Non-taxable Incomes in Korea
Many multinational companies in Korea do not include their payroll schedule in non-taxable income based on Korean tax laws.
These non-taxable incomes are exempted from the social security program, which includes the four major insurances, so it’s very important to save the income tax for employees and social security insurance premium for employees and employers.
This payroll structure has nothing to do with other forms of compensation such as retirement allowance since this is calculated based on monthly salaries and not taxable incomes. This kind of payroll schedule has no ill effects on labor or management, so almost all of Korean companies have adopted it into their payroll structure.
Usually there are the basics, such as a W100,000 meal allowance; W200,000 car allowance (or transportation fees); W100,000 child care allowance; W200,000 reporter’s allowance; and W1 million overseas working allowances (these are, of course, the maximums for each category per month).
Also worth noting is the hurdle of unemployment benefits and the boon of health insurance. Social security programs include the national pension, health insurance, employment insurance, and workmen’s compensation. Unemployment benefits are also deducted from most salaries but due to practical barriers, it’s difficult for expats to claim unemployment. For the most part, Korea’s health insurance is one of the most useful and beneficial in the world so that’s an easy program to buy into.
The national pension plan in Korea is also a way to save funds that can be withdrawn in a lump sum when leaving Korea. This requires that your home country be one in which Korean citizens also receive the same benefit, so it’s worth looking into. These non-taxable incomes should be itemized to fit your business and regulated in your company employee manual, which any company with more than 10 employees should already have under Korean labor standards. This way it will stand up to scrutiny if your company comes under an audit.
If you have any questions, please contact jz@joezoh.com
