foreign earned income tax is a tax you have to pay on money you earn abroad, even if you're a U.S. resident. We've summarized key information, including the 183-day residency threshold and the foreign tax credit to avoid double taxation. don't miss the filing deadline or you'll be hit with a surcharge.
do I have to pay taxes on money earned abroad? this is a question many people ask when they receive a salary from abroad or earn foreign currency through an online business. The short answer is that if you are a resident of Korea, you must pay income tax on your overseas income. This is because Korea's tax law defines the taxable scope based on the taxpayer's residence, not the taxpayer's nationality. In other words, if you are a resident of Korea, you must report your income from all over the world, not just Korea. Let's take a closer look at why this is the case and how to report it.
resident vs. non-resident and foreign income taxation differences
the Korean income tax law distinguishes between resident and non-resident income: residents are taxed on all income earned both domestically and abroad, while non-residents only pay tax on income earned in Korea.
in short, all overseas income of a resident is subject to income tax, while income tax for non-residents is limited to income earned in Korea. For example, if a Korean does not stay in Korea for a long time and becomes a non-resident, he or she does not have to pay Korean tax on his or her overseas income. On the other hand, if a foreigner stays in Korea for a long time and becomes a resident, he or she must declare and pay tax on his or her overseas income. In the end, whether or not you have to pay income tax on your overseas income depends on whether or not you are a resident.
criteria for determining domestic residency (183-day rule)
so, who qualifies as a domestic resident? the tax law provides two criteria: First, the domicile test: If you have a family or workplace in Korea, you are considered to be domiciled in Korea. Second, the residence test: You are considered to be a resident if you maintain your usual place of residence (domicile) in Korea for more than 183 days in a year (tax period). Also, even if you are currently abroad, you can be considered a resident if you have a family in Korea and your job or property situation indicates that you will continue to live in Korea for more than 183 days in the future.
foreign tax credit to avoid double taxation
if you're worried that you're paying Korean taxes on top of your overseas income, you may feel like you're paying taxes twice on the same income. Fortunately, there are mechanisms in place to prevent double taxation of foreign income. Korea has double taxation treaties with many countries, and the tax law has a foreign tax credit system. In short, if you've paid foreign taxes on your overseas income, you can subtract that amount from your Korean income tax.
for example, if you paid 1 million won in local taxes on your income abroad, you can deduct that 1 million won from your Korean income tax calculation. This is a great way to reduce the burden of paying double taxes in Korea. However, remember that even if you paid taxes abroad, you must file a foreign income tax return in Korea to receive the deduction.
how and when to file overseas income tax returns
if you earned income overseas, you need to file a comprehensive income tax return in Korea. The comprehensive income tax filing period for residents is from May 1 to May 31 of each year. You can report overseas income earned in the previous year along with other income in May of the following year. Overseas freelance income or business income other than salary from a company should be reported separately. You can file electronically through the National Tax Service's HomeTax website.
if you don't file on time, you'll be charged additional taxes such as the non-declaration surcharge, and if you file but don't pay on time, you'll be charged late payment surcharge (interest). Be especially careful with overseas income because there is no tax withheld from it, so it's easy to forget to file.
frequently asked questions (FAQs)
Q. do I have to pay taxes on income earned abroad?
A. Yes, if you are a resident of Korea, you must pay income tax in Korea even if you earned income abroad. Regardless of your nationality, if you live or have a domicile in Korea for more than 183 days, you are classified as a resident and are subject to comprehensive income tax reporting, whether you earned income from labor or interest.
Q. if I stayed in Korea for less than 183 days, do I not need to report my overseas income?
A. In principle, if you are not in Korea for more than 183 days in a year and do not have a living base in Korea, you are considered a non-resident and are not required to report overseas income. However, if you have a living base in Korea, such as a family member, and it is recognized that you will continue to live in Korea, you may be considered a resident even if you do not meet the 183-day requirement.
Q. do I have to pay income tax in Korea if I already paid it in a foreign country?
A. If you are a Korean resident and need to declare your overseas income, don't worry, the Foreign Tax Credit allows you to deduct the amount of tax you paid abroad from your Korean comprehensive income tax. For example, if you paid 1 million won in taxes abroad, you can deduct that amount from your Korean tax calculation. However, remember that you must file a foreign income tax return in Korea to receive the credit.
Q. what are the penalties for not declaring overseas income?
A. If you omit or intentionally fail to declare your overseas income, you'll pay additional taxes such as surcharges when you're caught, and you'll also pay interest on your late payment, which can add up to more than the original tax amount. In addition, with the recent exchange of financial information between countries, overseas income is bound to come to light at some point, so it's better to be honest from the start.
it's an unavoidable obligation if you're a resident of a foreign country. 🙂 If you're earning money abroad, use today's tips to make sure you report it. Let us know in the comments if you have any questions, and sign up for our newsletter for more tax-saving tips!