A resident who is required to file a final return and leaves Korea must file for the year of departure by the day before departure; if departure falls between 1 January and 31 May, the previous year’s return follows the same deadline (Income Tax Act, Art. 74(4) and (5)). Someone with employment income from a single employer, settled in the month of leaving, need not file a final return (Art. 73(1), Art. 137(1)).
The year’s employment income is settled in the final month’s pay
The first tax step for a foreign employee who resigns and leaves Korea is the settlement carried out by the employer. Article 137(1) of the Income Tax Act requires the withholding agent, when paying employment income for February of the following year or for the month in which an employee leaves, to compute the tax on that year’s employment income and withhold accordingly; for a leaver, the period covered is the period up to the leaving date. Staff who remain are settled in the following February, but someone who leaves mid-year is settled in the final month’s pay for employment income from 1 January to the leaving date. The computation applies the global income deductions the employee has declared to arrive at the tax base, applies the basic rates to reach the computed tax, and then subtracts the tax withheld each month and the various tax credits. The same article requires any excess of tax already withheld and credits over the computed tax to be refunded to the employee. Once the departure date is fixed, it is worth agreeing the timing of the settlement and the account for any refund with the employer before the last payday.
Leave without declaring deductions and the settlement narrows
The leaving settlement is based on the deductions the employee has declared to the employer. The same article provides that, for an employee who has made no such declaration, only the basic deduction for the employee personally and the standard tax credit are applied. If dependants’ documents or deduction evidence are not handed in during the rush before departure, withholding may be finalised without deductions that could have been claimed. Foreign employees often have family living abroad, and obtaining and translating proof of family relationships from the home country takes time. Which deductions actually apply depends on where family members live, their income and other circumstances, so individual review is needed. In practice, the safer order is to obtain the employer’s list of settlement documents when giving notice and to start with anything that must be issued abroad. Once the settlement is complete, keep the withholding documents issued by the employer before you leave; they are the starting point if income later has to be aggregated in a return, or if Korean income has to be explained at home.
Employment income alone can skip the final return — two employers change that
Article 70(1) requires a resident with global income for the tax year to file a final return between 1 and 31 May of the following year. Article 73(1), however, allows a person with only employment income, among others, not to file a final return for that income. Someone who worked for a single employer and was settled up to the leaving date will often have nothing further to file for employment income. The point to watch is employment income from two or more employers in the same year. Article 73(2) disapplies paragraph (1) for a person (other than a daily worker) who receives employment income from two or more payers, with a proviso excluding a person who has no further tax to pay on a final return because tax was paid through year-end settlement or similar. Where someone changes jobs in the first half of the year and leaves Korea later that year, the key question is whether the first employer’s income was combined in the second employer’s settlement. If it was not, a combined final return may be required, so check first whether the previous employer’s withholding records were given to the new employer.
If a final return is required, it is due the day before departure, not next May
A person with other income besides employment income, or to whom the exception above does not apply, must file a final return — and the departure date moves the deadline. Article 74(4) requires a resident who must file a final return and leaves Korea to file for the tax year in which the departure falls by the day before departure. Rather than waiting until May of the following year, the income of the year of departure is reported before leaving. Article 74(5) applies paragraph (4) to the final return for the preceding tax year where a resident leaves between 1 January and 31 May. Leaving on 20 March, for example, means both the previous year’s return normally filed in May and the return for income from January to the departure date must be filed by 19 March. Typical cases caught by this deadline are domestic rental or business income, and employment income from two employers that was not combined in the settlement. The final weeks are crowded with ending a lease and shipping belongings, and the return amount sometimes cannot be fixed until the leaving settlement is out, so starting preparation a month or two before departure is realistic.
A tax administrator handles what remains after you leave
Tax matters often remain in Korea after departure: income from property or deposits left behind, or a tax office’s request for correction of a pre-departure return and other notices. Article 82(1) of the Framework Act on National Taxes requires a taxpayer who has no domicile or residence in Korea, or who moves their domicile or residence abroad, to appoint a tax administrator to handle national tax matters. Paragraph (2) allows an attorney, a certified tax accountant, or a certified public accountant registered for tax agency work to be appointed, and paragraph (3) requires the taxpayer to report the appointment to the competent district tax office, as with any change or dismissal. In practice, appointing and reporting a tax administrator before leaving saves exchanging documents from abroad. Whom to appoint and how much to entrust depend on the property and income that remain in Korea, so it needs individual review. Keeping the leaving settlement, the return and the tax administrator report on a single timeline reduces the chance of missing a step.