Shall They Pay Korean Salary Tax?
A westerner has worked for about two years in a Korean manufacturing firm located in the vicinity of Pusan City.
He has not been directly paid by the company, but indirectly through an engineering company A incorporated and operating in his own country.
In other words, the Company A provides services to the Korean manufacturer through him under a technical service contract.
In this scheme, he is not an employee of the Korean manufacturer and, accordingly, the latter has no liability to deduct income tax from his salary.
He was not advised or requested by anyone or any governmental agencies to pay salary tax and he has not paid any to the Korean government.
Recently, however, he heard from one of his colleagues that he would have to pay the tax which is composed of personal income tax and resident surtax.
If he is liable for the salary tax but has not paid any, he will be subject to penalties and is likely to get concerned about problems pertaining to visa and immigration office.
Now what should he do?
There exist two foreign taxpayers in this case, the company A and the employee.
The tax implications are different depending on the double tax agreement between Korea and the counterpart country.
Mostly, however, the Company A ought to register with the Korean tax authorities as a taxable entity (so called a ``permanent establishment'' or a ``PE'') and pay Korean corporate income tax, if its employee stays in Korea and provides services lasting more than six months. …