Pay & Taxes Information	http://www.hoyaenglish.com

Canadian government offices in Korea receive many questions and complaints about severance pay (taechikum) issues. It is important to make sure that your contract contains a clear statement about severance pay, even if your employer is reluctant. By Korean law, discussed below, all full-time instructors (if you have an employment visa, you are considered full-time), whether Korean or foreign, are entitled to receive severance pay of one month's salary for each year of employment. Employers cannot ask you to waive this right, nor can they evade it by employing you on an 11-month contract.

The Ministry of Labour has jurisdiction over matters of severance pay. You can reach the Severance Pay Division at 82 (2) 503-9727; the general number for the Ministry of Labour is 82 (2) 500-5544. The Ministry of Labour or the Ministry of Education may, at your request, call employers to remind them of their legal obligations. If you have exhausted all other avenues in trying to obtain severance pay and feel that you need to take legal action, the Canadian Embassy in Seoul can provide you with a list of attorneys.

Severance pay rights are covered by the Labour Standards Act of the Korean Legal Code. English-language translations of the Code are available at the Kyobo Bookstore, located near the U.S. Embassy

Income Taxes

Income tax is another common cause of complaint. Most foreign employees are required to pay Korean income tax, which is generally withheld from an employee's salary and paid by the employer. The Korean income-tax rate is 5 to 10 percent.

Article 20 of the Korean Tax Code states: "An individual who is a resident of a contracting State and who, at the invitation of any university, college, or other recognized educational institution, visits the other contracting State for a period not exceeding two years solely for the purpose of teaching, or research or both at such educational institution shall be taxable only in the first mentioned State on his remuneration for such teaching or research."

The Korean Tax Office in Seoul maintains a list of institutes where foreign teachers are tax-exempt. In principle, Article 20 applies only to teachers employed at universities, research centres or university-operated institutes. Teachers at hakwons and at private companies may have to pay tax. The general affairs section of the university or research centre can apply for the exemption. If the institute withholds income tax without reason, it is required to pay a refund.

For guidance on taxation matters contact the Korean Tax Office in Seoul, which has been helpful in arranging compliance with Article 20. The Office also publishes an English-language income tax guide for foreigners in April of each year; this is available free at any tax office.

The Korean tax year runs from June 1 to the following May 31. Usually employers file the appropriate tax forms but if they do not do so, individual employees may be penalized for failing to file.

Taxes in Korea 
 

In general Korean tax rates are very low (compared to most Western countries). You should be paying approximately 3-5% general residential tax (depending on which city or district you are in). BUT, you will also be required to pay the pension tax of an additional 4.5%.

Some schools can be very inefficient at correctly deducting your tax, or they may try to cut a deal with you and deduct no tax or lower taxes. If you are paying a total tax rate of less than 7%, you do have to think carefully about how your employer is managing their tax and business accounting, and also what could happen if a tax review was done on your employmer by the Korean tax department.

You are legally responsible to pay tax, and if your director is found to have made a large error by not deducting your pension tax etc., then you may be requested to pay back the tax due personally. It is no use saying, 'It's the director's fault!' You should be aware of the correct rates portrayed here and not just assume 'out of sign out of mind' and then later complain if you have to pay taxes back. It is a good idea is to always have a specific amount of extra tax money available to pay the tax department if your tax deduction is a lot lower than Korean law dictates.

No individual employer has 'special mates rates' with the Korean Tax Bureau, so don't just ignore this fact and think you are lucky to have special tax privileges based on your directors avoidance or ignorance of the government requirements.

Pension Taxes 
  
Pension taxes consist of a deduction from your salary of 4.5% matched with an equal contribution paid by your employer.

The following may provide a quick view of social security agreements Korea has concluded with other countries. Korea has entered into bilateral agreements with some foreign countries to eliminate dual coverage by both parties and to help ensure the social security benefits by totalizing periods of coverage under each country's social security system.

The agreements now in force are those with:

Canada - effective from May, 1999                                   Totalization Agreement

 United Kingdom - effective from August 2000              Contributions only convention
 U.S.A. - effective from April 1, 2001                                 Totalization Agreement
 
 

General features of the social security agreements are as follows:

Reciprocity: The person to whom the Agreement applies will be accorded the same treatment under the country's social security laws as the country accords its own nationals.

However, under the National Pension Act, a lump-sum refund may only be paid to non-Korean nationals if they are nationals of countries with social security systems that pay corresponding contribution refunds to Korean nationals or if provided for by an agreement. Countries such as New Zealand, Australia and South Africa do not have a signed agreement therefore citizens from these countries cannot claim any refund or reciprocal payments after paying Korean Pension tax.

Applicable Tax Agreements Between Korea and Foreign Countries 

 
NOTE: New Zealand and Korea do have a reciprocal tax agreement that means that you can only be taxed once in either country if you are out of New Zealand for a minimum of 325 days a year.

For all other nationalities it is important that you check the situation for joint tax agreements that may be in place for your own country.

For example in New Zealand the following applies:
There is no necessity to have to declare that you are a non resident of New Zealand as the criteria that you have to meet can be time consuming and almost impossible to reach. For example you have to declare you have no ties to NZ at all. So something as simple as having your grandmother in a retirement home in New Zealand or family living there, of the operation of a NZ bank account in your name will most likely fall within this criteria.

Other foreigners may find similar tax joint policies are in place with their government.

In effect this means that if a New Zealand citizen works in Korea for more than 325 days they should only ever have to pay Korean tax in Korea, and not New Zealand tax on any Korean income when they return to New Zealand.

We have had personal experience of a teacher we placed coming home after only 4 months from working in Korea, for medical reasons, and the NZ tax department investigated him 2 years later, found proof he had worked at an ECC school in Seoul. They then averaged what his income would have been and then taxed him on the difference 5% Korea 25% New Zealand. Suddenly he got a tax demand of a huge 20% difference on the 1.8 million won for the 4 months! This proved that the New Zealand tax system can operate correctly, and many foreigners need to be better aware of tax liability if they return to their own country prior to the end of their 12-month contract in Korea. It is your responsibility to check what government arrangements are in place that will cover your individual status.