Dec 8, 2014

Korean Year-End Tax Settlement: Common Errors & Omissions

The end of the year leads, typically, to two men visiting your house, one mythical and one that you may wish is mythical.

Yes, expect a visit from the Tax Man and not Santa this year.   No worries, with a little understanding and a decent tax accountant this year the Tax Man may be bringing you more than a mere lump of coal. 

Taxes in Korea are, often, less complicated than in the United States, Canada, Australia, New Zealand, Ireland, U.K. and the rest of the Western world, however, we see some common errors and omissions year-on-year caused by the following issues:
  1. Withholding Tax Assumptions If you are employed in Korea, your employer should have deducted income tax monthly based on, inter alia, the following assumptions:

    • Full-year Income Tax Assumption:
      Your company will assume that whenever you joined or resigned from employment, deduct income tax witholdings as if one full-year of service occurred.  Thus, if you work for eight months in a calendar year; and
    • No Individual Itemized Deduction Assumption:
      No other deductions for individual deductible items such as credit card deductions (e.g. KRW 5 mio.won deduction) are assumed by your employer.

      Because of these and other filing assumptions, often, it is possible to obtain a tax refund by either filing an amended return or properly filing your return in the first place.  We find that a large number of foreign employees are eligible for a refund.

      An easy manner of obtaining your refund is to hire a proactive tax accountant.  The accountant may file an amended return on your behalf. 

  2. Failure to File
    We see many cases of Korean and foreign SMEs not filing their taxes.  This, often, leads to penalties and inability to receive tax refunds.  Check with your employer if a tax filing has been made on your behalf.
  3. Careless Filing
    The largest reason for audits, missed deductions and other issues with the Tax Man is careless filing.  If you have a suspicion that the person filing the taxes in your office is less than capable - get an outside accountant to assist with this 
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by Joseph SY ZOH
jz@ipglegal.com or info@ipglegal.com