The Income Tax Act defines a resident as an individual with a domicile in Korea or a place of residence in Korea for 183 days or more, and leaves the details to Presidential Decree. The Enforcement Decree deems an individual to have a domicile in Korea where, among other cases, the individual has an occupation that normally requires living in Korea for 183 days or more continuously, and makes the day that ground arises, or the day the period of residence reaches 183 days, the day the person becomes a resident.
The Act gives the definition; the tests are in the Decree
The Income Tax Act defines a resident as an individual who has a domicile in Korea or a place of residence (geoso) in Korea for 183 days or more, and a non-resident as any other individual. It delegates the distinction between domicile and residence, and between residents and non-residents, to Presidential Decree, so in practice the domicile and residence rules of the Enforcement Decree must be read together with it. The Decree provides that domicile is determined by the objective facts of a person’s living relations, such as whether the person has family sharing a livelihood in Korea and assets located in Korea. Because the test is the objective facts of living relations, form alone, such as nationality or immigration status, does not decide the outcome. A place of residence is defined as a place other than the domicile where the person lives for a considerable period but where close general living relations comparable to a domicile have not formed. Domicile is the centre of life; a place of residence is where one stays for a long time without it becoming that centre. The 183-day figure attaches to the place-of-residence limb. So where a domicile in Korea is found, a person can be a resident before any days are counted. This order is where foreign nationals most often go wrong: domicile has to be examined before concluding that someone is a non-resident because 183 days have not been reached.
A job or family in Korea can create a deemed domicile
The Decree deems an individual living in Korea to have a domicile in Korea in two cases. The first is where the individual has an occupation that normally requires living in Korea for 183 days or more continuously. The second is where the individual has family sharing a livelihood in Korea and, in light of the individual’s occupation and assets, is recognised as likely to live in Korea for 183 days or more continuously. A foreign employee who arrives under a long-term employment contract with a Korean company may therefore fall to be examined under the first limb even before actually staying 183 days. Someone who moves with family, rents a home and enrols children in a Korean school will be examined under the second limb as well. Because the day such a ground arises is the day a non-resident becomes a resident, meeting these conditions can bring the start of residence forward from the 183rd day. Conversely, where the job itself does not require a long stay, as with a project of a few months, the day count rather than this deeming rule becomes central. Which applies depends on the length of the employment contract, whether family came along and the person’s assets in Korea, and needs case-by-case review. Keeping a record of the facts shortly after arrival makes later explanation easier.
Foreign nationals and permanent residents abroad can be deemed to have no domicile
There is also a rule running the other way. The Decree treats a person living or working abroad who holds foreign nationality or has obtained permanent residence under foreign law as having no domicile in Korea where the person has no family sharing a livelihood in Korea and, in light of occupation and assets, is not recognised as likely to return and live mainly in Korea. All the conditions must be met together. Foreign nationality or permanent residence alone does not settle that there is no domicile if family sharing a livelihood remains in Korea, or if occupation and assets suggest the person will return to live mainly in Korea. Separately, officers or employees seconded to an overseas place of business of a resident or domestic corporation, or to an overseas local subsidiary in which a domestic corporation holds 100 per cent of the issued shares or equity directly or indirectly, as well as public officials working abroad, are treated as residents. An employee sent by a Korean company to a wholly owned overseas subsidiary can therefore remain a resident despite a long stay abroad. Secondment to a joint venture below 100 per cent is assessed again under the general tests rather than this rule. For crew of ships or aircraft engaged in international transport, domicile is located by whether the place where their family lives, or where they usually stay outside duty periods, is in Korea or abroad.
The 183 days run from the day after arrival and can span two tax years
Where there is no domicile, the period of residence is counted. The Decree counts the period of having a place of residence in Korea from the day after the day of entry to the day of departure. Where an individual who had a place of residence in Korea leaves and re-enters, and the departure is clearly temporary for a purpose prescribed by Ministry of Economy and Finance Ordinance, such as tourism or medical treatment, in light of where the family lives and where assets are located, the period abroad is also counted as residence in Korea. Leaving out a short holiday abroad can therefore understate the count. A person is treated as having a place of residence for 183 days or more not only where the period reaches 183 days within one tax year but also where it continues for 183 days or more across two tax years. For example, someone who arrives in early September and stays continuously until the end of April the next year passes the threshold even though neither calendar year alone reaches 183 days. The count also excludes periods during which an overseas Korean under the Act on the Immigration and Legal Status of Overseas Koreans enters for a clearly temporary purpose such as tourism or medical treatment, where recognised by the method prescribed by Ministry Ordinance. Entry and exit records should be checked as continuous periods, not only year by year.
The day residence starts and ends decides the scope of tax
The result feeds directly into the scope of taxation. The Income Tax Act taxes residents on all income under the Act, but a foreign resident whose periods of domicile or residence in Korea total five years or less within the ten years before the end of the tax year is taxed on foreign-source income only to the extent it is paid in Korea or remitted to Korea. Non-residents are taxed only on Korean-source income. That is why the date of becoming a resident matters. The Decree sets the time a non-resident becomes a resident as the day a domicile is established in Korea, the day a ground arises for having or being deemed to have a domicile in Korea, or the day the period of residence in Korea reaches 183 days. The time a resident becomes a non-resident is set as, among other cases, the day after departure for the purpose of moving the domicile or residence abroad. The tax period of a resident who moves abroad and becomes a non-resident runs from 1 January to the day of departure. In the years of arrival and departure, the same person can have a non-resident period and a resident period within one year, so it is advisable to separate that year’s income by date. Residence for tax-treaty purposes follows the criteria of each treaty, separately from the domestic-law determination.