US Expat Taxes Explained: Filing Taxes as an American Living in South Korea

You are going to be required to file U.S. expat taxes no matter which country you live in, but how will your taxes be affected if you live in South Korea? South Korea has experienced economic growth at a rapid rate over the last few decades and as a part of their efforts to continue that growth, Korea has specific tax rules that benefit expats who live and work there.

Nevertheless, it is important to understand how your U.S. expat taxes are going to change with your move to South Korea, and what taxes you will be required to pay to your host country while residing there.

Protax is the world’s leading U.S. individual international tax firm, specializing in the delivery of world class professional services to U.S. Expatriates.

US Expat Taxes in South Korea

If you are a citizen or permanent resident of the United States, then you are obligated to file US expat taxes with the US federal government each year no matter the country in which you reside.

In addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts with Foreign Bank and Other Account Reporting (FBAR) Form 114, in addition to Form 8938 Statement of Specified Foreign Financial Assets.

While the US is one of the few governments that tax the international income of their citizens and permanent residents who reside overseas, it does have special provisions to help protect them from double taxation including:

• The foreign earned income exclusionallows you to decrease your taxable income on US expat taxes by the first $108,700 for 2021 ($107,600 for 2020) earned as a result of your labors while a resident of a foreign country.
• A foreign tax creditthat could allow lower your tax bill on your remaining income by certain amounts paid to a foreign government, and
• A foreign housing exclusionthat allows an additional exclusion from income for certain amounts paid for household expenses that occur as a consequence of living abroad.

With proper planning and quality tax preparation, you should be able to take advantage of these and other strategies to minimize or even eliminate your tax bill.  Please do note that you will still need to file even if you know you will owe no US expat taxes.  For more information, see US Expat Taxes Explained: An Overview of Our New Series

South Korean INCOME TAX RATES

For December 31 Calendar tax years, the income rates are as follows:

*Foreign workers can choose to pay a flat tax rate of 19% on gross earnings.

Capital gains are taxed at the lesser of 10% of the sale or 20% of the gains.

WHO IS A South Korean RESIDENT?

In the South Korea, Americans living and working in South Korea will qualify as residents when they’ve have lived in country for 183 days or more.

South Korea TAX DUE DATE

Korean taxpayers report income on a calendar year.  Tax returns are due May 31 each year.  Residents have to pay half of their global tax by November 30 each year.

SOCIAL SECURITY IN South Korea

In 2011, the US and Korea entered into a Totalization Agreement, which allows expats who work in Korea to be covered under either US Social Security or under the Korean national pension system.  Expats pay 4.5% into the national pension if they so choose. There is also a mandatory .55% tax for employment insurance and a tax that ranges from .75% to 22.65% for Industrial Accident Insurance.

OTHER TAXES IN South Korea

You will pay a 10% Value Added Tax on most goods & services you purchase in Korea.  You will also pay an inhabitant tax that is 10% of your income tax liability.

IS FOREIGN INCOME TAXED WITHIN SOUTH kOREA?

Yes generally, Korean residents are taxed on worldwide income. Non-residents pay Korean tax only on the income earned and received in Korea.

US – South Korea TAX TREATY

The US – South Korea tax treaty is useful for defining the terms for situations when it is unclear to which country taxes should be paid.  The country that receives the tax payment is usually determined by the taxpayer’s resident status in each country.  It is in place to help relieve double taxation of dual citizens while also being available to explain any tax matters that may be unclear.  It is helpful in eliminating dual taxation on US expat taxes.

SAVING ON US EXPAT TAXES

With the many various forms of taxation that are applied to foreign nationals working and residing in South Korea, it is important that you apply all of the exclusions, deductions and credits to your US expat taxes.   It is also important to understand the resident rules for savings on your South Korean income tax. Understanding your US expat taxes and your South Korean filing requirements while living in South Korea will streamline the tax filing process and make it as hassle-free as possible.  Filing US expat taxes in South Korea doesn’t have to be a hassle! If you have any questions about your US expat taxes or your South Korea, please contact our expat tax experts