Because freelancers are not Solar Staff's employees and we don't pay taxes on their payouts, they must declare any income received via Solar Staff by themselves.
To carry on tax accounting in South Korea for your Solar Staff income, you need to:
Be a tax resident
Have a taxpayer identification number (TIN)
Tax residence
South Korea taxes its residents on their worldwide income, while non-residents are taxed on their income from South Korean sources only.
Foreign residents who have been present in South Korea for more than 5 years within the last 10 years are taxed on their worldwide income. Foreign residents who have been present in South Korea for 5 years or less within the last 10 years are taxed on income earned from South Korean sources, and their income from foreign sources is taxable only if paid by a South Korean entity or remitted to South Korea.
An individual is considered a tax resident of South Korea if they meet at least one of the following criteria:
They have a domicile in South Korea or have a residence within South Korea for 183 days or more in a tax year
They have an occupation that requires them to reside in South Korea for 183 days or more in tax year
They accompany their family in South Korea or retain substantial assets in the country
Residency is typically determined on a case-by-case basis, considering the relevant facts and circumstances.
South Korea has double taxation treaties with a number of countries (full list), the provisions of which may override the applicable tax residence rules and other provisions of national legislation.
Tax ID number
In South Korea, tax identification numbers are essential for taxation purposes and for keeping track of taxpayers. They are issued to both individuals and legal entities to identify and track their tax liabilities. Read on for more details on tax ID numbers used in South Korea.
A resident registration number (RRN) (Korean: 주민등록번호) is an identification number issued to all residents of South Korea regardless of nationality. Citizens automatically receive this number when they register their residence. It appears on the individual's identity card and consists of 13 digits: the first six digits signify the person's date of birth; the seventh digit indicates the sex and the century in which the person was born; the eighth through eleventh digits signify a code for the person's place of birth; the 12th digit is a sequential number used to differentiate those of the same sex born on the same day in the same location; and the 13th digit is a check digit.
An alien registration number (ARN) (Korean: 외국인등록번호) is a 13-digit identification number, similar to the RRN and intended for foreigners who work or reside in South Korea. To obtain an ARN, foreigners must apply to the South Korean Immigration Service.
A business registration number (BRN) (Korean: 회사등록번호) is a business number assigned to entities incorporated in South Korea. This number is used for tax accounting and other taxpayer obligations and is necessary for opening bank accounts and conducting financial transactions. It consists of 10 digits: the district code (3 digits), the type of business code making distinction between an individual and a corporation (2 digits), a serially assigned value (4 digits), and a single check digit.
Taxes and contributions payable by freelancers
Tax liabilities in South Korea depend on the freelancer's status and/or fulfillment of certain conditions. South Korea has only one tax status suitable for receiving income via Solar Staff, which is the status of a sole proprietor (Korean: 사업자).
IMPORTANT! Solar Staff does not have the option to choose a tax status for freelancers based in South Korea, but you can fill in your taxpayer ID in your account.
Read on for more details.
Sole proprietor
A sole proprietor (Korean: 사업자) is an individual who engages in commercial activities for profit. This status can apply to both startups and small businesses, as well as larger enterprises, such as chaebols (Korean: 재벌, 財閥).
You can register as a sole proprietor with the National Tax Service (NTS) either before commencing business activities or within 20 days afterwards. The following must be submitted for registration:
A document verifying identity
An application for registration (available at the local tax office)
A business plan (recommended, but not mandatory)
The proposed business name (which should be checked for duplicates)
Proof of business address (such as a lease agreement or proof of title)
A registration fee must be paid upon submitting the application. This fee is typically small and may vary by region. After registration, you get assigned a business registration number (BRN).
Accounting and reporting. You need to maintain the records of all income and expenses, including client invoices, purchase orders, bank statements, and receipts. This will help in preparing financial statements and navigating tax audits.
Key aspects:
There is no legal separation between the individual owner and the business in a sole proprietorship. As a result, the owner assumes all debts and obligations of the business, which can be settled with their personal assets.
Some activities may require a business permit or a license (such as healthcare, law, or food business).
To simplify the tax filing process, it is advisable to use specialized software that automatically calculates taxes, helps track income and expenses, and generates the necessary reporting.
The registration address for the sole proprietor can be their actual place of residence. If renting, it is essential to obtain the landlord's permission to register the business at that address.
A sole proprietor can choose between two tax regimes:
General tax regime
General regime (Korean: 일반과세) is the default tax regime that applies without restrictions on income level or type of activity.
For more information on taxes for sole proprietors applying this tax regime, see below.
Income tax (Korean: 소득세) is calculated using a progressive rate:
Income, South Korean won (KRW) | Tax rate, % |
Up to 14,000 | 6 |
14,000–50,000 | 15 |
50,000–88,000 | 24 |
88,000–150,000 | 35 |
150,000–300,000 | 38 |
300,000–500,000 | 40 |
500,000–1,000,000 | 42 |
1,000,000 and more | 45 |
Deductions can be claimed for expenses related to business activities, such as rental costs, employee salaries, materials, and more. Sole proprietors must maintain proper accounting records and keep all supporting documents, including receipts and invoices.
Sole proprietors must submit their tax returns for aggregate income as individual taxpayers from May 1 to May 31 of the year following the reporting year. This can be done through Hometax or in person at the tax office.
Tax payments must be made to the National Tax Service within the same timeframe.
Penalties. Failing to file a return leads to a fine of 20% of the tax owed. Late tax payments also incur a penalty calculated using the formula: tax amount × period of delay × 0.022%.
Useful links: Tax return samples and FAQ
The alternative minimum tax (AMT) (Korean: 대체 최소세) is established to ensure a minimum level of taxation and prevent the misuse of deductions and credits that lower tax liabilities. This tax is paid as the greater of either 45% of the income tax liabilities (35% for income tax liabilities of up to KRW 30 million) before deductions, or the actual tax amount after deductions.
Local income tax (Korean: 지방소득세) is set at 10% of the general income tax rate (as shown in the table above) and falls within the range from 0.6% to 4.5%. This tax must be paid in the city or province where the taxpayer resides.
Tax returns and payment. The deadlines for filing tax returns and paying the local income tax are the same as those for the national income tax. National and local tax returns can be filed online simultaneously through the electronic filing system that links Hometax (for national tax) and Witax (for local tax).
Useful links: More on local income tax
Value-added tax (VAT) (Korean: 부가가치세) applies to the sale of goods and services, as well as to imported goods. These include goods and services provided to both local and foreign customers.
The VAT rate is set at 10% for businesses with an annual income exceeding KRW 30 million, with the possibility to claim deductions (this applies to ordinary payers).
One can register as a VAT payer at the local tax office. This can be done either in person at the nearest NTS office or online via the official NTS web service.
VAT-related requirements. Electronic invoicing for VAT is mandatory for suppliers of goods and services. Taxpayers who fail to issue electronic VAT invoices or fail to submit reports to the tax authorities electronically will incur applicable penalties.
Exemptions and deductions. Certain goods and services, such as medical and educational services and certain financial transactions, may be exempt from VAT. Additionally, taxpayers can claim VAT expenses as deductions.
VAT returns must be filed twice a year, covering a six-month period:
The first return is due between July 1 and July 25 for the period from January 1 to June 30
The second return is due between January 1 and January 25 of the following year for the period from July 1 to December 31 of the previous year
VAT due must be paid simultaneously with the filing of the VAT return.
Useful links: More on VAT; VAT return samples; VAT guide
Social contributions (Korean: 사회공헌) are payable on a regular basis (usually monthly). Sole proprietors must adhere to payment deadlines to avoid fines.
Reporting. To accurately calculate social contributions, it is essential to maintain records of income and expenses, as well as submit appropriate reporting forms to the tax authorities. We recommend checking the applicable reporting forms and filing requirements directly with the relevant authorities.
Penalties. Failure to pay social contributions may result in fines and other penalties, including restricted access to certain services or financial resources.
You can calculate all insurance contributions here.
If a sole proprietor employs staff, they must also pay employer taxes and contributions, including payroll taxes and social security contributions for the employees, such as pension and health insurance contributions.
Learn more about the types and amounts of contributions below:
The contribution to the National Pension Service (NPS) (Korean: 국민연금) is set at a rate of 9% of monthly income. The taxable monthly income has a minimum limit of KRW 330,000 and a maximum limit of KRW 5.24 million. Payers must report their income in person at the nearest pension office.
The contribution to the National Health Insurance Service (NHIS) Korean: 국민건강보험공단) is calculated on a case-by-case basis and varies depending on various factors, including income, age, gender and type/amount of income.
The contribution to the Employment Insurance Service (Korean: 고용보험) is set at a rate of 2.25% of annual income.
The contribution towards industrial accident insurance (Korean: 산재보험) is set at a rate that varies from 0.56% to 18.56% of annual income, depending on the type of the sole proprietor's activity.
Simplified tax regime
The simplified tax regime (Korean: 간이과세자와) aims to simplify the taxation process and reduce the tax burden on small businesses.
Registration. To switch to the simplified regime, a sole proprietor must submit a relevant application to the National Tax Service (NTS).
Eligibility limitations. Eligibility for the simplified regime is limited to businesses with an annual income not exceeding KRW 80 million. If this threshold is exceeded, the business will automatically transition to the general tax regime.
If the total annual income is less than KRW 80 million KRW, the tax regime will automatically change from the general to the simplified regime effective July 1 of the following year.
All business activities are eligible for the simplified regime, except for the following:
Mining and manufacturing (permitted activities include confectionery shops, rice cake mills, tailoring services, and shoemaking)
Wholesale trade (including where it is operated with retail trade), real estate business
Businesses in taxable entertainment venues
Professional services (lawyers, attorneys-at-law, certified accountants, technology consultants, appraisers, engineers, architects, pilots, surveyors, pharmacists, veterinarians, etc.)
Businesses eligible to waive simplified taxation in line with the criteria established by the Commissioner of the National Tax Service
New business registered by a person currently operating as a general taxable person (however, simplified taxation applies to private taxi services, delivery services, and hair and beauty salon businesses)
Business acquired from a general taxable person
Since simplified taxation is not always beneficial, taxpayers may choose to waive it and opt for the general tax regime instead. To continue applying the general tax regime, taxpayers eligible for the simplified regime must submit a relevant waiver before July 1 (i.e., no later than one day before the transition to the simplified regime). However, in practice, taxpayers often have the option to contact the tax office and submit the necessary documents even after receiving a notification about such transition.
It is important to note that re-applying for the simplified regime is not permitted until three years have passed from the first day of the month in which the decision to remain a general taxable person was made (the month in which the taxpayer waived the simplified taxable person status).
For more information on taxes for sole proprietors applying this tax regime, see below.
Income tax (Korean: 소득세) is paid the same way as the tax under the general tax regime.
Value-added tax / VAT (부가가치세) is paid the same way as the tax under the general tax regime, but with the following considerations:
There is no possibility for counterparties to claim deductions.
Taxpayers with an annual income below KRW 80 million are eligible for a reduced VAT rate of 1.5% to 4%, although there are certain limitations on deductions.
VAT returns are required once a year, covering the period from January 1 through December 31, and must be submitted between January 1 and January 25 of the following year.
The tax amount is calculated using the VAT rate established for each industry, with no option for VAT refunds (reimbursement of overpaid VAT on expenses).
Payers with an annual income of less than KRW 48 million who apply the simplified regime are exempt from VAT and are not required to issue VAT invoices.
Payers with an annual income of KRW 48 million to KRW 80 million who apply the simplified tax regime are required to pay VAT and issue VAT invoices.
Social contributions (Korean: 사회공헌) are paid the same way as those under the general regime.
Additional information
Income received through Mellow is declared using certificates and invoices, and in accordance with the offer agreement.
If you have any questions, get in touch via the chat in your Mellow account or email us at [email protected].