A Guide to Tax Life in Korea: Freelancer vs Full time salary worker
When you are hired in Korea, one of the first issues you come across is social insurance. There are four kinds of social insurance in Korea. These are known as: National Pension, Health Insurance, Unemployment Insurance and Workers’ Compensation.
On the other hand, you may hear from others that they are receiving salaries net of income tax with a rate of 3.3% and without any additional social insurance deducted. These income earners are often called ‘freelancers’.
1. Who is a Freelancer?
A freelancer is a person who has no designated business place (in Korean 사업장) and works independently. In other words, you do not have a fixed office or place of your business, and you do not hire anyone but render services all by yourself. Some examples of freelancers are writers, models, singers, entertainers, lectures, tutors or translators, just to name a few.
2. What is the income tax rate for a Freelancer?
There are two steps of taxation for a freelancer in Korea.
First, a 3.3% income tax rate is imposed on a freelancer and you get paid a net amount after deduction. This 3.3% is called a withholding tax rate. Second, a freelancer does a personal income tax return for the previous year’s income on May 31st of the following year. The personal income tax rate of Korea ranges from 6% to 42%.
Tax base is net amount after expense deduction. If your earnings before expense deduction are less than KRW 24,000,000, about 60% is deducted as an expense. When your aggregated withholding tax amount is greater than the final tax computed in May, you can get your tax return.
Now, tax filing always sounds complicated and it’s often easier to ask a tax accountant to do your income tax return. But in cases where the tax return amount is too small to cover the service fee, many freelancers just give up on doing a tax return.
3. Is a Freelancer really free from social insurance?
To answer the question first, no you are not.
1. National Pension: For anyone, aged 18 to 60, who earns income in Korea, it is mandatory to join the National Pension Fund. This is the same for foreigners, unless the person is a diplomat, a trainee, or an international student. The rate of pension is 9% on your gross earnings. However, you can ask for a temporary break from the National Pension for a period with no income. For those whose country has made a convention with Korea, based on the Principle of Reciprocity, may apply for a refund of their contributions when they leave Korea permanently.
2. Health Insurance: There are two ways of joining the National Health Insurance Scheme in Korea. Salaried workers who are considered ‘employee insured’ and freelancers who are considered ‘self-employed insured’. Previously, only ‘employee insured’ foreign workers were obligated to join the Health Insurance. However, due to recent changes in the 2019 health care policy, self-employed foreigners who have stayed more than 6 months in Korea, have to join the healthcare system (there are some exceptions based on the VISA types). The minimum health insurance premium is KRW 113,050 in 2019 and the premium rate is adjusted on the person’s income every year.
3. Unemployment Insurance: A freelancer can voluntarily apply for this insurance, which covers maternity allowance and unemployment benefits.
4. Workers’ compensation: This only applies to employers not to employees.
4. Summary
Hiring a freelancer allows more labor flexibility for an employer than a full-time salary worker in Korea. Also, you can see that the social insurance burden is transferred from the employer to the freelancer, which is one of the reasons why a company prefers hiring a freelancer than a salary worker. Before becoming a freelancer, it is important to understand the implications on how you will be taxed, and how the social benefit system will work for you; because it could have a direct impact on your financial life in Korea.
For more tax questions, please contact myself at Ara Jung | LinkedIn
All information provided is of limited scope and not exhaustive or comprehensive of any subject. It is not intended to be legal, and should not be used in place of consultation with appropriate professionals.
