INDIVIDUAL TAXATION

Residents are liable to pay tax on their worldwide income. Married couples are taxed separately.

INCOME TAX

Income is classified according to the following: global income, retirement income, capital gains, and income taxed separately by withholding. Global income is taxed at progressive rates while retirement income and capital gains are taxed separately at different rates.

The following falls under the global income classification: interest income (excluding interest taxed separately), dividend income (excluding dividends taxed separately), real estate rental income, business income and professional income, employment income, and other income. Taxable income is computed as gross income less all allowable deductions and allowances. Income is then aggregated and taxed at progressive rates.

Residents earning global income are entitled to deduct KRW1 million (US$737) multiplied by the number of persons in the taxpayer’s family. Qualified family members are as follows:

• The resident taxpayer himself
• A spouse earning less than KRW1 million (US$870) per year
• A lineal ascendant dependant over 60 years old for males and over 55 years old for females
• A lineal descendant up to 20 years old
• A handicapped lineal descendant
• A sibling less than 20 years old or over 60 years old
• Other members of the household supported by the taxpayer

The following additional deductions are given wherein the taxpayer, his spouse, or one of his dependents are:

• Over 65 years old: KRW1 million (US$870)
• Over 70 years old: KRW1.5 million (US$1,304)
• Handicapped: KRW2 million (US$1,740)
• Married woman having her spouse: KRW500,000 (US$435)
• Head of the family with dependents but without a spouse: KRW500,000 (US$435)
• For every lineal descendant under 6 years old: KRW1 million (US$870)

A taxpayer can avail of the standard deduction of KRW1 million (US$870) instead of claiming the deductions enumerated above.

CAPITAL GAINS TAX

Individuals, including personal companies, earning capital gains when selling properties are subject to capital gains tax at progressive rates.

The taxable gain is computed by deducting the following from the gross amount: necessary expenses (acquisition costs, improvement costs, transfer costs, and other capital expenditures), special deduction for the holding period, and standard deductions for capital gains. There is no inflation-adjustment of capital gains.

A special deduction from the gross amount is also given for long-term holding and the deduction rate depends on the number of years the property was held:

Capital gains realized from selling a resident’s primary residence are not taxed. To qualify for this exemption, the property must be held by the owner for at least three years and must not be luxurious or not more than KRW900 million won (US$782,609).

This exemption is extended to a second house in cases where the taxpayer acquires a rural house located in areas other than Seoul and Kyunggi-do by inheritance or for the purpose of returning to a farming lifestyle.

PROPERTY TAX

Property Tax

Annual property taxes are levied between 0.07% to 4%, depending on location, type of building, etc. To counter speculation, the government proposes to raise sharply the property tax base of apartments in designated speculation areas.

Comprehensive Real Estate Holding Tax

Property owners whose properties exceed a certain threshold amount are liable to pay the comprehensive real estate holding tax.

This tax is levied between 0.5% and 2% for residential houses that exceed KRW600 million (US$441,908). Comprehensive real estate holding tax is levied between 0.75% and 2% for land whose value exceeds KRW500 million (US$434,783).