and the medical expenses for the taxpayer himself, taxpayer’s dependents who are aged 65 years or older and handicapped persons is not limited.

• Educational expenses (c):15% of tuition fees for pre-school, elementary, middle school and college (but the graduate school fee deduction is allowed only for the taxpayer himself), either for the taxpayer himself or his/her dependents (including the taxpayer’s spouse, children, and siblings), can be deducted from his/her income tax amount. The tuition fee for the taxpayer himself is not limited. For the taxpayer’s dependents, the limits of tuition fees are as follows:

  • For pre-school: up to KRW 3 000 000 per child;

  • For elementary, middle and high school: up to KRW 3 000 000 per student;

  • For college/university: up to KRW 9 000 000 per student.

• Charities (d):15% of the amount of donation (in case of the donation exceeding KRW 30 million, 25% of the excess over KRW 30 million) is deducted from income tax amount. The limits of donations are as follows:

  • donations to a government body, donations for national defence, natural disaster, and certain charitable associations: up to gross income;

  • donations to public welfare or religious associations: up to 30% of gross income.

• Standard Credits: Alternatively, a taxpayer may elect to choose an annual standard credit of KRW 70 000 (KRW 130 000 for wage and salary earners and KRW 120 000 for business owners meeting certain requirements), if he or she fails to claim deductions for insurance premium, saving/payment for housing and special tax credit.