Kim & Chang has secured a tax ruling that clarifies the application of the latest amendment to the Special Tax Treatment Control Law (“STTCL”) regarding the flat tax rate (20.9% inclusive of local income tax), which is applicable to earned income of overseas employees and officers (“overseas employees”) in Korea for a maximum of 20 years beginning in the year in which they first start (or started) working in Korea.
 
Under the revised STTCL rules, the flat tax rate regime is available to overseas employees whose 20-year period has not been lapsed as of January 1, 2023 since they first started working in Korea.  However, the rules do not specify whether overseas employees who have stayed and worked in Korea for more than 20 years as of January 1, 2023 are still eligible for the flat tax rate.
 
Recently, the National Tax Service, in consultation with the Ministry of Economy and Finance, issued a ruling that clarifies the application of the amended flat tax rate rules to the following two groups of overseas employees:
 

• In case of overseas employees who started working in Korea prior to January 1, 2014, left Korea and thereafter came back to work, the 20-year period would start from the date said employees came back to Korea after January 1, 2014 and started working in Korea.

• In case of overseas employees who were working in Korea as of January 1, 2014, the 20-year period would start from January 1, 2014.  For overseas employees in this group, the flat tax rate would be available until December 31, 2033.
   

The National Tax Service and the Ministry of Economy and Finance set January 1, 2014 as the demarcation date for the grouping of overseas employees since it was when the limitation on the time period during which the flat tax rate would be available (i.e., 5 years under the previous rules) was first introduced under the STTCL.  As noted above, the latest amendment to the STTCL has extended the length of the time period during which the flat tax rate would be available from 5 years to 20 years.