Taxes in Keeping with Culture
Korea is often referred to as "the Land of the Morning Calm" as well as "the Hermit Kingdom". It enjoys a rich history, a pure culture, a completely original writing script and language, all of which you are likely to hear multiple times during your stay. An American living in Korea, regardless of how many social occasions have required them to speak with convincing sincerity about their love of Korean cuisine, should be aware of the undercurrents of the culture if only to understand the underpinnings of the tax system.
Koreans subscribe to the concept of social welfare. This is in evidence if tax deductions are used as the only barometer. The key components of the tax structure include payments made for National Health Insurance, National Pension and Income Tax. These three deductions form the core of the Korean tax structure. All three are influenced, by some degree or another, by the value system of Korean culture.
National Health Insurance
Beginning in 1977 and completed in 1989, the National Health Insurance of Korea has provided medical benefits for all Koreans regardless of their level of employment, age or medical condition. This is a core component of the Korean value system and one that has been afforded by the rapid improvement of the Korean economy over the last fifty years.
These benefits extend to all non-Koreans residing in Korea as well. However, as always, it is wise to know the details and extent of your medical coverage. Although laden with legal and occasionally incomprhensible vocabulary, The Guide for Long-Stay Foreigners and Overseas Koreans has proven to be a valuable resource. Furthermore, if you are interested in learning the law and all the countless words that made this national medical insurance possible, click here to see a copy of the actual legislation.
For tax purposes, the National Health Insurance program is funded through a co-payment system, where half of your payments are sponsored by your place of employment or the government, and the other half is shouldered by yourself. Foreign workers, including U.S. citizens, are covered by this formula. For more information on the rights, payments and benefits enjoyed by individuals under this plan, please refer to the National Health Insurance Program website by clicking here.
NAtional Pension
The National Pension represents Korea's committment to the elderly, a value enshrined in the Neo-Confucianism that formed the basis of the last dynasty at the early part of the 20th century. For an interesting take on Confucianism in Korea, please click here. Regardless of the historical precedents, the National Pension has been revered for many years by all generations of Koreans. However, as is the case in a good deal of Asia, the low birth rate has led to a larger elderly population with fewer generations beneath them to support the National Pension. Although it hasn't reached criticial proportions yet, some fear that the system will collapse. An interesting article which traces these fears can be found by clicking here.
For the purposes of this website, U.S. citizens living in Korea are required to make monthly tax payments into the National Pension scheme, but that money can be reclaimed when leaving the country. Please refer to National Pension to learn how to reclaim your National Pension.
Income Tax
The Korean Income Tax also reflects the cultural underpinnings of the economic organizations in Korea. Since foreigners are subject to the same taxation laws as Korean citizens, it is important to know the facts. For example, the Income Tax rates in Korea range from 10% for values of 10, 000, 000 Won or less to 40% for values over 80 000 000 Won. This represents the fairly progressive taxation scheme that is prevalent in Korea.
Income tax is the fuel which makes the engine run. The funds garnered from these taxes support the extensive government organization we have all encountered (some of the snickering few might be thinking extensive bureacracy at this point). Regardless of the hassles many of the foreign community have felt having to apply for permits to do or discard of anything, the Income tax does generate funds for programs which serve to benefit the country as a whole.
Although outside the scope of this website, please see the following sources for further information on the Korean Income Tax:
World Bank Information on Personal Income Taxes
United States Embassy-Tax Information
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Created July 10, 2005 by Michael Sean Gallagher
Content by: Michael Gallagher