(For use in preparing 2008 returns )

Transcription

1 정 부 간 행 물 등 록 번 호 Paying taxes, it s our noble duty Individual Income Tax and Benefit Guide for Foreigners 2009 Individual Income Tax and Benefit Guide for Foreigners 2009 and the most beautiful act of giving back (For use in preparing 2008 returns )

2 Individual Income Tax and Benefit Guide for Foreigners 2009 (For use in preparing 2008 returns) May, 2009 National Tax Service

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4 PREFACE We, the National Tax Service of Korea, would like to express our deep appreciation for your faithful tax compliance and contribution to the development of the Korean economy. As Korea s globalized economy has invited more and more foreigners into Korea to furnish services and to carry on businesses, we felt the need to provide you with proper guidance and assistance in tax return filing and tax payment. To this end, the NTS has implemented various customized services for foreign taxpayers such as Help-line for Foreigners( ), Foreign Taxpayer Advocate Service and Q&A section by at our English web-site( In particular, Foreign Taxpayer Service Desk has been installed in 45 district tax offices most frequently visited by foreign taxpayers since last year, and Foreign Taxpayers Guide to Korean Taxes, which contains questions and corresponding answers in both English and Korean, was released in July, We also prepared this booklet to give a wide range of information on the Korean Individual Income Tax Law and general information for tax return, explaining important changes in 2008 on income tax laws in the areas of tax rates, allowances and legislation, etc. It is especially designed to help foreigners prepare for their 2008 income tax returns due on June 1, We sincerely hope that this Guide will be of interest and benefit to all foreign taxpayers. May, 2009 Yun Jun Park Assistant Commissioner for International Taxation National Tax Service - i -

5 Individual Income Tax and Benefit Guide for Foreigners 2009 Figure 1. Global Individual Income Taxation of Korea Capital Income Financial Income Interest Income Dividend Income Real Estate Rental Income Business Income Wage Income Pension Income Other Income Joint Return Income Deduction Tax Base Tax Rate (8% ~ 35%) Tax Calculated Tax Prepaid Penalty Tax Tax Exemption Credit Tax payable The Korean individual income tax system uses the unitary concept where incomes from all sources are aggregated and taxed at progressive rates. Deductions and tax credits are allowed under certain conditions. Inhabitant tax is added to income tax in computing the total tax liability. Penalties may be assessed for failure of return-filing and tax payment. - ii -

6 Individual Income Tax and Benefit Guide for Foreigners 2009 Figure 2. Individual Income Taxation on the Income of Non-resident Income Accruing Is there Tax Treaty? No Yes : : Domestic Law applied Tax Treaty has priority Is there Domestic Source Income based on Tax Treaty and Domestic Law? No : Non-taxable in Korea Yes : Tax Exempted Yes Tax-free Income? No No Tax Withholding Domestic Business Place? No with a few exceptions Yes Is the Income Attributable to Domestic Business Place? Yes Return-filing Global Taxation with a few exceptions - iii -

7 National Tax Service English Web-site < - v -

8 CONTENTS 1 CONTENTS What are Major Changes for 2009? Part Ⅰ Introduction At your Service / 23 A. What if you need help? 23 B. Before you contact us 23 C. Contacting us 23 D. Your opinion matters! 24 General Information / 24 A. Do you have to file a return? 24 B. What date is your return for 2008 due? 24 C. What do you include with your return and what records do you keep? 25 D. Where do you have to file and pay? 26 E. What penalties do we charge? 26 F. What happens to your return after we receive it? 27 G. When can you expect your refund? 27 H. Do you report foreign income and other amounts? 27 I. What is the "Enforcement of Standard Simplified Expense Rate System"? 27 J. Frequently Asked Question 31 Part Ⅱ Outline of Individual Income Tax System Taxpayer / 35 A. Resident 35 B. Non-Resident 35 Income / 36 A. Taxable Income 36 B. Non-taxable Income 40 C. Tax-exempt Income 43 Tax Base and Deductions / 45 A. Basic Rules for Calculating the Tax Base 45 B. Calculation of Tax Base(Taxable Income) 47 C. Deduction For Global Income 57 Tax Rates and Tax Credits / 61 A. Tax Rates Structure 61 B. Tax Credits 61 Return and Payment / 64 A. Tax Return 64 B. Tax Payments 66 Global Income Tax of Compliant SMEs / 69 A. Application of Simplified Method for Tax Calculation 69 B. Eligibility of Compliant SMEs 69 C. Special Tax Treatment in Calculating Tax Base 69

9 2 CONTENTS D. Special Tax Treatment for Tax Credits 70 Assessment and Collection / 70 A. Determination and Correction of Tax Base and Tax Amount 70 B. Notice on Tax Base and Tax Payable 70 C. Collection of Tax 71 D. Minimum Taxable Floor 71 Tax Withholding / 71 A. Obligation of Tax Withholding 71 B. Rates of Withholding 72 Tax Penalties / 74 A. Penalty on Failure to File Returns 74 B. Penalty on Non-payment or Underpayment of Tax 74 C. Penalty Tax on Failures to Withhold Tax 74 D. Penalty Tax on Failures to Report Withholding Payment Records 75 E. Penalty Tax on Failures to Maintain Adequate Books and Records 75 F. Penalty Tax on Failure to use Business Purpose Bank Account 75 Bookkeeping and Reporting / 76 A. Bookkeeping 76 B. Reporting 76 Part Ⅲ Individual Income Tax System for Non-resident Taxation on Non-resident / 79 A. General 79 B. Income from Domestic Sources 79 C. Domestic Business Place 82 D. Tax Withholding on Non-resident 84 Taxation on Wage & Salary Income of Non-resident / 86 A. Non-resident with Class A Wage & Salary Income Only 86 B. Non-resident with Class B Wage & Salary Income Only 86 C. Non-resident with Class A and Class B Wage & Salary Income 87 Part Ⅳ Practice Practice in Calculating / 91 A. Example : Lecturer (Wage & Salary Income + Other Income) 91 Part Ⅴ Forms Appendix A. Income Tax Calculation Chart for Resident ESL Teachers 137 B. Tax Office in Major Cities 138 C. Taxpayers Association 141 D. Treaties with foreign countries 142

10 What are Major Changes for 2009?

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12 Individual Income Tax and Benefit Guide for Foreigners What are major changes for 2009? This section summarizes important tax changes that took effect in Deduction limit extended for individual's designated contribution (Article 34(1) Article 52(6) of the Income Tax Act) 1. Purpose of Revision To promote the culture of contribution by individuals The revised law will be implemented along with measures to improve the transparency of donors and recipients. 2. Changes Before Now Limit for individuals' designated contribution or for necessary expenses: 10% of the income amount Under the revised law, limit for deduction is extended. - 15% in 2008 and 20% in 2010 * Religious organizations maintain the current 10% limit. 3. Date of Enforcement Effective for contribution made on and after Jan. 1, 2008

13 6 What are Major changes for 2009? 2. Profit or loss from valuation of monetary foreign currency assets & liabilities non-deductible (Article 97 of the Enforcement Decree of the Income Tax Act) 1. Purpose of Revision Profit or loss from valuation of monetary foreign currency assets & liabilities according to business accounting standards is unrealized profit. - Imposing taxes on unrealized profit or acknowledging unrealized losses is not in line with obligation principle. 2. Changes Before Now Monetary foreign currency assets & liabilities according to business accounting standards had to be evaluated. Profit or loss from monetary foreign currency assets & liabilities is not deductible. - Valuation method : acknowledgment of profit or loss from valuation Monetary foreign currency assets & liabilities were evaluated based on basic exchange rate or arbitrated exchange rate according to the Foreign Exchange Transaction Act as of the end date of the taxation period. 3. Date of Enforcement Effective for income incurred from the taxation period where Feb. 22, 2008 is included

14 Individual Income Tax and Benefit Guide for Foreigners Additional deduction extended for newly born or adopted child (Article 51(1) of the Income Tax Act) 1. Purpose of Revision The new law aimed at reducing taxpayers' liabilities in the current year when babies are born so that they have to spend money regarding childbirth, caring after birth and the preparation of child caring. The law also intends to improve the public's awareness toward adoption by providing tax support for child adoption. 2. Changes Before <New> Now Under the new law - A taxpayer will receive additional deduction of 2 million won per child who is born or adopted in the current year. 3. Date of Enforcement Effective for birth adoption reported on and after Jan. 1, 2008

15 8 What are Major changes for 2009? 4. A Handicapped person's handicapped spouse also eligible for basic deduction (Article 50(1) of the Income Tax Act) 1. Purpose of Revision To expand tax support to the households of the handicapped 2. Changes Before <New> Now Under the revised law, - The handicapped spouse of a handicapped person who is a linear descendant of the taxpayer is eligible for basic deduction. 3. Date of Enforcement Effective for income incurred on and after Jan. 1, 2008

16 Individual Income Tax and Benefit Guide for Foreigners Global income tax base adjusted (Article 55 of the Income Tax Act) 1. Purpose of Revision The benchmark amount of the tax base is adjusted upward given the potential rise of the inflation rate and to reduce the burden of tax liabilities on people in the middle and lower income bracket. 2. Changes Before Now tax base rate up to 10 million won 8% over 10 million won~up to 40 17% million won over 40 million won~up to 80 26% million won over 80 million won 35% tax base rate up to 12 million won 8% over 12 million won~up to 46 17% million won over 46 million won~up to 88 26% million won over 88 million won 35% 3. Date of Enforcement Effective for income incurred on and after Jan. 1, 2008

17 10 What are Major changes for 2009? 6. Tax support expanded for bookkeeping taxpayers (Article 56-2(1) of the Income Tax Act) 1. Purpose of Revision Tax credit scope for bookkeeping is revised upward to improve the transparency of taxpayers' tax sources, and the revised version will be applied to taxpayers subject to simplified bookkeeping when they use a double bookkeeping system. 2. Changes Before Now Tax credit for bookkeeping Tax credit for bookkeeping Double bookkeeping: 15% of the calculated tax amount Double bookkeeping : 20% of the calculated tax amount 3. Date of Enforcement Effective for income incurred on and after Jan. 1, 2008

18 Individual Income Tax and Benefit Guide for Foreigners Non-resident entertainers and etc. exempt from obligation of final return (Article 73(3) of the Income Tax Act) 1. Purpose of Revision When the payers withhold taxes at the money they paid to non-taxable foreign entertainment & sports corporations for services provided by non-resident entertainers and etc. who the corporations employed - the entertainers and etc. will be exempt from the obligation of final return since the right of taxation is secured just as in the case when the tax association withholds taxes on class B wage & salary income. 2. Changes Before Now In the case when the final return of tax base is not required <Newly Added> In the case when the final return of tax base is not required - when the payers withhold taxes at the money they paid to non-taxable foreign entertainment & sports corporations for services provided by non-resident entertainers and etc. who the corporations employed Non-taxable foreign entertainment & sports corporation - Corporations providing public performance of entertainers & sportsmen and exempt from tax according to a tax treaty since they have no permanent establishment 3. Date of Enforcement Effective for income tax paid according to the withholding regime on and after Jan. 1, 2008

19 12 What are Major changes for 2009? 8. Due date extended for the payment of income tax installment (Article 77 of the Income Tax Act) 1. Purpose of Revision To make it easier for taxpayers to pay taxes by extending the due date for the payment of tax installment - Previously, day was used as a unit to calculate the due date of the installment payment. So taxpayers had to go to trouble counting the due date of 45 days and might have miscalculated the date sometimes. 2. Changes Before Installment payment regime Now Extension of installment due date - Due date : 45 days after the time limit for tax payment - Due date extended : 2 months after the time limit for tax payment 3. Date of Enforcement Effective for tax returns filed and taxes paid on and after Jan. 1, 2009

20 Individual Income Tax and Benefit Guide for Foreigners Penalty tax regime improved regarding business purpose bank account (Article 81(9) of the Income Tax Act) 1. Purpose of Revision To prevent such cases as when penalty taxes for not opening a business purpose bank account are smaller than penalty taxes for not using one 2. Changes Before Now Penalty tax regime regarding business purpose bank account - When penalty taxes for not opening a business purpose bank account is smaller than those for not using one, the latter is applied *. * Max(penalties for not opening an account, penalties for not using one) 3. Date of Enforcement Effective for the taxation period that Jan. 1 of 2008 attributes to

21 14 What are Major changes for 2009? 10. Simplified methods implemented for calculating tax amount of compliant SMEs (Article 87-2 or 87-7 of the Income Tax Act, Article or of the Enforcement Decree of the Income Tax Act) 1. Purpose of Revision To improve taxpayer convenience by simplifying and standardizing the methods of computing tax amount for the small and medium-sized enterprises whose revenue income amounts to a certain level or less and who use double bookkeeping regime to record their transactions in a compliant manner 2. Changes Before Now <New> If an SME submits an application form of using simplified methods for calculating tax amount to the head of a competent district tax office within 2 months from the end date of the taxation period and gets an approval, the qualified SME can use the simplified methods to calculate the tax base and tax amount for global income of the taxation period and report and pay the calculated tax amount. Special tax treatment in calculating tax base - Simplified calculation of depreciation expense: depreciating only with fixed amount method and applying 5 years of durable years (20 years for buildings) - Contribution limit : 1% of revenue. The excess is not eligible for carried forward tax credit. - Entertainment expense limit: 19 million won

22 Individual Income Tax and Benefit Guide for Foreigners Before Now - Accumulative limit of allowance for retirement: 20% of the total wage and salary income of a worker - Income deduction under the Restriction of Special Taxation Act is not applied here. Special tax treatment for tax credits - Standard tax credits: providing tax credits of 25% of calculated tax amount to taxpayers running businesses eligible for the special tax reduction and exemption for SMEs (15% for taxpayers in the metropolitan area) - Tax credits for increased revenue : providing tax credits for the revenue that exceeds 115% of the income year on year - Tax credits and tax reduction & exemption under the Restriction of the Special Taxation Act are not applied here. If there are some tax credits carried forward to the next year before a taxpayer got an approval to use simplified tax calculation methods, the carried forward tax credits are deemed as terminated. 3. Date of Enforcement Effective for the taxation period that Jan. 1 of 2008 attributes to

23 16 What are Major changes for 2009? 11. Clarification of taxes imposed on personal service income (Article 121(5) of the Income Tax Act) 1. Purpose of Revision In case taxpayers choose to report and pay taxes on global income that includes the income of personal service, - To prevent the avoidance of tax payment by taking advantage of the fact that personal service income is not withheld. 2. Changes Before Now Taxes imposed on personal service income of non-resident who does not have a domestic business place The withholding agent should withhold taxes by prepaying even if the service provider would choose to file his/her income of personal service by global income tax return - When reporting & paying taxes on global income that includes personal service income, withholding agents should withhold taxes at the personal service income. * The amount withheld is deducted as prepaid tax. 3. Date of Enforcement Effective from the business year after Jan. 1, 2008 when personal service income is paid

24 Individual Income Tax and Benefit Guide for Foreigners Deduction limit revised upward for payment records preparation (Article 104-2(2) of the Restriction of Special Taxation Act) 1. Purpose of Revision To reflect the actual cost of preparing and submitting payment records and etc. of the earned income of daily workers and etc. while increasing the deduction limit. 2. Changes Before Now For payment records of daily workers' earned income, 300 won per record is deducted from tax amount. - Annual deduction limit: 1 million won Accounting corporation: 3 million won per year - Annual deduction limit: revised upward to 2 million won Accounting corporation : 3 million won per year 3. Date of Enforcement Effective for payment records submitted on and after Feb. 22, 2008

25 18 What are Major changes for 2009? 13. Minimum amount for the issuance of cash receipt removed & tax deduction applied to the issuance of cash receipts for under 5,000 won (Article 81(11) of the Income Tax Act, Article of the Enforcement Decree of the Income Tax Act, Article 126-3(2) of the Restriction of Special Taxation Act) 1. Purpose of Revision To abolish minimum amount for the issuance of cash receipts to improve the transparency of tax sources of small cash market To reduce small and self-employed businesses' tax burden which has been generated by the abolishment of minimum amount for issuing cash receipts 2. Changes Before <New> Now - Minimum amount for cash receipt issuance has been abolished. However, the minimum amount for penalties and monetary reward remains as 5,000 won. Tax deduction is provided for each cash receipt issued for 5,000 won or less. - Eligibility: registered stores (individual business owners) using telephone network when issuing cash receipts - Standard: No. of cash receipts issued for the transaction amount of less than 5,000 won - Deduction method: 20 won is deducted from tax amount due for each cash receipt issuance (calculated tax amount is the limit for tax deduction). - Application: The law expires in Dec Date of Enforcement Effective for cash receipts issued on and after Jul. 1, 2008

26 Individual Income Tax and Benefit Guide for Foreigners Methods of income deduction improved for money spent with credit cards and etc. (Article 126-2(1) of the Restriction of Special Taxation Act) 1. Purpose of Revision Since the amount of money spent with credit cards rises and an increasing number of people asks for cash receipts for the amount they spent with cash, 2. Changes Before Now Income deduction for the money spent with credit cards and etc. - Deducted amount: 15% deduction from the amount in excess of 15% of the total wage and salary -Expiry date: Nov. 30, 2007 Deduction threshold and rate increased - Deducted amount: 20% deduction from the amount in excess of 20% of the total wage and salary -Expiry date : Dec. 31, Date of Enforcement Effective from the taxation year that includes Jan. 1, 2008 when deducted tax is calculated for the money spent with credit cards and etc. * The deduction period is changed for medical expenses and credit card payment during the taxation period for Therefore, the amount spent with credit cards and etc. from Dec. 1, 2007 to Dec. 31, 2008 will be deductible.

27 20 What are Major changes for 2009? 15. Tax payment using credit cards (Article 46-2 of the Framework Act on National Taxes, Article 26-2 of the Enforcement Decree of the Framework Act on National Taxes) 1. Purpose of Revision To provide more taxpayer-friendly service by allowing taxpayers to pay taxes such as VAT with credit cards 2. Changes Before Now <New> National tax allowed to be paid by credit cards through KFTC (Korea Financial Telecommunications and Clearing Institute) Payment approval date of KFTC, a tax payment agency, considered as payment date Eligible tax items: VAT, individual income tax, comprehensive real estate tax, individual consumption tax and liquor tax paid by individual taxpayers - Sur-tax such as education tax and special tax for rural development is included. Maximum limit: 2million won per payment made for each tax item - For tax notified: to 2million won or less - For tax filed * : to 2million won * Individuals' withholding tax paid is included. How to pay tax with credit cards : through KFTC, a tax payment agency - Credit card fees (around the range of 1%) are to be paid by taxpayers 3. Date of Enforcement Effective for taxes filed and notified on and after Oct. 1, 2008

28 Part Ⅰ Introduction

29 Individual Income Tax and Benefit Guide for Foreigners At your Service A. What if you need help? This booklet is intended to help you prepare your own income tax return by providing the summary of the Income Tax Act, the instructions for filling out forms and related schedules. If you need more help after reading this guide, you can contact us (see later on this page). B. Before you contact us We hope to provide you with the best service possible. Before contacting us, please make sure that you : read the appropriate sections of this guide and other publications we mention in this guide; prepare all the details of your situation and question; and have on hand the working copy of your return, any related papers or receipts, and your tax registration number or alien registration number, if any. C. Contacting us Our telephone numbers and the addresses of your district tax office are listed later on this guide. Website : Phone : (02) (1456~1458) Visit : Monday to Friday from 9:00 am. to 6:00 pm. Fax : You can send us correspondence by facsimile. However, because of the nature of facsimile services, we are not responsible for misdirected, incomplete, or illegible documents. The fax number is (02)

30 24 Part Ⅰ. Introduction D. Your opinion matters! We review our publications every year. If you have any comments or suggestions that would help us improve them including this guide, we would like to hear from you. Please send your comments on our publications to our English website( General Information A. Do you have to file a return? If you are a foreign resident in Korea, you have to file a tax return in the same way as a Korean resident does. Three major types of individual income consisting of global income, retirement income and capital gains are all taxable. Furthermore, if you maintain a business place (usually termed as a permanent establishment in tax conventions) in Korea or have only real estate income arising from Korean sources without maintaining PE, you must also file a tax return even though your status is considered to be a non-resident. Exceptions to Final Return on Tax Base Any resident falling under any of the following subparagraph, may not need to make any final return on the tax base on income : A resident having only wage & salary income A resident having only retirement income A resident having only wage & salary and retirement income A person who has only business income, which is subject to withholding tax pursuant to the provisions of the Income Tax Act. A resident having both wage & salary, and passive income such as interest, dividend, or other income, which is subject to separate taxation A person who has interest, dividend, or other income only, which is subject to separate taxation Regarding the Year-end Adjustment for Wage Income Earner, refer to the 'Easy Guide for Foreigners' Year-end Tax Settlement' on our English website. B. What date is your return for 2008 due? The regular return period for the income accruing for the tax year concerned begins on May 1 and ends on May 31 of the next year. For tax purposes, individual tax payers must use the calender year as their taxable year. When the due date for filing a return and paying tax falls on a Sunday or a legal holiday, the next business day is the due date.

31 Individual Income Tax and Benefit Guide for Foreigners C. What do you include with your return and what records do you keep? Which Form to file There are 2 forms you can choose when you file your final tax return : Form 40-1 and Form You should use Form 40-4 if you have only either business income or real estate income. For details, refer to the information on the first page of Form 40(4), or Form 40-1 What Supporting Documents are Needed If you are filing a return, your return forms and its guide explanations will tell you what supporting documents are to be attached, such as certificates, forms, schedules, or official receipts. If you make a claim without the required receipt, certificate, schedule, or form, we may disallow your claim. It could also delay the processing of your return. Even if you do not have to attach certain supporting documents to your return, keep them in case we select your return for review. Generally, you should keep your supporting documents for five years. The following documents should accompany your tax return: - Copy of alien registration card issued by the local immigration office, if necessary; - Application for tax credits and exemptions, if any, and documents attesting that you are entitled to the income deductions and tax credit, etc.; - Documents which are necessary for calculating the total gross income amount and the necessary expenses including balance sheet, income statement, and trial balance if you are engaged in trade and business ; - Other necessary documents may be requested by the tax authority according to the relevant provision of the Income Tax Act.

32 26 Part Ⅰ. Introduction Alien Registration Requirement An alien who is planning to stay in Korea for more than 90 days is required to obtain a Certificate of Alien Registration from the Immigration Office. The Alien Registration Number is given by the immigration office. It is important to use this number on each and every tax-related document because it is also used as the alien's identification number for tax purposes during his or her stay in Korea. D. Where do you have to file and pay? Where to file your return You have to file your return with the district tax office (DTO) having jurisdiction over your domicile. For your inquiry and reference, our tax offices in major cities are listed on Appendix B (However, for your convenience in terms of English language, we recommend you to use the contact number of the page 15 of this guide). If you live in a local county or city, you may first contact the regional tax office to find out the location of your relevant DTO. However, your tax return filed in an unqualified DTO will be automatically transferred to the relevant DTO that has jurisdiction over your current domicile. You may also file electronically, through our website( Home Tax Service is available only in Korean. Where to pay your tax Taxes can be paid at any bank or post office by May 31. You may also use the electronic payment system by phone (phone banking : ARS) or on-line banking E. What penalties do we charge? The penalty for both failure-to-return and failure-to-pay is assessed if a return or a payment is not accomplished by the due date. For details, refer to Part Ⅱ. Tax Penalties(page 74).

33 Individual Income Tax and Benefit Guide for Foreigners F. What happens to your return after we receive it? When we receive your return, we usually review it based on the information you provided. We may select your return for a more detailed review before we assess it. We may ask you to give us documents to verify the deductions or credits you claimed. G. When can you expect your refund? We usually process returns in 4 to 8 weeks. Normally returns are processed during June. H. Do you report foreign income and other amounts? If you are a foreign resident in Korea, you have to report your income from all sources, both inside and outside Korea. Report foreign income and other amounts (such as expenses and taxes paid) in Korean won. Use the exchange rate that was in effect on the day you received the income or paid the expense. If you paid foreign taxes on foreign income you received, do not reduce the amount you report by the amount of tax the foreign country withheld. However, you may be able to claim a foreign tax credit when you calculate your tax responsibility. This credit is for foreign income or profits taxes you paid on income you received from outside Korea and reported on your Korean return. Tax treaties with other countries may affect whether you are eligible for this credit. I. What is the "Enforcement of Standard Simplified Expense Rate System"? Concept This is a presumptive deduction, i.e. a deduction given for tax purposes regardless of (and in lieu of) the actual expenses incurred. Taxable income is calculated by deducting a presumptive expense ratio (So-called Standard or Simplified Expense Rate in Korea) from gross receipts. Since the deduction is given against gross income, the effect is the same as making a presumption of taxable profit.

34 28 Part Ⅰ. Introduction Standard Expense Rate System is in effect for the income accruing after January 1, 2002 so as to establish taxation based on bookkeeping(e.g. accounts of taxpayers) and to guarantee transparency of transactions through evidential documents. Generally, taxpayers who have gross revenue above a certain amount shall file their tax returns based on their bookkeeping (including double-entry bookkeeping). However, even those taxpayers may file their returns, without bookkeeping, through evidential documents alone for their expenses under Standard Expense Rate system. A taxpayer who are subject to this system has to show the amount of their Primary Expenses(purchase, rental and wage expenses) through the relevant evidence documents. Then, the rest of the expenses, for the purpose of individual income tax, shall be determined as the amount calculated according to Standard Expense Rate. Income Amount = Gross Revenue - Primary Expenses - (Gross Revenue Standard Expense Rate) However, in order to help taxpayers avoid drastic increase of their tax burden, the ceiling of income amount is applied as follows : Income Amount (according to standard expense rate) {Gross Revenue - (Gross Revenue Simplified Expense Rate)} Ratio decided by NTS (2.1 or 2.6 for year 2008) Ratio is apply to businesses which do not keep records and books as follows : (2.1 : business subject to simplified bookkeeping, 2.6 : business subject to double entry bookkeeping) On the other hand, small size taxpayers shall be eligible for Simplified Expense Rate for the income accruing for the year of 2008, the rate will be increased to the level of actual expense rate in the future. Income Amount = Gross Revenue - (Gross Revenue Simplified Expense Rate) Scope of Standard Simplified Expense Rate System Taxpayers subject to Standard Expense Rate 1) taxpayers which do not keep records and books and are not subject to simplified expense rate* 2) taxpayers with the sum of gross revenue of preceding year not less than the amount below who does not maintain books on records ⅰ. Agriculture, Hunting & Forestry, Fishing, Minning, Wholesale and Retail Trade, and other types of business which do not fall under following categories : 60 million won

35 Individual Income Tax and Benefit Guide for Foreigners ⅱ. Manufacturing, Hotels and Restaurants, Electronics Gas and Water-supply, Construction, Transport, Storage & Communications, Finance & Insurance : 36 million won ⅲ. Real Estate, Service(Personal Service) : 24 million won * Taxpayers not subject to simplified expense rate Professional occupation (lawyer, tax accountant, accountant, customs broker, doctor, pharmacist, veterinarian etc.) An individual business which is required but failed to register as a cash receipt issuance store during the required subscription period (3 months) A taxpayer regularly refusing to issue credit card sales slips cash receipts (amounting to 1 million won or more for 3 times per year, or for 5 times per year) Taxpayers subject to Simplified Expense Rate Taxpayers with the gross revenue of preceding year less than the amount above and new starter during current year. Notes For the purchase and rental expenses to be allowed as necessary expenses by the tax authority, taxpayers shall receive regular evidential document such as a tax invoice, invoices and credit card sales slip. When a taxpayer receives simplified tax invoices or receipts, he/she has to submit to the tax authority the Details of Primary Expenses. along with them. Regarding the scope of primary expenses, the types of evidence document and the amounts (not) included in Details of Primary Expenses, please refer to National Tax Service Notice ( ) Notice of Scope of Purchase Rental Expense and Types of Evidence Document". It should be also noted that when a taxpayer with the gross revenue of the preceding year not less than 48 million won files his/her return by estimation according to Standard(Simplified) Expense Rate shall be subject to penalty for non-bookkeeping, 20% of the calculated tax amount

36 30 Part Ⅰ. Introduction Special Case Applicable to the Personal Service Income Earners Introduction of the Excess Rate to the Simplified Expense Rate for the Personal Service Income Earners. In case of personal service income earners applying the Simplified Expense Rate, Excess Rate is applied to amounts exceeding won 40 million. Since personal service income earners do not require separate human resources or physical facilities, their income structure is similar to that of a salary income. Therefore the Excess Rate has been introduced to account for the inequality in terms of tax burden between personal service income earners and salary income earners who has much higher rate of taxable income to salary revenue as the salary revenue increases. However, in case of business person who started personal service business on the previous year, the taxable income amount is calculated by annualizing the actual revenue amount during the business period by dividing the amount by 12 and multiplying it by the number of months the business has existed, since the actual time the business has been operating is less than one year (the number of month is calculated based on calendar month and the month which is short of a full month is still counted as a full month). An example of the application of the Excess Rate Business Category Lecturer (940903) Classification Subject to Simplified Expense Rate Revenue Amount (Business Person going concern) 50,000 Thousand won Simplified Expense Rate Basic Rate Excess Rate 59.7% 43.6 % Taxable Income =[40,000-(40, %)]+[10,000-(10, %)] = won 21,760 Thousand

37 Individual Income Tax and Benefit Guide for Foreigners J. Frequently Asked Questions [Taxation on gains from stock option exercise] Q1. I work for a foreign-invested company. I have profits from stock options that I exercised in 2008 which were granted by a foreign parent three years ago. Should I declare the gains? A1. Yes. If an employee of a domestic subsidiary is granted stock options by a foreign parent, and exercises them during the employment, the profits are regarded as compensation for the labor the employee provides. Therefore, you should declare the profits during the global income tax filing season this year. You should write down the profits on page 11(❽ Details of Wage & salary Income and Other Income) of tax form 40(1). Enter 56 on the 1 Income Classification Code. For your reference, the profits generated by exercising stock options after retirement should be reported as other income. Enter 60 on the 1 Income Classification Code of the same tax form 40(1). [Currency Conversion of Wage and Salary Paid in Foreign Currency] Q2. I have been working in Korea since early last year. I receive my wage and salary from the US head office on the 20th of every month. I would like to file a tax return on the income. I wonder how I should declare my wage and salary paid in the foreign currency? A2. If wage and salary is paid in the foreign currency, the currency should be converted into won as follows: If you are paid wage and salary before the agreed date of payment, you should apply the standard exchange rate of the actual payment date. If you are paid wage and salary on or after the agreed date of payment, you should apply the standard exchange rate of the agreed date of payment.

38 32 Part Ⅰ. Introduction [Special Case of Final Return on Tax Base] Q3. I am a foreigner, and have run my own business for a couple of years in Korea. I am returning to my home country in April this year. Should I declare my global income tax for 2008 in May this year? And how may I go about filing a tax return on income earned in 2009? A3. If a foreigner subject to the global income tax leaves Korea, he/she should file a tax return not later than 10 days before departure. In your case, you should declare your income earned attributable to 2008 and until the day of your departure in 2009 not later than 10 days from the date of departure. [Income Tax Liabilities and Filing of Tax Base for Global Income] Q4. I have worked in Korea for three years. I have real estate rental income from my home country. I already settled my wage and salary earned in Korea during the year-end tax adjustment period. Should I declare the real estate rental income in Korea as well? A4. Yes. Since you have lived in Korea for more than one year, you have tax liabilities on wage and salary earned in Korea as well as any income earned abroad. You will be granted tax deduction for the taxes paid aborad when filing a global income tax. [Basic Deduction] Q5. My parents live back home in my home country. Are they eligible for basic deductions? A5. Yes, you may receive basic deductions for your parents living in your home country, as long as they are your dependents and their adjusted wage and salary does not exceed 1,000,000 per year. You may receive an additional deduction of 1,000,000 per parent aged 65 or older, and 1,500,000 per parent aged 70 or older.

39 Part Ⅱ Outline of Individual Income Tax System

40

41 Individual Income Tax and Benefit Guide for Foreigners In this part, the provisions of the Income Tax Act are outlined. Refer to the Income Tax Act for detailed information. Taxpayer Taxpayer, who is liable to pay the income tax on his/her income, is classified into Resident and Non-resident in terms of whether Korea has the taxing right on his/her worldwide or just domestic income, and the scope of income deduction pursuant to the provisions of Income Tax Act of Korea. A. Resident Principally, a resident is any individual who has his/her domicile in Korea or a place of residence for 1 year or more in Korea. The domicile shall be judged by the objective facts of living relationship, such as the existence of a family living together in Korea and of the property located in Korea. The 'place of residence' means the place where a person has dwelt for a long time besides his address. A taxpayer who falls under the following cases is deemed to have a domicile in Korea. Who has an occupation which would require him/her to reside in Korea for 1 year or more; or Who has his/her family in Korea and is likely to reside in Korea for 1 year or more in view of his/her occupation or assets held in Korea. A resident is subject to income tax on all incomes derived from sources both within and outside the country. B. Non-Resident Any individual other than a resident is a non-resident, who is liable to income tax only on the income derived from sources within Korea.

42 36 Part Ⅱ. Outline of Individual Income Tax System Income A. Taxable Income As stated above, resident individuals are taxed on their worldwide income. Non-resident individuals are taxed only on Korean-source income. Regarding taxation method, income derived by residents and non-residents is subject to global and separate taxation. - Under global taxation, interest, dividend, real estate rental income, business income, wages and salaries, pension income, and other income are aggregated and taxed progressively. - Under separate taxation, however, retirement income and capital gains are taxed separately at varying tax rates. [Income Tax Liabilities and Filing of Tax Base for Global Income] Q. I have worked in Korea for three years. I have real estate rental income from my home country. I already settled my wage and salary earned in Korea during the year-end tax adjustment period. Should I declare the real estate rental income in Korea as well? A. Yes. Since you have lived in Korea for more than one year, you have tax liabilities on wage and salary earned in Korea as well as any income earned abroad. You will be granted tax deduction for the taxes paid aborad when filing a global income tax. Global income Global income is the income which is subject to global taxation and includes interest, dividend (including deemed dividend), real estate rental income, business income, wage and salary, pension income and other income.

43 Individual Income Tax and Benefit Guide for Foreigners Interest - Interest and discount amounts received during a tax year from debentures and securities issued by a nation s government/its local authorities, or a domestic/foreign corporation - Interest and discount amounts received during a tax year from deposits and installment savings payable both within and outside Korea - Interest from non-commercial loans - Savings-type insurance premiums with a maturity of less than ten years Dividends - Dividends, distributions of surplus, and interest received from a domestic or foreign corporation during construction - Distributions of profits received from a non-corporate entity such as private associations or foundations - Deemed dividends and distributions - Amounts designated as dividend by the Corporation Tax Act - Distributions of profits arising from securities investment trusts, except for profits or losses arising from the transfer or revaluation of securities listed on the Korean Stock Market or the Korean over-the-counter trading market (KOSDAQ) Real estate rental income - Income from leasing land, from fixtures thereon, and rights pertaining thereto - Income from leasing mining and factory foundations or from mining rights Business income - Profits from livestock, forestry and fishing industries - Profits from mining and quarrying - Profits from manufacturing - Profits from provision of electricity, gas, and water services - Profits from construction business - Profits from wholesale or retail trade, operation of a hotel, or catering - Profits from transporting or communications - Profits from banking, insurance, and real estate dealing - Profits from real estate business, leasing, and business services - Profits from educational services

44 38 Part Ⅱ. Outline of Individual Income Tax System - Profits from health and social welfare services - Profits from social and personal services - Profits from household services Wage and salary income - Class A: Wage, salary, remuneration, allowance, bonus, and any other allowance of a similar nature received in return for services Income, other than retirement income, received due to retirement - Class B: Wages and salaries received from a foreign agency or from the U.N. Forces in Korea (excluding the U.S. Armed Forces) Wages and salaries received from a foreigner or foreign corporation outside Korea, excluding those claimed as a deductible expense for a Korean place of business of a non-resident or a foreign corporation [Taxation on gains from stock option exercise] Q. I work for a foreign-invested company. I have profits from stock options that I exercised in 2008 which were granted by a foreign parent three years ago. Should I declare the gains? A. Yes. If an employee of a domestic subsidiary is granted stock options by a foreign parent, and exercises them during the employment, the profits are regarded as compensation for the labor the employee provides. Therefore, you should declare the profits during the global income tax filing season this year. You should write down the profits on page 11(❽ Details of Wage & salary Income and Other Income) of tax form 40(1). Enter 56 on the 1 Income Classification Code. For your reference, the profits generated by exercising stock options after retirement should be reported as other income. Enter 60 on the 1 Income Classification Code of the same tax form 40(1). Pension income - national pension - public official pension - retirement pension - private pension, as set out in the Restriction of Special Taxation Act - incomes similar to those above, which are paid in the form of annuities.

45 Individual Income Tax and Benefit Guide for Foreigners Other income The term "other income" denotes specifically designated categories of income other than interest, dividends, real estate rental income, business income, wages and salaries, pension income, retirement income and capital gains. Other income includes the following: - prize money and other similar money or goods, - money or goods received from participation in a lottery, and any other prize won in a contest, - money or goods received as a prize in a lottery, drawing, or any other contest, including the purse payable to the buyer of a winning ticket for horse racing, cycle racing, motorboat racing, bull fighting and sports betting game, - fees for use of copyrighted materials received by any person other than the creator of the material, - royalties given as consideration of using films or tapes for radio or television broadcasting, or from such use of other similar assets or rights, - gains from the alienation of mining rights, fishing rights, industrial property rights, individual information, industrial secrets, trademarks, goodwill(including certain leases of stores), rights derived from the permission to exploit earth, sand, and stone, the right to exploit and use subterranean water, etc. - rent derived from a temporary lease of real estate or personal property, goods, or places, and - damages or indemnity payments for breach or cancellation of a contract. Non-global income (Classified income) Non-global income denotes the income which is separately taxed from the global income at varying rates. It includes Retirement income and Capital gains. Retirement income - Class A: Retirement allowances: retirement allowance from the reserve of the National Pension Fund received by a Class A wage and salary income earner - Class B: Retirement allowance received by a Class B wage and salary income earner Capital gains - Income arising from the transfer of land or buildings - Income arising from the transfer of rights related to real estate

46 40 Part Ⅱ. Outline of Individual Income Tax System - Income arising from transfer of shares in a company listed on the Korean stock exchange and the KOSDAQ (Korean Securities Dealers Automated Quotation) sold by large shareholder and sold not via securities markets. * the scope of large shareholder : 1 or 2 1 Shareholder or investor and his/her related persons whose combined shares are 3%(5% in the case of share listed on the KOSDAQ market) or more of the total shares as of the end of the previous fiscal year of the year in which transfer of shares take place. 2 Shareholder or investor and his/her related persons whose combined market price of shares are 10 billion won(5 billion won in the case of shares on the KOSDAQ market) or more as of the end of the previous fiscal year of the year in which transfer of shares take place. - Income arising from transfer of shares in a company not listed on the Korean stock exchange and the KOSDAQ * Gains realized by an individual taxpayer on the transfer of shares in a company listed on the Korean stock exchange and the KOSDAQ (excluding those traded at over-the-counter market) are not taxable. B. Non-taxable Income Non-taxable income is the income for which the Government waives its taxing rights. Whether an application for non-taxation is made or not, this kind of income is not taxable. A few examples for each income are addressed as follows. Income dedicated to public goods Profits from property placed in trusts for public welfare Rents from certain categories of real estate Income from the lease of rice fields or dry fields etc.

47 Individual Income Tax and Benefit Guide for Foreigners Interest and dividend income - Interest or dividends from long term home savings; over seven years and less than 3 million won per quarter - Interest from savings of less than 20 million won, to Mutual Financial Institutions of agricultural or fishing associations - Interest or dividends from cost-of-living savings of less than 30 million won of the elderly(60 years old(55 years old for female) or more) or the disabled - Dividends from stock of up to 30 million won at par value owned for more than one year by employees or stockholders who are minority stockholders Business income Profits not exceeding 12 million won per year from other auxiliary businesses such as fish breeding, straw production, and so on. Wage and salary income and retirement income - Pay received by certain enlisted men in the armed forces, or persons mobilized under law - Compensation or other payments made for consolation received by those injured or debilitated while furnishing a service - Education fees as prescribed by 11 of the Enforcement Decree of the Income Tax Act - Payments in the nature of reimbursement for expenses actually incurred (including such items as overseas service allowance, housing allowance, etc, received by foreign wage and salary earners) - Wages received by the person working in a foreign government or an international organization(the United Nations and its affiliated organs) as prescribed by 14 of the Enforcement Decree of the Income Tax Act ; in case of a foreign government, the principle of reciprocity is applied - Wages receivable by furnishing work or services overseas: pay up to 1 million won per month(pay up to 1.5 million won per month receivable for deep-sea fishery outbound ship workers)

48 42 Part Ⅱ. Outline of Individual Income Tax System - Reimbursement expenses of those prescribed by 14 of the Enforcement Decree of the Income Tax Act - Allowances for night shifts, overtime work, and holiday duty received by blue-collar employees with monthly wages not exceeding one million won - Special Taxation Treatment for Foreign Employees : limit is up to 30% of Gross Wage & Salary Income Provisions concerning such tax exemption, deduction, reduction, tax credit, and year-end settlement shall be applicable to the non-resident same as resident. A foreigner may choose separate taxation of total income from employment income by multiplying such income by 17/100 instead of non-taxable treatment on 30% of gross wage & salary income. In this case, provisions concerning such tax exemption, deduction, reduction, and tax credit shall not be applicable. Other income Awards or compensation received under the National Security Law ; and so on. Capital gains - Capital gains from disposition of real estate resulting from adjudication of bankruptcy; - Capital gains from exchanges, division, or annexation of farmland prescribed by 153 of the Enforcement Decree of the Income Tax Act. - Capital gains from the transfer of one house per household, together with the land upon which the house sits (limited to an area of ten times the floor space of the house, or five times the floor space in a designated urban planning district): To obtain this exemption, the house must be held by the seller for more than three years and the house located in the Seoul Metropolitan city etc, should be inhabited by the owner for over two years. The house also must not be "highly priced house", i.e. not worth more than 600 million won. This exemption is extended to a second house per household in case where a taxpayer acquires a rural house (located in areas other than Seoul or Gyeonggi-do) by inheritance, or for the purpose of returning to a farming life, or due to rural exodus and so on.

49 Individual Income Tax and Benefit Guide for Foreigners Pension income - Survivor's pension or disability pension received under the National Pension Act; - Various annuities received under the Industrial accident Compensation Insurance Act etc. C. Tax-exempt Income Wage & Salary income In case a taxpayer has any income counted in the taxable global income as follows, an amount calculated by multiplying the amount of calculated global income tax by the ratio of the said income to the taxable global income is exempt from income tax upon submitting an application for tax-exemption: - Wages receivable by a foreigner sent to Korea under a governmental agreement from both parties or one party; - Income accruing from the operation of ships or aircraft engaged in international traffic by non-residents and alien residents, provided that the reciprocity basis is applied. A foreign engineer who falls under 16 of the Enforcement Decree of the Restriction of Special Taxation Act shall be allowed to be exempted from income tax derived from Korea if such employment income has been earned until the month whereto belongs the date on which 5 years have passed since the first date on which the foreign engineer provided his service in Korea. Capital gains Exemption of capital gains tax for alienated farming land that has been cultivated by the owner himself/herself for 8 years or more.

50 44 Part Ⅱ. Outline of Individual Income Tax System Global Taxation of Financial Income (GTFI) When the amount of interest or dividend income included in the global income tax of a resident exceeds the amount set forth in the guideline as to global taxation (40 million won per year), the amount of tax on global income shall be the larger of the two shown below. (a) The sum of the following: - The amount of global income tax calculated on the sum of: the amount by which interest and dividend income exceeds 40 million won, and the amount of global income other than interest or dividend income million won, the amount of tax calculated by applying a withholding tax rate of 14% to 40 million won (b) The sum of the following: - 14% of the total interest and dividend income, and - the amount of tax computed on global income other than interest or dividend income. Who are subject to global taxation on financial income Resident - Individual - Non-corporate organization regarded as individual Non-Resident - In the case that the GTFI is substantially related to the Permanent establishment or real estate in Korea Taxation Period The Taxation period is Jan. 1st to Dec In the case of becoming a Non-Resident due to early departure, it would be Jan. 1st to that departing day.

51 Individual Income Tax and Benefit Guide for Foreigners Tax Base and Deductions A. Basic Rules for Calculating the Tax Base Substance over form The provisions governing calculation of taxable income are applicable on the basis of the real contents thereof. Classified calculation The tax base shall be calculated for global income, retirement income and capital gains, respectively. Global income tax base The global income tax base is the amount remaining after deducting personal exemptions from the aggregate of taxable global incomes such as interest income, dividend income, real estate income, business income, wage and salary income, and other income. Non-inclusion in global income The following incomes are not included in the global income but are either assessed separately or are non-taxable: - Non-taxable income - Wage of workers paid on a daily basis - Interest and dividend income subject to separate taxation which is eligible for reduced withholding rates

52 46 Part Ⅱ. Outline of Individual Income Tax System - Excessive refund of the workplace mutual-aid association as prescribed in of the Income Tax Act - Other income of not more than 3 million won per year as prescribed in of the Income Tax Act - Annuity income subject to separate taxation pursuant to of the Income Tax Act Tax base of income subject to separate taxation The tax base of retirement income or capital gains is the amount remaining after deducting personal deductions from the respective income amount (the personal deduction may be deducted if there is any residual after deducting from global income). Taxable period for revenue and expenses The taxable period for gross revenue and necessary expenses of a resident is the period to which the revenue and expenses should be attributed and reported. The timing for attribution, for each type of income, is as follows : Attribution of Income Type of Income Interest income Dividend income Real estate rental income Business income Timing of Attribution the date of receiving interest or the agreed date of payment the date on which disposition of surplus is determined (ordinary dividend income) the date of receiving rent or the agreed date of payment - the date of delivery or of the product reaching the deliverable state(sales of merchandise or products) - the date of completion of services(performance of personal services) Wage and salary income the date of furnishing services(ordinary wage and salary) Retirement income Capital gains Other income the date of retirement the date paid in full the date of receipt

53 Individual Income Tax and Benefit Guide for Foreigners Taxable period - Generally individual taxpayers use the calendar year as tax year : January 1 through December 31 - January 1 through the date of death, in the case of death of a resident - January 1 through the date of leaving Korea, in the case of a resident who becomes a non-resident B. Calculation of Tax Base(Taxable Income) Interest income Amount of income Dividend income Actual dividend and distribution : Amount of income Deemed dividend - The amount in excess of the investment received by an investor through decreasing the capital of a corporation - The value of stock dividends or any other corporate rights received by stockholders or investors by capitalizing corporate surplus except for capital reserves or reserves for assets revaluation, and so on Real estate rental income Taxable income - Total amount of income in each taxable period remaining after deduction of necessary expenses and losses carried over within 5 years from gross revenue Gross revenue - Aggregate of revenue accruing from lease of real estate - If key money or deposit is received as a rent, the amount calculated by multiplying the key money or deposit exceeding the construction expenses of the rental estate by the

54 48 Part Ⅱ. Outline of Individual Income Tax System interest rate for a time period maturing in one year as of the closing date of the taxable period adds to the gross receipts. Necessary expenses - Aggregate of expenses required to produce the total amount of income earned during the taxable period - If the tax base is determined on the basis of estimation, the standard expenses determined by the Government are regarded as necessary expenses. Business income Total amount of income in each taxable period remaining after deduction of necessary expenses and losses carried over within 5 years from an amount of gross revenue. Gross revenue (a) Gross revenue of a business are the aggregate of money or property receivable in connection with the activities of a business in the tax year. ㆍIf anything other than money is received, the income amount is calculated as the monetary value thereof prevailing at the time of transaction. ㆍThe value of returned goods and a discount on sales is offset in the calculation of gross revenue for the year. ㆍSales discounts in case of early settlement of an account receivables are deducted from gross revenue ㆍBounties and other similar sums received from sellers are included in gross revenue. ㆍIf tax amounts counted in necessary expenses are refunded, the amount of refund is included in gross revenue. ㆍA decreased amount of liabilities due to exemption or the lapse of a liability is accounted for as gross revenue. ㆍSuch other amounts of revenue related to the business as have been reverted or are to be reverted to the business person in question are counted in gross revenue. (b) Non-inclusion in gross revenue The following items are not covered in gross revenue:

55 Individual Income Tax and Benefit Guide for Foreigners ㆍamount of income tax or inhabitant tax refunded or to be refunded, used for the payment of other tax amounts ㆍvalue of assets received without compensation and amount of decrease in liabilities due to exemption or lapse of debts, used for balancing carried-over deficits, ㆍvalue of products used by businesses: self-produced raw materials or fuels, ㆍamount of indirect taxes, such as the Value Added Tax, collected from customers to be turned over to the tax authorities, and ㆍinterest on the refund of overpayments of national taxes or local taxes. Necessary expenses (a) Necessary expenses are the aggregate of expenses incurred in relation to the accrual of gross revenue for each taxable period and include the following: ㆍpurchase price of raw materials or goods corresponding to products or goods sold for the year concerned (discounts on purchases and purchase discounts are deducted from purchase price) ㆍbook value of transferred assets at the time of the transaction (in the case of a real estate sales business) ㆍsalaries and wages ㆍcost of repairing business assets, including management and maintenance expenses ㆍdepreciation of fixed assets of the business ㆍrent of business assets ㆍinterest on borrowings ㆍbad debts (including VAT thereon) ㆍloss on revaluation of assets ㆍmine exploration expenses including development costs ㆍadvertisement expenses and sales promotion expenses ㆍpublic contributions, designated donations and entertainment expenses within the prescribed limit ㆍdeferred expenses such as start-up costs or experimental and research expenses counted in necessary expenses (b) Contributions to the following reserves are considered necessary expenses, within the prescribed limits.

56 50 Part Ⅱ. Outline of Individual Income Tax System ㆍReserves for retirement of up to 5% of total wages paid to employees who have served for one year or more: the accumulated amount of the reserve is limited to 30% of the estimated retirement allowances payable to all employees at the closing date of the year ㆍReserves for bad debts to be included in the necessary expenses shall be the larger amount between the amount equivalent to 1% of aggregate sales on credit or accounts receivable and related claims as of the closing date of the respective year, and the amount obtained by multiplying the credit balance by the actual ratio of bad debt. (c) The following amounts are treated as necessary expenses in the calculation of income for the year. ㆍGains on insurance claims of a resident used for acquisition of the same kinds of fixed assets as the lost or broken fixed assets, and those used for improvement of the acquired fixed assets or the damaged fixed assets (must be within 2 years from the beginning day or the year following the year in which the gains fall) ㆍAmount of subsidy actually used for acquisition or improvement of fixed assets (d) Non-inclusion of necessary expenses The following losses and expenses are not counted as necessary expenses in the calculation of the income of a resident. ㆍIncome tax (including foreign income taxes), inhabitant tax, and tax paid or payable as a result of delinquency in the payment of tax owed (including penalty taxes thereof) ㆍFines, minor fines, penalty taxes, and expenses for disposition of taxes in arrears ㆍPublic imposts, other than those which a taxpayer has an obligation to pay under the law ㆍLosses from revaluation of assets other than inventory or short-term investment assets ㆍExpenses deemed by the government not to have any direct connection to the business ㆍUnpaid amounts of liquor tax or other excise taxes on inspected or carried out products not yet sold ㆍInterest on borrowing incurred by a resident and used to fund construction, and interest on private loans of which the sources are unknown ㆍDepreciation amount of the fixed assets allocated for each year, exceeding the amount allowed as necessary expenses

57 Individual Income Tax and Benefit Guide for Foreigners ㆍHousehold expenses and prepaid expenses ㆍValue added tax paid on inputs (e) Non-inclusion in necessary expenses of designated donation If the amount of designated donations* exceeds the amounts calculated below and donations are not designated ones, such donations are not included in necessary expenses for the relevant year when calculating business income. 1) Donations made to religious groups Amount limit included as necessary expenses = A 10% + Min[(A 5%), donations made to organizations other than religious groups] 2) Cases not included in 1) above Amount limit included as necessary expenses = A 15% A : Income amount of the relevant year - Deficit carried over - Political donations - Donations with no-limit deduction - Donations with 50%-limit deductions - Donations with 30% - limit deductions made to employee stock ownership association * Designated Donation ㆍDonations to public interest entities, social welfare organizations, and religious organizations ㆍDonations and scholarships for academic research, technical development, and athletic skill development ㆍOther donations to public entities prescribed by 80 of the Enforcement Decree of the Income Tax Act The following contributions are always treated as necessary expenses in computing taxable income. ㆍValue of money and goods donated to government agencies and local governmental bodies without compensation ㆍContributions for national defense and war relief ㆍValue of money and goods donated for the relief of victims of calamities

58 52 Part Ⅱ. Outline of Individual Income Tax System (f) Non-inclusion in necessary expenses of entertainment expenses ㆍIf a taxpayer's entertainment expenses exceed the aggregate sum of the following amounts, the amount in excess thereof is not to be counted as a necessary expense. (Note: Entertainment expenses are allowed only when supported by recognizable regular invoices such as credit card invoices if the one-time expenditure is over 50,000 won.) i) an amount calculated by multiplying 12 million won (18million won in the case of a small or medium size enterprise) by the number of months in the respective tax period, divided by 12 ii) an amount calculated by multiplying the total amount of revenue for the business year by the rates listed in the table below Revenue amount Rate 10 billion won or less 0.2% Over 10 billion won but not more than 50 billion won More than 50 billion won 20 million won + 0.1% in excess of 10 billion won 60 million won % in excess of 50 billion won (g) Provided, that with respect to the revenue accruing from the transaction of the related party determined by 84 the Enforcement Decree of the Income Tax Act, it shall be the amount equivalent to 20/100 of the amount calculated by the rates listed above. Depreciation - Depreciation cost is calculated as necessary expenses in computing income, and is determined in accordance with the useful life of fixed assets. (a) Methods of calculating depreciation - Depreciation of fixed assets is calculated according to the following methods. ㆍFixed percentage method or straight-line method for tangible fixed assets (only the straight-line method may be used for buildings, but either method may be chosen for machinery and equipment) ㆍStraight-line method used for intangible fixed assets

59 Individual Income Tax and Benefit Guide for Foreigners ㆍUnit of production method or straight-line method for mining rights: Under the unit of production method, the actual output extracted in a tax year is compared to the estimated total amount extracted, and the ratio is applied to the book value of the mineral rights to determine the size of the depreciation deduction allowed. (Note: the Korean language uses one word to describe "depreciation," "amortization," and "depletion.") ㆍUnit of production method, fixed percentage method, or straight-line method for tangible fixed assets used in mining (b) Acquisition value of fixed assets ㆍIn case of fixed assets purchased, it is the price quoted at the time of purchase (including registration tax, acquisition tax, and other incidental costs, but not Value Added Tax). ㆍIn case of fixed assets acquired by means of one's own construction, fabrication, etc., it is the aggregate costs of raw materials, labor, freight, loading and unloading cost, insurance premiums, fees, public imposts (including registration tax and acquisition tax), installation expenses, and other incidental costs. ㆍIn case of fixed assets other than those referred above, it is the normal price quoted at the time of acquisition. (c) Useful life and depreciation rate - Refer to 28 of the Enforcement of the corporation tax act. (d) Residual value - The residual value of a fixed asset is zero, but becomes 5% of the acquisition value in case of depreciation when using the fixed percentage method. This amount is claimed as an expense in the final year of depreciation. (e) Revenue expenditures and capital expenditures ㆍRepairing expenses disbursed by a taxpayer either to restore his assets to their original state or to maintain their efficiency are regarded as revenue expenditures. ㆍRepairing expenditures spent either to extend the useful life or to increase the actual value of fixed assets are regarded as capital expenditure.

60 54 Part Ⅱ. Outline of Individual Income Tax System Accounting for inventory (a) A taxpayer may select one of the following methods of inventory accounting. The accounting method utilized for filing tax returns shall be reported by the due date for the year in which the business is begun. ㆍCost method ㆍLower of the cost or the market method (b) If the cost method is applied, one of the following conventions must be used. ㆍSpecific identification method ㆍFirst-in, first-out ("FIFO") method ㆍLast-in, first-out ("LIFO") method ㆍWeighted average cost method ㆍMoving average cost method ㆍCost of sales rebate method (c) Different accounting methods may be applied to various assets by category and place of business, in accordance with the following classes of assets. ㆍProducts and merchandise ㆍSemi-finished goods and work in process ㆍRaw materials ㆍStored goods (d) In any of the following cases, the head of a tax office may value inventory assets according to the FIFO method (weighted average cost method in case of securities, specific identification method in case of real estate held for sale). ㆍA taxpayer fails to report his method of accounting for inventory within the time required. ㆍA taxpayer accounts for inventory using a method other than that reported. ㆍA taxpayer changes the accounting method used for inventory without filing a report of such change.

61 Individual Income Tax and Benefit Guide for Foreigners Wage and salary income The total amount of income remaining after the deduction of the following amount. Deduction Amount on Wage & Salary Income Wage & Salary Amount Deduction Amount Up to 5 million won Total amount 5 million~15 million won 5 million won + 50% of the Salary over 5 million won 15 million~30 million won 10 million won + 15% of the Salary over 15 million won 30 million~45 million won million won + 10% of the Salary over 30 million won Over 45 Million won million won + 5% of the Salary over 45 million won Pension income Total amount of income remaining after the deduction of the following amount with the deduction ceiling of 9 million won. Deduction Amount on Pension Income Pension Amount Deduction Amount Up to 3.5 million won 3.5 million~7 million won 7 million~14 million won Over 14 million won Total amount 3.5 million won + 40% of the pension over 3.5 million won 4.9 million won + 20% of the pension over 7 million won 6.3 million won + 10% of the pension over 14 million won

62 56 Part Ⅱ. Outline of Individual Income Tax System Other income Aggregate amount of income less necessary expenses. For the types of other income enumerated in Article 87 of Presidential Decree of Income Tax Act, i.e. Remuneration from a lecture of an independent nature and similar incomes, are given deduction of 80% thereof as necessary expenses. Retirement income Taxable income is calculated as follows ; Tax Base Income Retirement pay + Honorable retirement = allowance - Basic deduction - + for retirement Group retirement income insurance proceeds Deduction by the length of service That means, the total amount of income remaining after deduction of the following amounts - Basic Deduction for Retirement Income 45% of retirement pay - Additional Deduction by the Length of Service Deduction by the length of service No. of Service Years Up to 5 years 300,000 won per service year Deduction Amount in won 5-10 years 1,500,000 won + 500,000 won (No. of service years-5) years 4,000,000 won + 800,000 won (No. of service years-10) Over 20 years 12,000,000 won + 1,200,000 won (No. of service years-20)

63 Individual Income Tax and Benefit Guide for Foreigners Capital gains Income arising from the transfer of land, buildings, or rights thereon, stocks, and other assets specifically enumerated in the Income Tax Act shall be taxed separately from global income. Taxable gains = transfer amount - (1) necessary expenses - (2) special deduction for long-term holding - (3) standard deduction for capital gains - "Necessary expenses" includes acquisition costs, costs of installations or improvements, and other capital expenditures. (1) Necessary expenses = acquisition amount + capital expenditure + establishing and improving expenses + expenses for transfer The special deduction for long-term holding of land or real estate is as follows: (a) In the case of 1 household owning 1 house: 12% ~ 80% (the percentage increasing as the period of house owning rises) (b) In other cases : 10% ~ 30% (the percentage increasing as the period of house owning rises) (2) Special deduction for long-term holding = (transfer amount-necessary expenses) (a) or (b) - A capital gain deduction of 2.5 million won is given without regard to the amount. (3) Standard deduction for capital gains = 2.5 million won per year of keeping However, the special deduction for long-term possession or capital gain deduction is not allowed for unregistered real estate. For a highly priced house the value of which is 600 million won or more, to which the one house per household rule does not apply. C. Deduction for Global Income In terms of calculation of the tax base and tax amount, a non-resident is not entitled to basic deduction(except for himself), additional deduction(except for himself) and special deduction. A brief on the income deductions are addressed below.

64 58 Part Ⅱ. Outline of Individual Income Tax System Basic deduction Residents with global income are entitled to annually deduct an amount equivalent to 1 million won multiplied by the number of persons in the taxpayer's family, as determined below. - A resident taxpayer himself/herself - A spouse with income of less than 1 million won per year - Dependents earning 1 million won or less per year and living in the same household with the taxpayer - The handicapped spouse of a handicapped person who is a linear descendant of the taxpayer is eligible for basic deduction with income of less than 1 million won per year A dependent eligible for the deduction is a lineal ascendant aged 60 years old or more(55 years old or more for female), a lineal descendent of the resident aged 20 years old or less(there is no age restriction for a handicapped person), a sibling aged 20 years old or less or 60 years old or more(55 years old or more for female), and all other members of the household supported by the resident. Additional deduction When a person who is qualified for Basic Deduction(taxpayer himself/herself, his/her spouse, dependents) falls under any of the following situation, the amount calculated by multiplying the number of persons by the amount below, shall be deducted each year from the taxpayer's income under each case. ⅰ) where the person is 65 years old or more: 1,000,000 per capita - 70 years old or more: 1,500,000 per capita ⅱ) where the person is handicapped, as prescribed by 107 of the Enforcement Decree of the Income Tax Act: 2,000,000 per capita ⅲ) where the person is a married woman having her spouse, or a head of family having dependents has no spouse: 500,000 per capita ⅳ) where employees who have lineal descendant under 6 years old: 1,000,000 per capita ⅴ) where employees who have a new born or adopted child in the current year: 2,000,000 per capita

65 Individual Income Tax and Benefit Guide for Foreigners [Basic Deduction] Q. My parents live back home in my home country. Are they eligible for basic deductions? A. Yes, you may receive basic deductions for your parents living in your home country, as long as they are your dependents and their adjusted wage and salary does not exceed 1,000,000 per year. You may receive an additional deduction of 1,000,000 per parent aged 65 or older, and 1,500,000 per parent aged 70 or older. Additional deduction for households with multiple children A resident with wage and salary income(excluding daily workers) or business income who has two or more dependent children eligible for basic exemption may deduct 500,000 won plus additional 1 million won per every child added to the first two children from his/her global income(e.g. 500,000 won for 2 children, 1.5 million won for 3 children, 2.5 million won for 4 children). Pension saving deduction Pursuant to Article 51-3 of the Income Tax Act, the total of following pension contribution paid for pension insurance in the name of the taxpayer him/herself is deducted. - Pension insurance contribution paid by the taxpayer him/herself based on National Pension Law - Contribution paid by the taxpayer him/herself based on Soldier Pension Law, Civil Service Pension Law etc. Special deduction Wage and salary income earners may deduct an amount equal to the sum of the following from their wage and salary income, during the taxable year. (a) Insurance premiums paid, up to 1 million won: This limit does not apply to amounts paid for medical care insurance

66 60 Part Ⅱ. Outline of Individual Income Tax System (b) Insurance premiums of insurance exclusively offered for handicapped persons, up to 1 million won (c) Medical expenses incurred exceeding 3% of wage and salary income, up to 5 million won: The deduction ceiling does not apply to expenses paid for the rehabilitation of handicapped dependents, aged and taxpayer himself (d) The deduction for education expenses of descendants is limited to the following amounts: 2 million won annually per student for kindergarten and nursery school expenses, 2 million won annually per student for elementary-junior-and high school expenses, and 7 million won annually per student for college education expenses. Educational expenses incurred overseas by lineal descendants are eligible for deduction with following limits (annually, per student): 2 million won for kindergarten, 2 million won for elementary, junior, and high schools, and 7 million won for college. Education expenses for the taxpayer himself, including tuition fee for graduate school, may be deducted without a ceiling. (e) Special education cost for the disabled prescribed by 111 of the Enforcement Decree of the Income Tax Act: No ceiling (f) 40% of deposits of an qualified account earmarked for purchasing a house, which is held by a person who does not own a house during the year concerned or a person who owns only one house whose standard market price is less than 300 million won and is smaller than specified size prescribed by 112 of the Enforcement Decree of the Income Tax Act (g) 40% of the loan interest allotted to the lease of a house of appropriate size paid by a person without housing or owning only one house who is subscribed to a qualifying savings program for home ownership (h) Interest of a mortgage loan whose standard market price is less than 300 million won at the time of purchase with the duration of more than 15 years (i) Deduction for donations: amounts donated to qualified institutions, up to 10% of the taxpayer's salary and wage income for the year. This limit of deduction does not apply to the donations to specific welfare facilities prescribed by 342 of the Income Tax Act. Standard deduction Alternatively, a wage and salary income earner may choose an annual standard deduction of 1,000,000 won. A global income earner, who does not have a wage and salary income, may choose an annual standard deduction of 600,000 won.

67 Individual Income Tax and Benefit Guide for Foreigners Tax Rates and Tax Credits A. Tax Rates Structure The tax amount on global income is the aggregate of amounts calculated by applying each tax rate successively to the income in the relevant tax bracket: Basic Tax Rates Tax Base of Global Income Tax Rates 12 million won or less 8% 12~46 million won or less 46~88 million won or less over 88 million won 960,000 won + 17% of the amount over 12 million won 6,740,000 won + 26% of the amount over 46 million won 17,660,000 won + 35% of the amount over 88 million won Example : Computation of Tax If your annual tax base is 14,250,000 won, your income tax is computed as follows; 1) Since your tax base is in the 12,000,000 won to 46,000,000 won bracket, the tax rate applied is 17% 2) The amount of your tax due is 1,342,500 won computed by multiplying the tax base by 17% of the amount over 12 million [2,250,000won 17% = 382,500 won], and then by adding 960,000 won. B. Tax Credits Tax credit for dividend income Where dividend income of a resident received from a domestic corporation is included in global income, the amount calculated as below is deducted from the global income tax amount.

68 62 Part Ⅱ. Outline of Individual Income Tax System (a) 15/100 of the qualified dividend income is added to the amount of dividend actually received by the shareholder. (b) The amount calculated in (a) above is used in calculating the individual income tax amount of the shareholder. (c) Thereafter, the amount 15/100 of the qualified dividend income is credited against the individual income tax amount calculated in (b). Gross-up is applied to the dividend income exceeding 40 million won which is subject to Income Tax Foreign tax credit Where a resident has paid or is to pay foreign income tax abroad, the tax amount payable is deducted from the income tax within the limit of an amount equivalent to an amount calculated by multiplying the income tax amount by the ratio of income from foreign sources to the total taxable income. If any foreign income tax amount paid or to be paid to a foreign government, exceeds a deduction limit, the excess amount may be carried forward for up to five years, and deducted within the deduction limit of that taxable period. An application for deduction shall be filed not later than the end of the final tax return period or the end of the year-end tax settlement period. Tax credit for casualty loss When a resident loses 30% or more of the total value of his business assets from one or more disasters, an amount equal to the tax due without application of this credit multiplied by the ratio of the value of the lost assets over the total value of assets owned prior to a disaster is subtracted from the amount of tax due in the taxation period where the time of the disaster(s) belong(s)(limited to the value of loss caused by casualty).

69 Individual Income Tax and Benefit Guide for Foreigners Tax credit for wage and salary income The following amounts shall be credited against global income tax on wage and salary income. Where the amount of credit over 500,000 won, the credit is limited to 500,000 won. Tax Credit for Wage & Salary Income Total tax Up to 500,000 won More than 500,000 won Amount of tax credit 55% of total tax 275,000 won + 30% of amount over 500,000 won Tax credit for bookkeeping Eligibility - taxpayers who calculated their revenue income according to the books and records they kept as a qualified taxpayer* to use simplified bookkeeping regime Deducted tax amount - Deducted tax amount = calculated tax amount amount of recorded & filed income amount of global income deduction rate** ** Deduction rate: 10% when using simplified bookkeeping regime 20% when using double entry bookkeeping regime Maximum deduction amount: 1million won * Eligibility for simplified bookkeeping regime ⅰ) taxpayers who started new business in the relevant year ⅱ) taxpayers whose total revenue amount in the previous year is less than the following a Manufacturing, Hotels and Restaurants, Electronics Gas and Water-supply, Construction, Transport, Storage & Communications, Finance & Insurance: 150 million won b Real Estate, Service(Personal Service): 75 million won c Other business types : 300 million won

70 64 Part Ⅱ. Outline of Individual Income Tax System Return and Payment A. Tax Return General Under the 1994 tax reform, the individual income tax assessment system was revised as into a self-assessment system under which each taxpayer is required to file a return and pay the proper amount of tax by the due date as prescribed by the individual income tax act. Interim prepayment for global income A resident with global income is subject to pay, as interim prepayment, an amount equivalent to half of the global income tax amount paid or payable in the preceding year, by the end of November. The income tax amount paid or payable in the preceding year is the aggregate of the tax amount payable for interim prepayment in the preceding year, the tax amount finally payable and the amount of penalty taxed. Final return and payment Return on tax base - A resident who has global income, retirement income or capital gains in the taxable period is required to file a return to the competent district tax office in the place of tax payment within the period from May 1 to May 31 in the following the year concerned. Documentation - Tax returns are required to be accompanied by the following documents Documents certifying a person eligible for personal deductions Documents in which gross receipts and necessary expenses calculated are recorded In the case of persons who have real estate income or business income, a balance sheet, an income statement, a trial balance, and other required documents

71 Individual Income Tax and Benefit Guide for Foreigners The simplified income account statement of taxpayers whose size of business is below a certain level as specified in 2085 of the Enforcement Decree of the Income Tax Act Particulars of tax free reserves Residents not liable for submitting final returns - The following residents are not liable to submit final returns A resident who has only 1 wage and salary income, 2 retirement income, or 3 both 1 and 2 A resident who has only capital gains and has filed a preliminary returns A resident who has only 1 interest income subject to separate taxation, 2 dividend income subject to separate taxation, 3 both 1 and 2, or 4 other income subject to separate taxation A resident with Class B wage and salary income or retirement income who has paid income tax using taxpayer association In the event that a resident liable for making the final return on the tax base departs from Korea to move his domicile to a foreign country, he shall make the return on the tax bases for the taxable period and the taxable period immediately preceding the taxable period of the date of departure, not later than 10 days from the date of departure. [Currency Conversion of Wage and Salary Paid in Foreign Currency] Q. I have been working in Korea since early last year. I receive my wage and salary from the US head office on the 20th of every month. I would like to file a tax return on the income. I wonder how I should declare my wage and salary paid in the foreign currency? A. If wage and salary is paid in the foreign currency, the currency should be converted into won as follows: If you are paid wage and salary before the agreed date of payment, you should apply the standard exchange rate of the actual payment date. If you are paid wage and salary on or after the agreed date of payment, you should apply the standard exchange rate of the agreed date of payment.

72 66 Part Ⅱ. Outline of Individual Income Tax System [Special Case of Final Return on Tax Base] Q. I am a foreigner, and have run my own business for a couple of years in Korea. I am returning to my home country in April this year. Should I declare my global income tax for 2008 in May this year? And how may I go about filing a tax return on income earned in 2009? A. If a foreigner subject to the global income tax leaves Korea, he/she should file a tax return not later than 10 days before departure. In your case, you should declare your income earned attributable to 2008 and until the day of your departure in 2009 not later than 10 days from the date of departure. B. Tax Payments Payment of individual income tax A resident who has submitted a tax return shall pay an amount remaining after deducting the amount enumerated below from the calculated tax amount of global income, retirement income or capital gains for each taxable period within the return period - Tax credit amount - Interim prepayment - Estimated tax payment by real estate dealer, or for capital gains - Tax paid for occasional assessment - Tax withheld at source - Tax paid through a taxpayers association A resident with tax liability exceeding 10 million won, tax, as described below, may pay tax accrued in installments within 2 months from the closing day of the payment period. - If the tax amount is 20 million won or less; the excess over 10 million won - If the tax amount exceeds 20 million won: less than half of the tax amount payable

73 Individual Income Tax and Benefit Guide for Foreigners Payment of special tax for rural development(strd) Taxpayer - An individual or corporation whose tax liability(individual income tax, corporation tax, customs duty, acquisition tax, or registration tax, etc.) is reduced under the Restriction of Special Taxation Act, Local Tax Act, or Customs Act. Tax Base and Tax Rates - Basically, Special Tax for Rural Development is a surtax levied on the amount of exemption of individual income tax, corporation tax, customs duty, special excise tax, and securities transaction tax. The tax base of STRD is the exempted amount of the above mentioned taxes, where the exemptions are stipulated in the Restriction of Special Taxation Act etc. Key tax rates are as follows : Tax Base and Rates Tax Base Tax Rate Reference Exemptions of individual income tax, corporation tax etc. Reduction of eligible interest from savings account 20% 10% Except for tax reduction for development technology, public project, etc. Return and Payment - STRD is filed and paid at the same time global income return (tax) is filed (paid). Payment of inhabitant tax for pro rata income Taxpayer: Individuals liable to the payment of income tax, or farmland tax Tax Base - amount of income tax, which means inhabitant tax is a surtax assessed on the basis of income tax. - Taxation period : 1 year Tax Rates: 10% of income tax Return and Payment - In cases where pro rata income tax is filed by a taxpayer, he/she shall file a return and pay the computed tax.

74 68 Part Ⅱ. Outline of Individual Income Tax System Tax Payment using credit cards Eligible tax items - VAT, individual income tax, comprehensive real estate tax, individual consumption tax and liquor tax paid by individual taxpayers - Sur-tax such as education tax and special tax for rural development is included. Maximum limit: 2million won per payment made for each tax item - For tax notified: to 2million won or less - For tax filed: to 2million won How to pay tax with credit cards - Through tax office, credit card company and internet ( - Credit card fees (around the range of 1%) are to be paid by taxpayers Taxpayer Associations Organization - Class B wage and salary income earners, sellers of agricultural and livestock products, and vendors may organize a taxpayer association for the purpose of tax payment. Obligation to collect tax - A taxpayer association shall collect income tax from its members each month. Payment of tax - Income tax collected by a taxpayer association for each month will be paid by the 10th of the following month. Tax credit for payment of tax by taxpayer associations 10% Penalty tax for non-payment by taxpayer associations 5%

75 Individual Income Tax and Benefit Guide for Foreigners Global Income Tax of compliant SMEs A. Application of simplified method for tax calculation If an SME whose revenue income amounts to a certain level or less and who records its transactions transparently and uses double bookkeeping regime in a compliant manner applies and gets an approval for simplified tax calculation methods from the competent district tax office, the SME can decide its tax base and calculate tax payment due for its global income tax incurred during the taxation period according to a simplified and standardized tax calculation methods. B. Eligibility of compliant SMEs 1) taxpayers whose applicable revenue income of the taxation period is equal to or less than the benchmark revenue below ⅰ. Agriculture, Hunting & Forestry, Fishing, Minning, Wholesale and Retail Trade, and other types of business which do not fall under following categories : 600 million won ⅱ. Manufacturing, Hotels and Restaurants, Electronics Gas and Water-supply, Construction, Transport, Storage & Communications, Finance & Insurance : 300 million won ⅲ. Real Estate, Service(Personal Service) : 150 million won 2) taxpayers meeting the requirement of Article 87-2(1)➁ of the Income Tax Act 3) taxpayers who submitted an application form to the competent district tax office for using the simplified methods of tax calculation within 2 months from the end date of the applicable taxation period and got an approval C. Special tax treatment in calculating tax base - Simplified calculation of depreciation expense: depreciating only with fixed amount method and applying 5 years of durable years (20 years for buildings) - Contribution limit : 1% of revenue. The excess is not eligible for carried forward tax credit. - Entertainment expense limit: 19 million won - Accumulative limit of allowance for retirement: 20% of the total wage and salary income of a worker - Income deduction under the Restriction of Special Taxation Act is not applied here.

76 70 Part Ⅱ. Outline of Individual Income Tax System D. Special tax treatment for tax credits - Standard tax credits: providing tax credits of 25% of calculated tax amount to taxpayers running businesses eligible for the special tax reduction and exemption for SMEs (15% for taxpayers in the metropolitan area) - Tax credits for increased revenue : providing tax credits for the revenue that exceeds 115% of the income year on year - Tax credits and tax reduction & exemption under the Restriction of the Special Taxation Act are not applied here. If there are some tax credits carried forward to the next year before a taxpayer got an approval to use simplified tax calculation methods, the carried forward tax credits are deemed as terminated. Assessment and Collection The income tax is to be self-assessed and filed by the taxpayer. However, the government will correct the tax base and the tax amount if there are any omissions or errors in the returned file, or if the taxpayer has not submitted the payment statements or the aggregate summary of accounting statements in whole or in part. A. Determination and Correction of Tax Base and Tax Amount In cases where the government determines or corrects the tax base and the tax amount payable by a taxpayer, the tax base and the tax amount must be determined or corrected according to the law based on the final return and attachments thereto, or by a field audit. Determination on no-filer must be completed within a year from the filing due date except in cases such that the Commissioner allows an extension of time for special investigation, or approves a late determination based on extenuating circumstances. B. Notice on Tax Base and Tax Payable If the government determines or adjusts a tax base or a tax amount, the government shall notify the concerned resident the tax rates and/or any other necessary matter in writing.

77 Individual Income Tax and Benefit Guide for Foreigners C. Collection of Tax If a taxpayer does not pay the full tax amount for the year in question, the government will endeavor to collect the unpaid tax amount within three months after the due date of payment. When the income tax amount paid by the taxpayer is less than that determined by the government, the unpaid amount of tax will be collected. D. Minimum Taxable Floor If the amount of income tax payable is less than the following amount, income tax is waived. - Withholding tax(excluding tax of interest income) : 1,000 won - Interim prepayment tax : 200,000 won Tax Withholding A. Obligation of Tax Withholding A person paying interest, dividends, business profits prescribed by 184 of the Enforcement Decree of the Income Tax Act, Class A wage and salary income, and retirement income, or other income is required to withhold income tax due thereon at the time of such payment, and to pay it to the government by the tenth day of the following month. However, a businessman who has not more than 10 employees on average at the end of every month of the preceding year may pay taxes withheld to the government by the tenth day of the following month each half-year, after obtaining the approval of the head of the tax office concerned.

78 72 Part Ⅱ. Outline of Individual Income Tax System B. Rates of Withholading Interest income 14% Interest from non-commercial loans : 25% Dividend income 14% Dividend income paid to co-investors as specified in of the Income Tax Act: 25% Business income VAT-exempt business income from personal services and medical or health services : 3% of total revenue Class A wage & salary income Tax rates : the basic tax rates applicable to global income Monthly Tax Withholding : If wage or salary is paid monthly, the tax amount to be withheld is calculated by the "Simplified Tax Table" attached at the end of the Income Tax Act. Year-end Tax Settlement : A person subject to tax withholding must calculate the total annual tax amount in January of the following year or at the time of the last payment of income in the year and collect or refund the difference between the tax amount payable. This amount is calculated by applying the basic tax rates and the tax amount withheld, which is explained in the "Simplified Tax Table." Application for personal deduction : Class A wage and salary income earners who are entitled to personal deductions must submit an application for personal deductions, together with documentary evidence, to the withholding agent before receiving wage and salary income for January of the following year.

79 Individual Income Tax and Benefit Guide for Foreigners Class A retirement income the basic tax rates applicable to global income Pension income National pension, government employee pension: basic tax rates (identical to wage and salary income tax) Retirement pension, private pension: 5% Other income 20%

80 74 Part Ⅱ. Outline of Individual Income Tax System Tax Penalties A. Penalty on Failure to File Returns If a resident either fails to file a tax return or under-reports income, penalties shall be charged at the following rates: (1) Failure to file: the larger of the two - Calculated Tax 20% - Gross Revenue 0.07% (2) Under-reporting - Calculated Tax 10% (3) Willful failure to file or willful under-reporting, the larger of the two - Calculated Tax 40% - Gross Revenue 0.14% B. Penalty on Non-payment or Underpayment of Tax When the income tax payable with the final return has not been paid in full, a penalty in the amount of 0.03% of the amount shall be added to the amount of the tax due, for each day the amount remains unpaid. C. Penalty Tax on Failures to Withhold Tax If withholding agent fails to withhold tax at source or fails to pay the government tax withheld within the payment period, the larger of either (1) or (2) shall be imposes as penalty. (1) An amount of unpaid tax that multiplies 0.03% by the number of unpaid days (limited to 10% of unpaid tax) (2) An amount equivalent to 5% of unpaid tax.

81 Individual Income Tax and Benefit Guide for Foreigners D. Penalty Tax on Failures to Report Withholding Payment Records If withholding agent fails to submit a payment record within the reporting period or if the reported facts concerning payment are found to be unclear as specified by 147 of the Enforcement Decree of the Income Tax Act, a penalty in the amount of 2% of the payment due shall be charged. However, a penalty in the amount of 1% of payment due shall be charged, if the withholding agent submits the withholding payment record within 1 month after the due date. E. Penalty Tax on Failures to Maintain Adequate Books and Records If a taxpayer operating a business fails to maintain proper books and records, such taxpayer will be subject to penalty tax equal to 20% of the amount of tax due for the tax year involved multiplied by the following rate "R." R = improperly documented portion of taxable income divided by total taxable income (* If R is larger than 1, R is assumed as l. If R is smaller than 0, R is assumed as 0.) F. Penalty Tax on Failure to use business purpose bank account If taxpayers subject to double bookkeeping regime do not open, declare or use business purpose bank accounts within the due date, penalty taxes should be applied as follows. - Penalty tax on failure to open/register : the bigger of 0.2% of gross revenue and 0.2% of unused amount - Penalty Tax on failure to use: unused amount 0.2%

82 76 Part Ⅱ. Outline of Individual Income Tax System Bookkeeping and Reporting A. Bookkeeping A taxpayer conducting a business shall maintain books and records adequate to support the computation of the amount of taxable income. Such books and records shall be of sufficient detail to allow an inspector to understand the relevant facts of all transactions conducted by the business. B. Reporting Payment records Persons who pay the following must submit to the government a monthly report by the 10th of the following month in which the payments were made. However, payments of wages and salary shall be reported by the 10th of March of the following year in which the payments were made. - Interest - Dividends - Amount withheld from a business - Wages, salaries, and retirement pay - Other amounts representing income to the recipient - Amounts paid to non-residents representing income from domestic sources, other than wage&salary and retirement payments Submitting payment records Under the system of global taxation of financial income, persons required to withhold tax must supply information regarding the income subject to withholding by the end of February of the year following the year in which the payments were made (for wage & salary income by Mar. 10 of the following year, and for the suspension or closedown of business by the end of the third month from the month where the date of business suspension or closedown belongs).

83 Part Ⅲ Individual Income Tax System for Non-resident

84

85 Individual Income Tax and Benefit Guide for Foreigners Taxation on Non-resident A. General A non-resident is liable to tax on income derived from sources within Korea. Two methods of taxation are applied: global taxation and separate taxation. - Global taxation is applied to non-resident taxpayers who have a place of business in Korea and whose domestic source income is related with the place of business or those with income from real estate located in Korea (excluding capital gains from the transfer of land or buildings). - Withholding taxation is applied to each domestic item of income of non-residents who do not have a place of business in Korea and do not have income from real estate located in Korea. A non-resident's tax address is the domestic business place. In the case of a non-resident who has no domestic business place, its tax address will be the place where such income is derived. B. Income from Domestic Sources Interest Income Interest and discount on bonds or securities issued by the national government or local autonomous bodies and other profit from a trust or non-commercial loan as prescribed by the following subparagraph shall be regarded as a domestic source income. - interest paid by the national or local government, a resident, a domestic corporation of Korea, a foreign corporation's PE in Korea, or a non-resident's PE in Korea - interest received from a foreign corporation or a non-resident, where a PE of the concerned party includes the interest paid in computing taxable income as deductible expenses related to its operation However, interest paid on funds borrowed directly by a Korean resident's permanent establishment (PE) in a foreign country or by a Korean corporation for its business outside Korea shall not be considered as domestic source income.

86 80 Part Ⅲ. Individual Income Tax System for Non-resident Dividend income - Dividend of profits or distribution of surplus from a domestic corporation, and interest received during the construction period fro a domestic corporation under 463 of the Commercial law - Dividend or distribution of surplus from a non-corporate entities - Deemed dividends Real estate income Income arising from the transfer of a lease, or any other interest from real estate located in Korea, including titles to the real estate, rights related to real estate, mining rights, or quarrying rights located in Korea, excluding income subject to capital gains tax Lease income of vessels, aircraft, etc. Income arising from the lease of vessels, aircraft, registered automobiles or heavy equipment to residents, domestic corporations, or the Korean places of business of non-residents and foreign corporations Business income Income arising from performance of services in the following industries: livestock, forestry, hunting, fisheries, mining, quarrying, manufacturing, electricity/gas/water services, construction, warehousing, communications, real estate dealing, services, and professional services (excluding personal service income) Personal service income An amount receivables as payment for furnishing personal services such as: - services provided by lawyers, certified public accountants, licensed tax accountants, certified architects, public surveyors, patent lawyers, and others in liberal professions - services rendered by persons having expert knowledge or special skills in science, technology, business management, or other fields involving the utilization of such knowledge or skills

87 Individual Income Tax and Benefit Guide for Foreigners services provided by professional athletes - services provided by actors, musicians, or other public entertainers Wage and salary income including pension or severance pay The amount received as payment for labor performed in Korea Capital gains Gains derived from the transfer of land and buildings located in Korea Royalties, etc. Royalties, rents, or any other consideration of a similar nature receivable for the use of the following assets or technical information within Korea, or for the right to use such assets or technical information, and income arising from the transfer of said assets or technical information. - Copyrights on academic or artistic works (including motion pictures), patent rights, trademark rights, designs, models, drawings, secret formulae or processes, films and tapes for radio and television broadcasting, and any other similar assets or rights - Industrial, commercial, or scientific knowledge, experience, or skill Capital Gains from securities transfer Gains arising from the transfer of investment securities or shares invested in a domestic corporation or other securities issued by a domestic corporation or the domestic business place of a foreign corporation. However, gains arising from the transfer by a nonresident of domestically listed shares or corporate shares registered with the Korean Securities Dealers Association shall not be taxed, subject to the reciprocity principle.

88 82 Part Ⅲ. Individual Income Tax System for Non-resident Other income Other income are as follows : - Insurance money, compensation money, or compensation for damages received in connection with real estate or other assets located in Korea, or those related to businesses conducted in Korea - Money, goods, or other economic benefits received as a prize from contests held in Korea - Income from sale of treasure found within Korea - Income from the assignment of rights established by license, permission, or other similar disposition within Korea under the Korean law, or from the transfer of property located in Korea at the time of transfer, other than real estate - Money or goods received as a prize in a lottery, drawing, or any other contest, including the purse payable to the buyer of a winning race ticket - Income other than those described above, arising from a business operated in Korea or the provision of personal services in Korea; in addition, this subparagraph includes economic benefits received in connection with assets in Korea (Note that if the amount received from the redemption of bonds issued by the government or banks established under the laws of Korea in a foreign currency exceeds the face value of such bonds in foreign currency, the balance in value shall not be included under this section.) C. Domestic Business Place Types of domestic business place If a non-resident has a fixed place of business in Korea of a type described below, he or she is deemed to have a domestic place of business. - A branch or any other business office - A store or any other fixed sales place - A workshop, factory, or warehouse - A building site, a location of construction, assembly or installation work, or a place for providing supervision of such work, any of which exists for more than 6 months

89 Individual Income Tax and Benefit Guide for Foreigners A place for providing service through an employee, which falls under any of the following items: A place where service is rendered for the period exceeding 6 months in total from among 12 month period during which a provision of service is continued, or A place where service of similar kind is continually and repeatedly rendered for 2 or more years, in the case of not exceeding 6 months in total from among 12 month period during which a provision of service is continued - Mine, quarry or place where any submarine natural resources and other natural resources are probed or taken The domestic places of business prescribed in the preceding paragraph do not include the following: - a fixed place used by a non-resident only for the purchase of assets, - a fixed place used by a non-resident only for storage or custody of assets for non-business purposes, - a fixed place used by a non-resident for advertisement, public relations, collection or furnishing of information, market survey, or other activities of a preparatory or auxiliary nature for a business operation, or - a fixed place used by a non-resident only for the purpose of having other persons process property of the non-resident Dependent agent If a non-resident having no fixed place in Korea carries on a business through a person in Korea who is authorized to conclude and regularly does conclude contracts on the non-resident's behalf, such non-resident is deemed to have a place of business in Korea. In addition, a non-resident having no fixed place in Korea who carries on a business in Korea through any of the following persons is also deemed to have a business place in Korea. - A person who regularly takes custody of goods delivered to Korea and delivers them to customers upon receipt of orders - A person who regularly takes orders, carries on consultations, or conducts other important activities specifically for such non-resident - A person who collects insurance premiums or insures risks located in Korea on behalf of such non-resident

90 84 Part Ⅲ. Individual Income Tax System for Non-resident D. Tax Withholding on Non-resident In terms of taxation method, there is difference between non-resident with domestic business place and non-resident without domestic business place. A non-resident who has a domestic business place (or real estate income) is subject to income tax and is required to file his/her tax return on all of his/her income related with the domestic business place in the same manner as in the case of resident. On the other hand, unless otherwise provided in an applicable tax treaty, persons paying income from domestic sources to non-residents (excluding non-residents having real estate income), not attributable to a domestic business place, shall withhold as income tax at source of the income the applicable amount enumerated below. The tax withheld must be paid to the government by the 10th day of the following month in which such tax was withheld. Taxation on Non-Residents with a Fixed Base Tax Base of Global Income Tax Rates 12 million won or less 8% 12~46 million won or less 46~88 million won or less over 88 million won 960,000 won + 17% of the amount over 12 million won 6,740,000 won + 26% of the amount over 46 million won 17,660,000 won + 35% of the amount over 88 million won Withholding Tax Rates (Non-resident without Domestic Business Place) Korean-Source Income Withholding Tax Rates Gross Revenue from Business 2% Compensation for Personal Services Capital Gains from Securities Transfer Dividends, Interest, Royalties, and Other Income 20% 10% of sales price or 20% of the difference between sales price and seller's original cost, whichever is less 20% - Lease income of vessels, aircraft, etc., and business income: 2% of the amount payable

91 Individual Income Tax and Benefit Guide for Foreigners Interest income, dividend income, royalty, and other income: 20% of the amount payable - Gains from the transfer of securities or shares: 10% of the amount payable. However, if the purchase price of the securities or shares can be readily confirmed, the amount of tax withheld at source is the lesser of 10% of the amount payable or 20% of the gain on such a sale. In addition to the withholding tax rates given above, inhabitant surtax of 10% is assessed on these withholding taxes. It should be noted that there are various limitations on these withholding taxes for residents of countries which have a tax treaty with Korea.

92 86 Part Ⅲ. Individual Income Tax System for Non-resident Taxation on Wage & Salary Income of Non-resident While the provisions of the Income Tax Act in terms of tax withholding, the calculation of the tax base and tax amount to be paid, filing and payment of wage & salary income of a resident are applied to resident and non-resident alike. However, basic income deduction and additional deduction are granted only to a non-resident taxpayer himself/herself (not to his/her dependents). Special deduction is not allowed for non-residents. A. Non-resident with Class A Wage & Salary Income Only Class A Wage & Salary Income means salary, remuneration, annual allowance, allowance, bonus and any other allowances of a similar nature received in return for services as mentioned before. Taxation methods applied for non-residents who have Class A wage & salary Income only are same as in the case of a resident. That is to say, a person(employer whose role is a withholding tax agent) who pays monthly wage income to his/her employees shall withhold a tax amount monthly based on the Simplified Tax Table issued by the National Tax Service, the total of which amount is regarded as a credit taken off from their ultimate tax responsibilities. When an employer pays the wage & salary of Feb. next year, he/she shall calculate the gross tax liabilities of his/her employees on behalf of them, from which the withheld amount shall be deducted to bring forth the final tax amount to be paid. This is called the "Year-end Tax Settlement". B. Non-resident with Class B Wage & Salary Income Only Concept of class B Wage & Salary income This Income means - Wage and salary receivable from a foreign agency or U.N. Forces in Korea(excluding U.S. Armed Forces) - Wage and salary receivable from a foreigner or a foreign corporation outside Korea, excluding those claimed as a deductible expense for a domestic business place of a foreigner or foreign corporation

93 Individual Income Tax and Benefit Guide for Foreigners Income incurred from the exercise of stock options granted by foreign company is also included in this category. Income = number of exercised stock option (market price - option price). So, you have to report taxable benefits you received in 2008 on certain stock options you exercised. Regarding the Year-end Tax Settlement for Wage Income Earner, refer to the 'Easy Guide for Foreigner's year-end Tax Settlement' on our English website. Non-resident who joined (Class B Wage & Salary Income) Taxpayer Association A non-resident who has Class B Wage & Salary Income may organize or join a taxpayer association and make his/her tax liability settled. In this case, the association withholds income tax amount monthly on the Class B Wage & Salary Income of its association members and pays the amount to the tax authority concerned by the 10th of next month. Like Class A Wage & Salary Income, the Class B Income is subject to the Year-end Tax Settlement and Taxpayer Association Tax Deduction. Non-resident who has not joined Taxpayer Association In this case, the non-resident shall file his/her return(self-assessment) and pay the calculated tax amount to the tax authority concerned, pursuant to the provisions of tax act as applied to resident taxpayer from the 1st of May through 31 May of the next year. C. Non-resident with Class A and Class B Wage & Salary Income First of all, an employer who pays Class A Wage & Salary Income shall conduct monthly tax withholding (as a withholding agent) and year-end tax settlement on behalf of his/her employees. In the case of the Class B Wage & Salary paid to employees who have joined a taxpayer association, the association shall take the role of the withholding tax agent and conduct year-end tax settlement.

94 88 Part Ⅲ. Individual Income Tax System for Non-resident - A non-resident who has both Class A and Class B Wage & Salary Income, in principle, shall file his/her tax return and pay the relevant tax amount to the government. Where, however, the year-end tax settlement is carried out on the sum of Class A and Class B Income(only in the case of an employee who joined taxpayer association), the employee need not to file his/her individual income tax return by himself/herself. Figure 3. Taxation on Wage & Salary Income of Non-resident Class A Wage & Salary Income Monthly Tax withholding by Simplified Tax Table Nonresident An employee with Class A and B Year-end Tax Settlement Final Return Filing Class B Wage & Salary Income Monthly tax withholding by Class B Taxpayer Association (10% Tax Deduction) Return filing for Class A & B An employee who has not joined taxpayer association

95 Part Ⅳ Practice

96

97 Individual Income Tax and Benefit Guide for Foreigners Practice In Calculating A. Example : Lecturer (Wage & Salary Income + Other Income) Information 1 Mr. A works for a foreign language institute and, in 2008, earned Wage & Salary income in addition to manuscript fee income from Publishing Company. 1 Taxpayer(Aged 43) 2 Spouse(Aged 41): No income 3 Son(Aged 13): Student Information 2 : Year-end Tax Settlement of Wage & Salary Income (1) Wage & Salary Income 1 Gross Wage & Salary Income 60,000,000 won (excluding non-taxable income) 2 Deduction for Wage & Salary Income 14,500,000 won 3 Adjusted Wage & salary Income 45,500,000 won (60,000,000 won - 14,500,000 won) (2) Total Income Deductions (5,500,000 won) 1 Basic Deduction : 3 persons 1,000,000 won 2 Special Deductions : Qualified educational expenses deduction 2,000,000 won, Qualified donation deduction 500,000 won (3) Tax credit for Wage & salary Income : 500,000 won (4) Withholding Tax : 4,187,500 won Information 3 : Manuscript fee income (Other income) 1 Fee : 40,000,000 won 2 Necessary expenses(80%) 32,000,000 won 3 Other Income : 8,000,000 won (Fee 40,000,000 won - Necessary expenses 32,000,000 won) 4 Withholding tax : 1,600,000 won (Other Income 8,000,000 won withholding tax rate 20%)

98 92 Part Ⅳ. Practice - If Mr. A only has Wage & salary Income adjusted at the year-end, he is not subject to final tax return. However, since he has Other Income along with it, he should file tax return adding the Other Income to the Wage & Salary Income. Procedure of filling out Mr. A's Return ❶ Fill out Basic Information ❽ Fill out the Details of Wage & salary Income and Other Income ❾ Fill out the Details of Global Income 11 Fill out the Details of Deductions 13 Fill out the Details of Tax Credit 16 Fill out the Details of Tax Prepaid ❹ Computation of Income Tax Fill out Tax Payment Slip (Income Tax & Inhabitant Tax) Instruction Filling out the each items Mr. A shall fill out each line as follows : ❶ Basic Information (see page 3 of Form 40(1)) 1 Name 2 Alien Reg. No. 3 Address 4 Home phone No. 5 Business phone No. 6 Mobile Phone No. 7 address 8 Type of Return : Check " " in "ꊽꋃ Non-business". 9 Classification by Scale : Check " " in " Non-business". ꊉꊒ Return Classification : Check " " in "ꊺꋃ Regular". ❽ Details of Wage & salary Income and Other Income (see page 11 of Form 40(1)) - Wage & salary Income 1 Income Classification Code : 51 2 Serial No. : 1 3 Company Name, 4 Tax Reg. No. (Alien Reg. No.) : Fill out the Company Name & Tax Reg. No. (or Alien Reg. No.) of Sources (see the receipts of tax withheld). 5 Gross Receipt : 60,000,000 won (see the receipts of tax withheld) 6 Necessary Expenses : 14,500,000 won(see the wage & salary Deduction on the receipts of tax withheld) 7 Taxable Income : 45,500,000 won (5-6) 8 Income Tax : 4,187,500 won (see the Tax Determined on the receipts of tax withheld) - Other Income 1 Income Classification Code : 60

99 Individual Income Tax and Benefit Guide for Foreigners Serial No. : 1 3 Company Name 4 Tax Reg. No. (Alien Reg. No.) : Fill out the Company Name & Tax Reg. No. (or Alien Reg. No.) of Sources(see the receipts of tax withheld). 5 Gross Receipt : 40,000,000 won(see the receipts of tax withheld) 6 Necessary Expenses : 32,000,000 won(necessary Expenses of Fee(Other Income)) 7 Taxable Income : 8,000,000 won(5-6) 8 Income Tax : 1,600,000 won(see the Withholding Tax on the receipts of tax withheld) ❾ Details of Global Income, Deficit and Deficit Carried Over Deduction (see page 13 of Form 40 (1)) 1 Amount of Income by Income Classification : Fill it with figures shown in the line 7(the sum of taxable income) of the block ❽ (page 11). Wage & Salary Income : 45,500,000 won Other Income : 8,000,000 won You do not have to fill out 2~4 which are not applicable. Therefore the amount of 5 is same as the amount of 1 ꊝꊧ Details of Exemption and Deductions (see page 15 of Form 40 (1)) 1~20 : Enter figures shown in line (the Total Income Allowances) on the receipts of tax withheld for Wage and salary Income. ꊝꊩ Details of Tax Credits (see page 17 of Form 40 (1)) 1 Article (title) of the Related Tax Law : Article 59 (Wage & salary Income Credit) of the Income Tax Act Details of Tax Prepaid (see page 19 of Form 40 (1)) 8 ~ 10: Enter the withheld tax amount on the "Details of Wage & Salary Income and Other Income".

100 94 Part Ⅳ. Practice [Form 40 ⑴] (Page 3) Residency Resident1/Non-resident2 Control (For the year of 2008) Final return of Tax Base and Nationality Citizen1/Foreigner9 No - Computation of Global Income Tax, Special Tax for Rural Development and Inhabitant Tax to be paid Application of Flat tax rate Yes 1 / No 2 State of Residence State Code ❶ Basic Information 1 Name Mr. A 2 Alien Reg. No City, Gu, City, Dong, Eup, Stree Beo Ho Apt., Building 3 Address Province Goon Myeon t, Ri nji etc. Dong Ho Seoul Jongno Susong Home phone No Business phone No Mobile phone No address taxpayer@nts.go.kr 8TypeofReturn ꊺꋄ Self adjustment ꊺꋅ External adjustment ꊻꋃ Simplified bookkeeping ꊼꋄEstimate-Standard rate ꊼꋅEstimate-Simplified rate ꊽꋃNon-business Additional Return 9Classification by Scale Double entry bookkeeping Simplified bookkeeping Non-business 10Return Classification ꊺꋃ Regular ꊻꋃ Amended declaration ꊼꋃ Claim for correction ꊽꋃ Return after due date ❷ Bank Account for Tax Refund 11 Name of Bank 12 Account No. 14Business 15Phone 13Name - - Registration No. No. ❸ Tax Attorney ꊉꊘ Bookkeeping and return ꊉꊙ ꊉꊚ Type of Adjustment for taxable income Control - Designa - assignment Preparing return No. ted No. ❹Computation of Income Tax Classification Global Income Tax Inhabitant Tax Special Tax for Rural Development Amount of Global Income ꊊꊓ 53,500,000 Total Income Allowances ꊊꊔ 5,500,000 Tax Base ( ꊊꊓ - ꊊꊔ ) ꊊꊕ 48,000,000 ꊌꊓ 6,460,000 ꊍꊓ Tax Rate ꊊꊖ 26% ꊌꊔ 10% ꊍꊔ Tax Calculated ꊊꊗ 6,960,000 ꊌꊕ 646,000 ꊍꊕ Total Tax Exemption ꊊꊘ Total Tax Credit ꊊꊙ 500,000 Tax Determined ( ꊊꊗ - ꊊꊘ - ꊊꊙ ) ꊊꊚ 6,460,000 ꊍꊖ Penalty taxes ꊊꊛ ꊍꊗ Recapture (Refunded tax amount for Special Tax for ꊋꊒ ꊍꊘ Rural Development) Total ( ꊊꊚ + ꊊꊛ + ꊋꊒ ) ꊋꊓ 6,460,000 ꊍꊙ Tax Prepaid ꊋꊔ 5,787,500 ꊌꊖ 578,750 ꊍꊚ Earned Income Tax Credit ꊋꊕ Bala nce Tax Refundable / Tax Due(ꊋꊓ-ꊋꊔ-ꊋꊕ) ꊋꊖ 672,500 ꊌꊗ 67,250 ꊍꊛ Tax Payable in Installments (within 2 months) ꊋꊗ ꊎꊒ Tax Payable(ꊋꊖ-ꊋꊗ) ꊋꊘ 672,500 ꊌꊘ 67,250 ꊎꊓ I declare that I have examined this form and to the best of my knowledge and belief, it is true, complete, and is accordance with Article 70 of the Personal Income Tax Law, Article 7 of the Special Tax for the Rural Development Law and Article of the Local Tax Law and Article 45 through 45-3 of the Framework Act on National Taxes Taxpayer Mr. A signature I, as a licensee of tax professional, filled out above tax return fair and Date of Receipt honestly. Tax agent (Signature/Stamp) To Head of District Tax Office Attachments : Refer to Instruction of page 1 Computerized entry required (Signature)

101 Individual Income Tax and Benefit Guide for Foreigners [Form 40 ⑴] (Page 11) ❽ Details of Wage & Salary Income, Pension Income, and Other Income 1 Income Classification Code 2 Serial No. Payer (Domestic working place) 3 Company Name (Name) 4 Tax Reg. No. (Resident Reg. No.) 5 Gross Receipt 6 Necessary Expenses 7 Taxable Income (5-6) Tax withheld or the tax collected by taxpayer association 8 Income Tax 9 Special Tax for Rural Development Jongro Co Publishing Co ,000,000 14,500,000 45,500,000 4,187,500 40,000,000 32,000,000 8,000,000 1,600,000

102 96 Part Ⅳ. Practice [Form 40 ⑴] (Page 13) ❾ Details of Global Income, Deficit and Deficit Carried Over Deduction Classification 1 Amount of Income by Income Classification 2 Business Deficit Deducted Deficit Carried Over Deducted 3Deficit Carried Over Deduction for Business Income 4Deficit Carried Over Deduction for Real Estate Income 5 Income after Deficit / Deficit Carried Over Interest Income Dividend Income Dividend income paid to a Co-investor (Article 17(1)6-3 of the Income Tax Act) Real Estate Rental Income Business Income Wage & Salary Income 45,500,000 45,500,000 Pension Income Other Income 8,000,000 8,000,000 TotalGlobalIncome 53,500,000 53,500,000 ꊝꊦ Statement of Deficit Carried Over Classification Deficit carried over 1 Taxation Period Accrued 2 Amount Accrued 3 Amount Deducted by Pre- Taxation Period 4 Current Deduction Current Deduction 5 6 Retroactive Other Deduction Deduction 7 Balance Real Estate Rental Income (30) Business Income (40)

103 Individual Income Tax and Benefit Guide for Foreigners [Form 40 ⑴] (Page 15) ꊝꊧ Details of Exemptions and Deductions Exemptions and Deductions under the Income Tax Law Personal Deduction Special Deductions Classification Amount Classification Amount 1Basic Deduction ( 3 ) 3,000,000 Insurance Premium Deduction 3 Person who is 70 Medical Expenses Deduction years or older ( ) 4 Person who is 70 years or older ( ) EducationalExpenses Deduction 2,000, Handicapped Person ( ) Housing Fund Allowances Additional Deduction 6 Female Worker ( ) 20 Deduction for Donations 500,000 (In person) 7 Lineal descendant less than ꊊꊓ Marriage Moving Funeral 6years of age ( ) 8 New born/newly adopted( ) 9 Total (3 ~ 8) 10 Additional deduction for households with multiple children 11 Total of Personal Deduction (1+9+10) 3,000,000 ꊊꊔ Standard Deduction ꊉꊔ National Pension Premium ꊊꊕ Deduction Total 13 Other Pension Premium of Deduction Specia 14 Deduction for Reverse Mortgage Interest l Deduc Retirement Pension Deduction tions ꊊꊖ List names of eligible dependents for deduction Relatio Citize Relatio Citizen n/ / nship Name Forei Resident(Alien) Reg. No nship Name Foreig Code Code gner ner Individual having wage or salary ( ~ꊊꊓ or ꊊꊔ) Individual not having wage or salary (20+ꊊꊔ) 2,500,000 Resident(Alien) Reg. No 0 Mr.A Mrs.A Mr.A Relationship Code : Yourself=0 Linear ascendant of yourself=1, Linear ascendant of spouse=2, spouse=3, Linear descendent=4, Brother and Sister=5, others=6 spouse of Linear descendent=7 (Please state relationship to employee and spouse for 4, 5, 6, 7) Exemptions and Deductions under the Special Tax Treatment Control Law ꊊꊗ Article of the Special Tax Treatment Control Law ꊊꊘ Code ꊊꊙAmount ꊊꊚTax Reg No. Sum of Exemptions and Deductions under the Special Tax Treatment Control Law Sum of Exemptions and Deductions (11+ꊉꊔ ꊊꊕ+ ) 5,500,000 ꊊꊘcode are not to be filled out by taxpayers.

104 98 Part Ⅳ. Practice [Form 40 ⑴] (Page 17) ꊝꊨ Details of Tax Exemptions 1Article(title) of the Related Tax Law 2Code 3Tax Exemption 4Tax Registration No. 5Total of Tax Exemptions ꊝꊩ Details of Tax Credits 1Article(title) of the Related Tax Law 2Code 3Tax Exemption 4Tax Registration No. Article 59 of the Income Tax Act 500,000 5 Total of Tax Credits 500,000 Details of Reserved Funds 1Article of the Restriction of Special Taxation Act 2 Code Amount Deducted from the Taxable Income 3 Year 4 Amount Amount Added Back to the Taxable Income 5 This Year 6 Accumulated Amount 7 Tax Registration No. 2code are not to be filled out by taxpayers.

105 Individual Income Tax and Benefit Guide for Foreigners [Form 40 ⑴] (Page 19) Details of Penalty Taxes 1 Penalty tax on failure to file returns 2Penalty tax on under-reporting of income 3 Excessive refund claim Classification Calculation Base Target Rate Amounts Intentional Unreported Amount 40/100 Gross Revenue 14/10,000 Unintentional Unreported Amount 20/100 Gross Revenue 7/10,000 Intentional Under-reported 40/100 Gross Revenue 14/10,000 Unintentional Under-reported 10/100 Intentional Excessive Refund 40/100 Unintentional Excessive Refund 10/100 4 Penalty for unfaithful Sum of Days Unpaid ( ) payment(refund) Amounts Unpaid 3/10,000 Withholding Failure to submit Non-submission Amt. 2/100 receipts Late submission Amt. late submitted 1/100 Failure to issue Value of supply 1/100 5 Penalties Payment record on Inaccurate Inaccurate Amount 1/100 unfaithfu Sum table of Failure to submit Value of supply 1/100 l invoice Late submission Amt. late submitted 0.5/100 report Sum table of tax Failure to submit Value of supply 1/100 invoice by each supplier Late submission Amt. late submitted 0.5/100 Sub Total 6 Failure to gather relevant tax invoices Unsupported 2/100 7 List of invoices Failure in submitting Unreported Amount 1/100 Obscurity in Submitting Obscure Amounts 1/100 8 Unfaithful report on Failure to file Gross Revenue 0.5/100 business profile Under-reporting Gross Revenue 0.5/100 9 Unfaithful Failure to register registration of /Fraudulent register Gross Revenue 0.5/100 co-invested business Fraudulent registration of place profit allocation ratio Gross Revenue 0.1/ Failure to maintain adequate books and records Calculated Tax Amount 20/ Failure to use Failure to open/register Gross Revenue 0.2/100 business purpose bank account Failure to use Unused Amount 0.2/ Failure to issue Non-issuance Amount 5/100 receipts of credit card sales Number of Non-issuance 5,000won 13 Non-issuance of cash receipts 14 Unfaithful report of donation receipts 15 Penalty allocated to partnership ꊉꊘ Total Amount Details of Tax Prepaid Stores not issuing Gross Revenue 0.5/100 Non-issuance Amount 5/100 Number of Non-issuance 5,000won Unfaithful issuance Unfaithful Amount 2/100 Failure to record/maintain Unrecorded Amount 0.2/100 Classification Income Tax Special Tax for Rural Development Interim Prepayment for Global Income 1 Tax paid on filing of Provisional margins from sale of land etc. 2 Tax amount pre-noticed of Provisional margins from sale of land etc. 3 Tax occasionally assessed 4 ꊊꊓ Interest Income 5 ꊊꊔ Dividend income 6 ꊊꊕ Tax withheld and Tax collected Business income 7 ꊊꊖ by Taxpayer association Wage & salary income 8 4,187,500 ꊊꊗ Pension income 9 Other income 10 1,600,000 Withholding tax allocated to partnership ꊉꊓ ꊊꊘ Total tax amount prepaid ꊉꊔ 5,787,500 ꊊꊙ

106 Part Ⅴ Forms

107

108 Individual Income Tax and Benefit Guide for Foreigners [Form 40 ⑴] (page 1) (For the year of ) Final Return of Tax Base and Computation of Global Income Tax, Special Tax for Rural Development and Inhabitant Tax to be paid When a taxpayer, who are subject to Simplified Expense Rate, having either real estate rental income and business income accruing from a single business place does not keep books and records and files his/her return by estimate based on Simplified Expense Rate, he/she shall prepare [Form 40 (4)] : Single Income - For Taxpayer subject to Simplified Expense Rate. When a taxpayer subject to Simplified Bookkeeping(excluding new business starters and business owners with revenue incomes of the previous year less than 48million won) does not file his/her return by bookkeeping, he/she is liable to pay 20% of the calculated tax amount additionally as the penalty for non-bookkeeping. When a taxpayer, who is liable for Double Entry Bookkeeping(excluding new business starters and business owners with revenue incomes of the previous year less than 48million won) does not file his/her return by bookkeeping by double entry, he/she is liable to pay 20% of the calculated tax amount or 0.07% of Gross Revenue additionally, whichever is greater, as the penalty for failure to File Returns. < Fill out the forms by the following order> 1. ❶Fill out block Basic Information (In box 2, A foreigner shall enter his/her Alien Registration Number) 2. ❸Fill out block Tax Attorney, when you have a tax attorney prepared this form, 3. ❺ ~ ❽ Each Income Statement to be prepared (only when needed) 4. ❾Details of Global Income, Deficit and Deficit Carried Over Deduction and Statement of Deficit Carried Over ( Statement of Deficit Carried Over is prepared when Deficit Carried Over exists) 5. Fill out the block Details of Exemptions and Deductions 6. Fill out the block Details of Tax Exemptions, the block Details of Tax Credits and the block Details of Reserves (Only a necessary statement is to be made) 7. Fill out the block Details of Penalty Taxes 8. Fill out the block Details of Tax Prepaid 9. Fill out the block ❹Computation of Income Tax[If you have financial income, you should first fill in the form, "ꊝꊭ Calculation of Global Tax on Financial Income", on page 21. If you prepare a statement of estimated income amount according to Standard Expense Rate, you should first fill out the form, "ꊝꊮ Statement of Estimated Income Amount (only for the taxpayer subject to Standard Expense Rate)", on page 23. As a career house trader, if you have gains from transactions of 2 or 3 houses, you should first fill in the form of "ꊝꊯ Global Income Tax Calculation (for career house trader) on page 25. If you have both financial incomes included in income and gains from transactions of 2 or 3 houses, you should fill in the form of "ꊞꊦ Calculation of Global Tax on Financial Income (taxpayer having both financial income and gains from transaction of house)" on page 27]. 10. Fill out the block ❷Bank Account for Tax Refund. If an amount of tax refunded is 20 million or more, file a tax return with an application of bank account opening(changing) with which a copy of bank account is attached. 11. If all lines of each schedule is filled with in full, use accompanying paper(s). 12. Taxpayer's name shall be recorded with his/her signature or seal. Receipt (For the year of Final Return of Tax Base for Global Income Tax) Name Address Attachments Receiver 1. Balance Sheet ( ) 2. Profit & Loss Statement including Accompanying Documents ( ) 3. Trial & Balance Sheet ( ) 4. Statement of Income Adjustment ( ) 5. Statement of Income Allowances ( ) 6. Refund application for Deficit Retroactive Deduction ( ) Filing Date 7. Tax Deduction and Exemption Application pursuant to Tax Incentive and Limitation Law( ) 8. Other Documents attesting the contents of the return ( )

109 104 Part Ⅴ. Forms [Form 40 ⑴] (Page 2) Instructions 1. Do not fill out the shaded box. 2. Amount of Global Income : Enter figures shown in line 5(Total Global Income) of the block ❾ Details of Global Income, Deficit and Deficit Carried Over Deduction. 3. ꊊꊔTotal Income Allowances : Enter figures shown in line of the block ꊝꊧ Details of Exemption and Deductions. 4. ꊊꊕTax Base : ꊊꊓAmount of Global Income - ꊊꊔTotal Income Allowances 5. ꊊꊖTax Rate & ꊊꊗTax Calculated : An amount of tax calculated comes with following sequences; Multiply tax base by tax rate in the table of basic tax rates. If there are interest dividend income subject to global taxation, use "Calculation of Global Tax on Financial Income" on page 21 to calculate ꊊꊖ & ꊊꊗ. If the taxpayer is a career house trader affected by Article 64 of the Income Tax Act, use "Global Income Tax Calculation Form (for career house trader) on page 25. If the taxpayer is a career house trader who has financial income, use "Calculation of Global Tax on Financial Income (for taxpayers having both financial income and gains from transaction of house) on page ꊊꊘTotal Tax Credit & ꊊꊙTotal Tax Exemption : To apply for Total Tax Credit and Total Tax Exemption, enter figures shown in line 5Total of Tax Exemptions of the block ꊝꊨDetails of Tax Exemptions or in line 5Total of Tax Credits of the block ꊝꊩDetails of Tax Credits. 7. ꊊꊛ & ꊍꊗ Penalties : Enter penalties pursuant to Article 81, 158 and 159 of the Personal Income Tax Law and from Article 47-2 to 47-5 of the Framework Act on National Taxes. Fill in ꊊꊛ with figures shown in line 7 Total of ꊝꊫDetails of penalty taxes. 8. ꊋꊒ & ꊍꊘ Recapture : For the recapture as prescribed by the Tax Incentive and Limitation Law, prepare the Form 51 for the Recapture, and then fill the line ꊋꊒ with figures in line 4 of [Form 51]. Fill ꊍꊘ for tax refunded. 9. ꊋꊔ & ꊍꊚTax Prepaid : Enter figures from lines 11 ꊊꊘ of the block ꊝꊬDetails of Tax Prepaid. 10. ꊋꊕ Earned Income Tax Credit: Enter figures of "❺ Amount requested as earned income tax credit" from the earned income tax credit application form (for tax reassessment revision, enter figures of "❼ refund money of earned income tax credit"). 11. The amount of tax payable, which is over 10 million won, could be paid in installments (if the tax amount payable is less than 20 million won or 20 million won, the amount in excess of 10 million won can be paid in installment and if the amount payable is over 20 million won, the half or less than half of the tax amount can be paid in installment within 2 months of the due date for payment.), for installments, fill out the line ꊋꊗ with the amount of installment, and the amount payable within the due date(ꊋꊖ-ꊋꊗ) for payment is recorded in the lineꊋꊘ. 12. For the Tax Base of Inhabitant Tax, fill in line ꊌꊓ with the figures of Total Global Income(ꊋꊓ) and calculate the tax by multiplying tax rate(10%) in the line ꊌꊕ. Tax Prepaid(ꊌꊖ) = [Prepaid Income Tax(ꊋꊔ) - Interim Payment(the line 1 of ꊝꊬ Details of Tax Prepaid)] 10% 13. Special Tax for Rural Development is only subject to tax for taxpayers who received an exemption under the Tax Incentive and Limitation Law. The Tax Base(ꊍꊓ) is carried over from the line ꊉꊚ of [Form 68(The Table on Total Exempted Tax for the Special Tax for Rural Development)] and the amount of tax is calculated by applying the tax rate(20% or 10%) under Article 5 of the Special Tax for Rural Development Law. Fill in line ꊍꊙ with the figures [ꊍꊖ + ꊍꊗ - ꊍꊘ]. When the Income Tax is paid in installments, Special Tax for Rural Development can be paid in installments according to the proportion of installment in income tax. Table of Basic Tax Rates Attributable year Tax Base For the year of 2008 For the year of 2009 For the year of 2010 Not more than 12,000 8% of Tax Base 6% of Tax Base 6% of Tax Base Over 12,000 Not more than 46,000 17% of Tax Base - 1,080,000 16% of Tax Base - 1,200,000 15% of Tax Base - 1,080,000 Over 46,000 Not more than 88,000 26% of Tax Base - 5,220,000 25% of Tax Base - 5,340,000 24% of Tax Base - 5,220,000 Over 88,000 35% of Tax Base - 35% of Tax Base - 33% of Tax Base - 13,140,000 14,140,000 13,140,000

110 Individual Income Tax and Benefit Guide for Foreigners [Form 40 ⑴] (Page 3) Residency Resident1/Non-resident2 Control (For the year of ) Final return of Tax Base and Nationality Citizen1/Foreigner9 No - Computation of Global Income Tax, Special Tax for Rural Development and Inhabitant Tax to be paid Application of Flat tax rate Yes 1 / No 2 State of Residence State Code ❶ Basic Information 1 Name 2 Alien Reg. No. - City, Gu, City, Dong, Eup, Stree Beo Ho Apt., Building 3 Address Province Goon Myeon t, Ri nji etc. Dong Ho 4 Home phone No. 5 Business phone No. 6 Mobile phone No. 7 address 8TypeofReturn ꊺꋄ Self adjustment ꊺꋅ External adjustment ꊻꋃ Simplified bookkeeping ꊼꋄEstimate-Standard rate ꊼꋅEstimate-Simplified rate ꊽꋃNon-business Additional Return 9Classification by Scale Double entry bookkeeping Simplified bookkeeping Non-business 10Return Classification ꊺꋃ Regular ꊻꋃ Amended declaration ꊼꋃ Claim for correction ꊽꋃ Return after due date ❷ Bank Account for Tax Refund 11 Name of Bank 12 Account No. 14Business 15Phone 13Name - - Registration No. No. ❸ Tax Attorney ꊉꊘ Bookkeeping and return ꊉꊙ ꊉꊚ Type of Adjustment for taxable income Control - Designa - assignment Preparing return No. ted No. ❹Computation of Income Tax Classification Global Income Tax Inhabitant Tax Special Tax for Rural Development Amount of Global Income ꊊꊓ Total Income Allowances ꊊꊔ Tax Base ( ꊊꊓ - ꊊꊔ ) ꊊꊕ ꊌꊓ ꊍꊓ Tax Rate ꊊꊖ ꊌꊔ 10% ꊍꊔ Tax Calculated ꊊꊗ ꊌꊕ ꊍꊕ Total Tax Exemption ꊊꊘ Total Tax Credit Tax Determined ( ꊊꊗ - ꊊꊘ - ꊊꊙ ) ꊊꊚ ꊍꊖ Penalty taxes ꊊꊛ ꊍꊗ Recapture (Refunded tax amount for Special Tax for ꊋꊒ ꊍꊘ Rural Development) Total ( ꊊꊚ + ꊊꊛ + ꊋꊒ ) ꊋꊓ ꊍꊙ Tax Prepaid ꊋꊔ ꊌꊖ ꊍꊚ Earned Income Tax Credit ꊋꊕ Bala nce Tax Refundable / Tax Due(ꊋꊓ-ꊋꊔ-ꊋꊕ) ꊋꊖ ꊌꊗ ꊍꊛ Tax Payable in Installments (within 2 months) ꊋꊗ ꊎꊒ Tax Payable(ꊋꊖ-ꊋꊗ) ꊋꊘ ꊌꊘ ꊎꊓ ꊊꊙ I declare that I have examined this form and to the best of my knowledge and belief, it is true, complete, and is accordance with Article 70 of the Personal Income Tax Law, Article 7 of the Special Tax for the Rural Development Law and Article of the Local Tax Law and Article 45 through 45-3 of the Framework Act on National Taxes Taxpayer signature I, as a licensee of tax professional, filled out above tax return fair and honestly. Tax agent (Signature/Stamp) To Head of District Tax Office Attachments : Refer to Instruction of page 1 Computerized entry required Date of Receipt (Signature)

111 106 Part Ⅴ. Forms [Form 40 ⑴] (Page 4) Instructions for Preparing ❺ Details of Interest Income 1. Filers are not obliged to fill out this form if their interest income subject to non-taxation or separate taxation under the Income Tax Law and the Tax Incentive and Limitation Law. Filers shall fill out this form if their financial income exceeds 40 million won with interest income (overseas financial income) included * Filers shall enter financial income worth not more than 40 million won if the interest income(ex. financial income from foreign countries) is not withheld domestically. 2. 1Income Classification Code : Enter the income classification codes mentioned above(11 ~ 16) in numerical order. (1) Income Classification Code 11 : Interest from non-commercial loans prescribed by Article 16 1 (12) of the Income Tax Law (2) Income Classification Code 12 : Interest income free from withholding as prescribed by Article 127 of the Income Tax Law (3) Income Classification Code 13 : Other interest income (4) Interest income paid outside Korea and not subject to domestic withholding tax : 15 (5) Interest income derived from partnership: Serial No. : Set number on each taxable interest income by the income classification code. If the payer of interest income is more than two, write down the sum of income by classification code in the last line Company Name(Name) 4Tax Registration No.(Resident Registration No.) for those paying interest 5. 5 Taxable Interest Income : Write down the sum of annual interest paid by each income payer. * Write down the amount of total interest before withholding. 6. 6Income Tax withheld : Write down the amount of tax withheld.

112 Individual Income Tax and Benefit Guide for Foreigners [Form 40 ⑴] (Page 5) ❺ Details of Interest Income 1 Income Classification Code 2 Serial No. 3 Company Name (Name) Interest Payer 4 Tax Reg. No. (Resident Reg. No.) 5 Taxable Interest Income 6 Income Tax withheld

113 108 Part Ⅴ. Forms [Form 40 ⑴] (Page 6) Instructions for Preparing ❻ Details of Dividend Income 1. Filers are not obliged to fill out this form if their dividend income is subject to non-taxation or separate taxation under the Income Tax Law and the Tax Incentive and Limitation Law. Filers shall fill out this form if their financial income exceeds 40 million won with dividend income (overseas financial income) included * Filers shall enter financial income worth not more than 40 million won if the dividend income(ex. financial income from foreign countries). is not withheld domestically Income Classification Code : Write down the code above(21~29) in order. (1) Dividend income subject to Gross-up : Income Classification Code 21 (ex. Interest income: 20 million won, Dividend Income: 50 million won (subject to Gross-Up), box 5: 50 million won, box 6: 30 million won) (2) Dividend income not subject to Gross-up : Income Classification Code 22 (3) Dividend income which is not withheld by Article 127 of the Income Tax Law : Income Classification Code 23 (4) Dividend income paid outside Korea and not subject to domestic withholding tax : 26 (5) Dividend income of a co-investor as described by (17) (1) (6-3) of the Personal Income Tax Law : 28 (6) Dividend income derived from partnership : Serial No. : Write down serial no. on each dividend income by the income classification code. If the number of each code is more than two, write down the sum of income by the classification code in the last line Company Name 4Tax Registration No. : Write down the name and tax registration no. for the company paying interest Dividend Income : Write down the annual dividend income before tax withholding by each dividend paying company Dividend Income for Gross-up: write the amount exceeding 40million won if the total amount of other interests and dividend income(not subject to gross-up) exceeds 40 million won. (ex. Interest income 20 million won, dividend income 50 million won( subject to gross-up), 50 million won in box 5, and 30 million in box 6 (ex. Interest income: 20 million won, Dividend Income: 50 million won (subject to Gross-Up), box 5: 50 million won, box 6: 30 million won) 7. 7 Gross-up Amount : Dividend Income for Gross-up(6) 15% 8. 8 Taxable Income : Dividend Income(5) + Gross-up Amount(7) 9. 9 Income Tax Withheld : Enter the amount of tax withheld.

114 Individual Income Tax and Benefit Guide for Foreigners [Form 40 ⑴] (Page 7) ❻ Details of Dividend Income 1 Income Classification Code 2 Serial No. Payer 3 Company Name 4Tax Registration No. 5 Dividend Income 6 Dividend Income for Gross-up Gross-Up 7 Gross-up Amount (6 15/100) 8 Taxable Income (5+7) 9 Income Tax withheld

115 110 Part Ⅴ. Forms [Form 40 ⑴] (Page 8) Instructions for Preparing ❼ Details of Real Estate Rental Income and Business Income 1. 1Income Classification Code : Choose appropriate code (30ㆍ31ㆍ40ㆍ41) from below. (1) Real Estate Rental Income : 30 (2) Real Estate Rental Income Derived from partnership: 31 (3) Business Income : 40 (4) Business Income Derived from partnership: Serial No. : Set a serial no. by business place regarding the real estate rental income and the business income. If the number of business place is more than two, write down the real estate rental income, the sum of the real estate rental income, the business income, and the sum of the business income by sequence. 3. 3Enter 1 if the business place is in Korea. Enter 9 if the business place is outside Korea. Enter country code of busines place as designated by the International Organization for Standardization. e.g., Republic of Korea : KR, United States: US 4. 8Gross Income Amount and 10Income: A Taxpayer with by-job income of farmhouse (non-taxable business income) must enter the income in box 17 of Tax Form Code for Type of Return : Write down the code number below according to the type of return, which are attached in the final tax return. (1) Self-adjustment : 11 (2) External-adjustment : 12 (3) Compliant tax payment: 13 (4) Calculation of Income Amount by Simple Bookkeeping Income Amount Calculation: 20 (5) Calculation of Income Amount by Standard Expense Rate : 31 (6) Calculation of Income Amount by Simplified Expense Rate : Main Code of Kind of Business : If the number of code falling under related type and items of business is more than two, write down the main code of kind of business. 7. 9Necessary Expenses : When you file a return using Standard Expense Rate, enter the column total of Necessary Expenses in Statement of Estimated Income Amount on page 23. However, when 10income amount is Alternative Income Amount of the Statement of Estimated Income Amount, enter 8Gross Revenue-10Income Amount Income : 8Gross Revenue - 9Necessary Expenses (A taxpayer subject to Standard Expense Rate shall enter Income Amount of ꊝꊮthe Statement of Estimated Income Amount above.) 9. In boxes 11 and 12, the self-employed keeping their business going: shall write Jan, 1 of the current year as beginning date of taxation period, and December 31 of the current year as closing date of taxation period. As for new starters and closed businesses, enter a beginning date or a shutdown date of business. As for Co-ownership, enter the business commencement and withdrawal date of a member for that year Representative Co-owner : For joint business, write down the name and identification number of primary income earner Related Party : In case partners are related to each other, the income of the related party is attributed to the main partner whose share of stocks or the ratio of income allocation is bigger than others. For the aggregate income return for the related party, write down the name and identification number of the related party under Article of the Presidential Decree of the Personal Income Tax Law Serial No. : Set a serial No. for withholding agent(company) and tax association Company Name (Name) 17Tax Registration No. (Resident Registration No.) of withholding agent or taxpayer association 14. Income Tax and Special Tax for Rural Development : Write down the annual amount of tax collected and the tax collected by taxpayer association or the special tax for rural development.

116 Individual Income Tax and Benefit Guide for Foreigners [Form 40 ⑴] (Page 9) ❼ Details of Real Estate Rental Income Business Income 1 Income Classification Code 2 Serial No. 3 Place of busine ss Domestic1/ Overseas9 Location 4 Company Name State code of location 5 Tax Registration No. 6 Code for Type of Return 7 Main Business Code 8 Gross Income Amount 9 Necessary Expenses 10 Income(8-9) 11Beginning Date of Taxable Period 12Closing Date of Taxable Period 13 Representative Co-owner 14 Related Party 15 Serial No. Name Alien[Resident] Registration No. Name Alien[Resident] Registration No. Name Alien[Resident] Registration No. Name Alien[Resident] Registration No. Tax Withheld and the tax collected by taxpayer association for business income Withholding Agent or Taxpayer Association 16 Company Name (Name) 17 Tax Registration No. (Resident Reg. No.) Tax withheld or the tax collected by taxpayer association Special Tax for Rural Income Tax Development

117 112 Part Ⅴ. Forms [Form 40 ⑴] (Page 10) Instructions for Preparing ❽ Details of Wage & Salary Income, Pension Income and Other Income 1. Exclude non-taxable income and the income subject to the separate taxation. 2. 1Income Classification Code : Choose appropriate codes from below. The classification code of wage & salary income (1) Class A wage & salary income(domestic, excluding wages and salaries received from the U.S. Armed Forces in Korea and foreign earned income) : 51 (2) Wages and salaries received from the U.S. Armed Forces in Korea : 52 (3) Foreign earned income(the income in consideration of supplying labors furnished abroad) : 53 (4) Class B wage & salary income of the member who joined taxpayer association : 55 (5) Class B wage & salary income(class B wage & salary income incurred from the exercise of stock option granted by foreign companies) : 56 (6) Class B wage & salary income besides (4) and (5) : 57 * Class B wage & salary income is referred as wages and salaries received from a foreign agency, the U.N. Forces in Korea (excluding the U.S. Armed Forces), a foreigner or foreign corporation outside Korea, excluding those claimed as a deductible expense for a Korean place of business of a non-resident or a foreign corporation. Pension Income : 66 Other income : 60 Other income derived from partnership: Serial No. : Set a serial no. by each code. If the number of code is more than two, write down the sum of income by classification code in the last line. 4. 3Write down the Company Name (Name) 4Tax Registration No.(Resident Reg. No.) of those who are paying wage & salary income, pension income, other income. But the labor having Class B wage & salary shall write down the name or tax registration no. of foreign head quarter, domestic branch, liaison office, foreign invested company which gave the stock option concerned income from stock option exercised. 5. 5Write down an annual Gross Receipt by each income payer. 6. 6Necessary Expenses : For wages and Salaries, write down the amount of earned income deduction, which is deducted from the wages and salaries income accrued in main working place if working place is more than two. but in case where the amount of wages and salaries is less than earned income deduction, the excess amount can be carried over to be deducted from the secondary working place Taxable Income : 5Gross-Receipt - 6Necessary Expenses 8. 8Income Tax & 9Special Tax for Rural Development : Write down the tax withheld and the tax collected by taxpayer association.

118 Individual Income Tax and Benefit Guide for Foreigners [Form 40 ⑴] (Page 11) ❽ Details of Wage & Salary Income, Pension Income, and Other Income 1 Income Classification Code 2 Serial No. Payer (Domestic working place) 3 Company Name (Name) 4 Tax Reg. No. (Resident Reg. No.) 5 Gross Receipt 6 Necessary Expenses 7 Taxable Income (5-6) Tax withheld or the tax collected by taxpayer association 8 Income Tax 9 Special Tax for Rural Development

119 114 Part Ⅴ. Forms [Form 40 ⑴] (Page 12) Instructions for Preparing ❾ Details of Global Income, Deficit and Deficit Carried Over Deduction 1. 1Amount of Income by Income Classification : Enter figures shown in the line 5(the sum of taxable interest income) of the schedule ❺(page 5), the line 8(the sum of taxable income) of the schedule ❻(page 7), Dividend income paid to a co-investor as prescribed by Article of the Income Tax Law, the line 10(the sum of real estate rental income and business income) of the schedule ❼(page 9), and the line 7(the sum of taxable income) of the schedule ❽(page 11). Write down 0 if the sum of the real estate rental income shows deficit(-), and the amount of deficit of the real estate rental income will be carried over in the line(2) of the schedule ꊝꊦ (page 13). 2. 2Business Deficit Deducted : The amount of deficit for business income is deducted from each income in following sequence, real estate rental income, wage & salary income, pension income, other income, interest income, and dividend income subject to global income tax(not deducted from interested income and dividend income subject to withholding tax rate). Taxpayers decide both the amount of deficit to be deducted and whether the deficit or the deficit carried over is deducted from interest income or dividend income as prescribed by Article 45 5 of the Personal Income Tax Law. 3. 3Deficit Carried Over Deduction for Business Income : The amount of deficit carried over is deducted from each income in following sequence, business income, real estate rental income, wage & salary income, pension income, other income, dividend income, interest income subject to global income tax(not deducted from interested income and dividend income subject to withholding tax rate). 4. 4Deficit Carried Over deduction for Real Estate Rental Income : Write down the deficit of real estate rental income which is deducted from real estate rental income. 5. 5Income after Deficit / Deficit Carried Over : *In case where the business income is under zero(when the amount of deficit still remains, after deducted from other incomes just like 2 above), write down 0 and the amount left after deduction is written down in the line 2 in ꊝꊦStatement of Deficit Carried Over. Instructions for Preparing ꊝꊦ Statement of Deficit Carried Over 1. 1Taxation Period Accrued 2The Amount Accrued : The deficit carried over, which was incurred in previous 5 taxation periods and the current taxation period, shall be written down in sequence of each taxation period. 2. 3Write down the amount of deduction by previous taxation period 3. 4Write down the current deduction in the line : deduct the first incurred deficit carried over first in sequence.(the total amount of the current deduction is the sum of 4 or 3 in the ❾Details of Global Income, Deficit and Deficit Carried Over Deduction 4. 5Write down the retroactive deduction(or the deficit carried over in line 12 of [Form (40-4)] in case where small and medium sized business by Article 2 of the Tax Incentive and Limitation Law applies for retroactive deduction which is incurred in current taxation period under Article 85-2 of the Income Tax Law, 5. 6Other deduction : Write the amount in case that the deficit carried over is appropriated as gain from assets contributed or gain from discharge of indebtedness. 6. 7Balance : Write down the amount of accrued deficit carried over which is left after deduction( )

120 Individual Income Tax and Benefit Guide for Foreigners [Form 40 ⑴] (Page 13) ❾ Details of Global Income, Deficit and Deficit Carried Over Deduction Classification 1 Amount of Income by Income Classification 2 Business Deficit Deducted Deficit Carried Over Deducted 3Deficit Carried Over Deduction for Business Income 4Deficit Carried Over Deduction for Real Estate Income 5 Income after Deficit / Deficit Carried Over Interest Income Dividend Income Dividend income paid to a Co-investor (Article 17(1)6-3 of the Income Tax Act) Real Estate Rental Income Business Income Wage & Salary Income Pension Income Other Income TotalGlobalIncome ꊝꊦ Statement of Deficit Carried Over Classification Deficit carried over 1 Taxation Period Accrued 2 Amount Accrued 3 Amount Deducted by Pre- Taxation Period 4 Current Deduction Current Deduction 5 6 Retroactive Other Deduction Deduction 7 Balance Real Estate Rental Income (30) Business Income (40)

121 116 Part Ⅴ. Forms [Form 40 ⑴] (Page 14) Instructions for Preparing ꊝꊧ Details of Exemptions and Deductions Personal Deductions and Special Deductions should be entered based on the Following [Form 37], and exemptions and deductions under the Tax Incentive and Limitation Law should also be based on the related Form. 1. Personal Deductions (1~9) 가. 1Basic Deduction : 1,000,000 won per capita is deductible(number of persons 1,000,000 won) for yourself and family with annual income not more than 1,000,000 won.(article 50 of the Income Tax Law). 나. 2Additional Deduction(3~8) : 1,500,000 won is additionally deductible for an eligible person for basic deduction aged 70 or older(3), 1,000,000 won is additionally deductible for an eligible person for basic deduction aged 65 or older(4), and 2,000,000 won will be additionally deductible for handicapped persons(5). 500,000 won will be additionally deductible for a resident who is a woman having no spouse and a head of the family or is a woman having the spouse(6). 1,000,000 won per descendants, adoptees or foster children(7) of six or less years of age is also additionally deductible.(8) 2,000,000 won per capita is additionally deductible for the newborn (lineal descendant) and the newly adopted for the tax period.(article 51 of the Income Tax Law). 다. 10Additional deduction for households with multiple children : If the number of children eligible for basic deduction is 2, enter 500,000 won. If the number of eligible children is 3 or more, enter the sum of 500,000 won for the first and second child combined and 1 million per child from the 3rd child.(article 51-2 of the Income Tax Law) 2. 12~13 The amount of contribution(excluding employer liability) shall be deducted if a resident pays national pension premium according to the National Pension Act. The amount of contribution shall be deducted from 13 if a resident pays employee contribution according to the other pension acts or the Special Post Office Act(Article 51-3 of the Income Tax Law) Deduction for Reverse Mortgage Interest: If you are a resident who has a retirement income and receives reverse mortgage, you are entitled to the deduction for interest accruing for the year on the mortgage with a limit, whichever is smaller: 2,000,000 won or the amount of mortgage income.(article 51-4 of the Income Tax Law) 4. Retirement Pension Deduction: Deductible for the sum of monthly contributions (The Law on Ensuring Employee Retirement Payment) and total savings deposits (Article 86-2 of the Tax Incentive and Limitation Law), with a combined limit of 3,000,000 won per year. 5. Special Deductions ( ~ꊊꊕ) (1) Insurance premium deduction, Medical expenses deduction, Educational expenses deduction and 19Housing Fund Allowances are deducted from the amount of labor income only(excluding the wages of daily workers)(article 52 1~5,10 and 14 of the Income Tax Law). (2) 20Deduction for donations: Fill out the form 45 of the Statement of Donation first and then 19Deduction for donations. Deduct certain amount within the deduction limit below from donations which are not included in the necessary expenses of business income or real estate rental income according to donation codes below. However, enter the deducted amount for donations regarding code 10, 40, 41 of the Statement of Donations on this form and enter the deducted amount for donations regarding code 20, 21, 30, 31, 42 of the Statement of Donations on "Income deduction" under the Restriction of Special Taxation Act. ➀Donations regarding code 10, 20, 21 of the Statement of Donations: global income amount ➁Donations regarding code 30, 31: (Global income amount-➀deducted amount for donations ) 50% ➂Donations regarding code 42: (Global income amount-➀~➁ Deducted amount for donations) 30% 4Donations regarding code 40, 41: (Global income amount-➀~➂deducted amount for donations) 10%+[the lesser between (Global income amount-➀~➂deducted amount for donations) 5% and donations regarding code 40] (3) ꊊꊓAdditional deductions of marriage, funeral service and moving expenses: 1,000,000 won is additionally deductible for the expense of marriage, funeral service and moving of resident whose gross wage income is not more than 25 million won. (4) ꊊꊔStandard deduction : If a resident with labor income has no deductions of ~ꊊꊓ, 1 million of deduction is granted in case the taxpayer is a compliant taxpayer as specified in of the Personal Income Tax Law and has global income; and 600,000 won of standard deduction is granted in case the taxpayer has global income and is not a compliant taxpayer or does not have any wage and salary(article of the Personal Income Tax Law). 6. Dependents Deduction: List names and required information of the filer and his/her dependents eligible for basic income tax deduction. In box Citizen/Foreigner, a resident shall enter 1 and a foreign 9. In box resident(alien) Registration No., a foreigner shall enter alien registration number. 7. Exemptions and Deductions under the Tax Incentive and Limitation Law( ~ ) : The column is for the related Article of the Tax Incentive and Limitation Law and the column ꊊꊙ is for the deduction amount. And the column ꊊꊚ is for taxpayer's identification number if the deduction is for business income(i.e. deductions for cattle raising business). ꊊꊘCode : Leave it blank. 8. When a businessman who has business income uses double bookkeeping regime and etc. and is qualified to receives deduction for medical expenses and education expenses according to Article of the Restriction of Special Taxation Act, each deducted amount from medical expenses and education expenses shall be entered into "Income deduction" under the Restriction of Special Taxation Act.

122 Individual Income Tax and Benefit Guide for Foreigners [Form 40 ⑴] (Page 15) ꊝꊧ Details of Exemptions and Deductions Exemptions and Deductions under the Income Tax Law Personal Deduction Special Deductions Classification Amount Classification Amount 1Basic Deduction ( ) Insurance Premium Deduction 3 Person who is 70 Medical Expenses Deduction years or older ( ) 4 Person who is 70 years or older ( ) EducationalExpenses Deduction 2 5 Handicapped Person ( ) Housing Fund Allowances Additional Deduction 6 Female Worker ( ) 20 Deduction for Donations (In person) 7 Lineal descendant less than ꊊꊓ Marriage Moving Funeral 6years of age ( ) 8 New born/newly adopted( ) 9 Total (3 ~ 8) 10 Additional deduction for households with multiple children 11 Total of Personal Deduction (1+9+10) ꊊꊔ Standard Deduction ꊉꊔ National Pension Premium ꊊꊕ Deduction Total 13 Other Pension Premium of Deduction Specia 14 Deduction for Reverse Mortgage Interest l Deduc Retirement Pension Deduction tions ꊊꊖ List names of eligible dependents for deduction Relatio Citize Relatio Citizen n/ / nship Name Forei Resident(Alien) Reg. No nship Name Foreig Code Code gner ner Individual having wage or salary ( ~ꊊꊓ or ꊊꊔ) Individual not having wage or salary (20+ꊊꊔ) Resident(Alien) Reg. No Relationship Code : Yourself=0 Linear ascendant of yourself=1, Linear ascendant of spouse=2, spouse=3, Linear descendent=4, Brother and Sister=5, others=6 spouse of Linear descendent=7 (Please state relationship to employee and spouse for 4, 5, 6, 7) Exemptions and Deductions under the Special Tax Treatment Control Law ꊊꊗ Article of the Special Tax Treatment Control Law ꊊꊘ Code ꊊꊙAmount ꊊꊚTax Reg No. Sum of Exemptions and Deductions under the Special Tax Treatment Control Law Sum of Exemptions and Deductions (11+ꊉꊔ ꊊꊕ+ ) ꊊꊘcode are not to be filled out by taxpayers.

123 118 Part Ⅴ. Forms [Form 40 ⑴] (Page 16) Instructions for Preparing 12 Details of Tax Exemptions and 13 Details of Tax Credits 1. Application order of reductions or exemptions of tax or tax credits : If both the provisions concerning the reductions or exemptions of the income tax and those concerning the tax credits are applied, the order of application shall be as follows: (1) Reductions or exemptions of the income tax in the taxable period concerned (2) Tax credits for which the reductions carried forward is not recognized (3) Tax credits for which the reductions carried forward is recognized. In this case, if there is a tax credit amount accruing during the tax period concerned and the amount not deducted is carried forward from the proceeding taxable period at the same time, the amount not deducted and carried forward shall be deducted preferentially. If the sum of the amount of reduction, exemption and tax credit exceeds the tax amount payable, the amount in excess shall be considered not to exist. If the tax amount payable is less than the minimum tax amount prescribed in Article 132 of the Tax Incentive and Limitation Law, the short amount shall not be deducted. However in the case of the tax credit for which the reduction carried forward is recognized, the tax credit amount can be carried forward. 2. 1Article(title) of the Related Tax Law : Fill the column with Article(title) of the Income Tax Law or the Tax Incentive and Limitation Law. (1) Donation as political fund not more than 100,000 won is credited under Article 76 of the Tax Incentive and Limitation Law (2) Tax Credit for dividend (3) If payment records are submitted directly through the National Tax IT Network, tax credits under Article 104 (5) of the Tax Incentive and Limitation Law will be granted. 3. 2Code : Leave it as blank. 4. 3Tax Exemptions or Tax Credits : Enter the amount of reduction, exemption of tax or tax credit. In the case of tax credit for which the deduction carried forward is recognized, include the amount. And in the case of the tax credit which was not deducted in the current taxable period and then carried forward, do not include the tax credit amount. 5. 4Tax Registration No. : Enter the tax registration number of the place of business where the exemption or reduction of tax or tax credit accrued. 14 Details of Reserved Funds 1. 1Article(title) of the Tax Incentive and Limitation Law : Fill out Article(title) of the Tax Incentive and Limitation Law which prescribes the allowance of the reserved amount. (i.e.) Article 4 : Reserves for investment of small and medium sized enterprises 2. 2Code : Leave the column as blank. 3. 3Year & 4Amount :Enter the year and amount of the reserved amount. 4. 5Amount returned in the current year : Enter the amount which is returned this year and added into the taxable amount. 6Accumulated amount returned : Fill out the accumulated amount up to this year. 5. 7Tax Registration No. : Enter the tax registration number of the place of business where the reserved funds accrued.

124 Individual Income Tax and Benefit Guide for Foreigners [Form 40 ⑴] (Page 17) ꊝꊨ Details of Tax Exemptions 1Article(title) of the Related Tax Law 2Code 3Tax Exemption 4Tax Registration No. 5Total of Tax Exemptions ꊝꊩ Details of Tax Credits 1Article(title) of the Related Tax Law 2Code 3Tax Exemption 4Tax Registration No. 5Total of Tax Exemptions Details of Reserved Funds 1Article of the Restriction of Special Taxation Act 2 Code Amount Deducted from the Taxable Income 3 Year 4 Amount Amount Added Back to the Taxable Income 5 This Year 6 Accumulated Amount 7 Tax Registration No. 2code are not to be filled out by taxpayers.

125 120 Part Ⅴ. Forms [Form 40 ⑴] (Page 18) Instructions for Preparing ꊝꊫ Details of Penalty Taxes 1. 1,2 Penalty for Failure to File Returns or Willful Under-report : Enter the larger of the amounts calculated applying penalty rate on the under-reported or revenue(in case of unreported) Penalty Tax on Non-payment or Underpayment(excess refund): Penalty rate is 0.03% of the unpaid amount a day Failure to Gather Relevant Tax Invoices : Penalty rate is applied on the amount corresponding to the received amount, when evidence other than the regular evidential document is received Penalty for No-Bookkeeping : A taxpayer subject to Simple Bookkeeping, with gross revenue of over 48 million won during the preceding year, fails to keep book and file a estimate return by Standard(Simplified) Expense Rate, enter the amount equivalent to 20/100 of the calculated tax amount. A taxpayer liable for Double Entry Booking enters the larger of the Penalty on Failure to File Return or the 20/100 of the calculated tax amount. 5. Penalties for failure to open/declare business-purpose bank accounts : When a taxpayer failed to open/declare business-purpose bank accounts with the due date, the taxpayer has to pay, as penalty, the bigger of the revenue earned during the un-opened/un-declared period and the amount calculated by multiplying the money remained on the business-purpose accounts by 0.2/ Penalties for failure to use business-purpose bank accounts: When a taxpayer failed to use the business-purpose bank accounts after opening/declaring them, the taxpayer has to pay, as penalty, the amount calculated by multiplying the money remained on the accounts by 0.2/ Penalties for unfaithful report, 6lack of evidential document, 7failure to submit the specification of receipt received, 8unfaithful report on business profile: Enter the amount of penalty with a ceiling of up to 100 million won for one penalty according to the types of violation. Willful violation of tax duty : no ceiling on the penalties to be entered 7. Penalties for failure to file, willful under-reporting, excessive refund claim, or unfaithful payment(refund): Enter the half the amount of penalty, if a taxpayer meets the requirement of 48 2 of the Framework Act on National Taxes. Instructions for Preparing ꊝꊬ Details of Tax Prepaid 1. 1Interim Prepayment for Global Income : Write in the prepaid income tax amount. 2. 2Tax paid on filing or 3Tax amount pre-noticed of income from immovable property(land etc.) : Write in the tax paid on filing of income from immovable property as a real estate dealer on Article 69 of the Income Tax or tax amount of the same income by the tax office ꊊꊓOccasional Assessment : Write in every income tax amount and the amount of special tax for rural development occasionally assessed on the Income Tax Law and the Special Tax for Rural Development Interest income : Write in the total amount of 6 in ❺ Details of Interest Income Dividend income : Write in the total amount of 9 in ❻ Details of Dividend Income ꊊꊖBusiness income : Write in the total amount of and in ❼ Details of Real Estate Rental Income & Business Income ꊊꊗWage & salary income : Write in the total amount of 8 and 9 regarding the Wage & Salary Income of ❽ Details of Wage & Salary Income, Temporary Property Income, Pension Income, and Other Income Pension Income & 10 Other income : Write in the total amount of 8 regarding the Pension Income of ❽ Details of Wage & Salary Income, Pension Income, and Other Income. 9. ꊉꊔ ㆍꊊꊙTotal tax amount prepaid : Write in the total income tax amount of 1~ꊉꊓ in ꊉꊔ, and the total amount of Special Tax for Rural Development of ꊊꊓ~ꊊꊘ in ꊊꊙ.

126 Individual Income Tax and Benefit Guide for Foreigners [Form 40 ⑴] (Page 19) ꊝꊫ Details of Penalty Taxes Classification Calculation Base Target Rate Amounts 1 Penalty tax on failure to file returns 2Penalty tax on under-reporting of income 3 Excessive refund claim Intentional Unreported Amount 40/100 Gross Revenue 14/10,000 Unintentional Unreported Amount 20/100 Gross Revenue 7/10,000 Intentional Under-reported 40/100 Gross Revenue 14/10,000 Unintentional Under-reported 10/100 Intentional Excessive Refund 40/100 Unintentional Excessive Refund 10/100 4 Penalty for unfaithful Sum of Days Unpaid ( ) payment(refund) Amounts Unpaid 3/10,000 Failure to submit Non-submission Amt. 2/100 Withholding receipts Late submission Amt. late submitted 1/100 Failure to issue Value of supply 1/100 5 Payment record Penalt Inaccurate Inaccurate Amount 1/100 ies on unfait Sum table of Failure to submit Value of supply 1/100 hful invoice report Late submission Amt. late submitted 0.5/100 Sum table of tax Failure to submit Value of supply 1/100 invoice by each supplier Late submission Amt. late submitted 0.5/100 Sub Total 6 Failure to gather relevant tax invoices Unsupported 2/100 7 List of invoices Failure in submitting Unreported Amount 1/100 Obscurity in Submitting Obscure Amounts 1/100 8 Unfaithful report on Failure to file Gross Revenue 0.5/100 business profile Under-reporting Gross Revenue 0.5/100 9 Unfaithful Failure to register registration of /Fraudulent register Gross Revenue 0.5/100 co-invested business Fraudulent registration of place profit allocation ratio Gross Revenue 0.1/ Failure to maintain adequate books and records Calculated Tax Amount 20/ Failure to use Failure to open/register Gross Revenue 0.2/100 business purpose bank account Failure to use Unused Amount 0.2/ Failure to issue Non-issuance Amount 5/100 receipts of credit card sales Number of Non-issuance 5,000won Stores not issuing Gross Revenue 0.5/ Non-issuance of cash receipts Non-issuance Amount 5/100 Number of Non-issuance 5,000won 14 Unfaithful report of Unfaithful issuance Unfaithful Amount 2/100 donation receipts Failure to record/maintain Unrecorded Amount 0.2/100 15Penalty allocated t o partnership ꊉꊘ Total Amount ꊝꊬ Details of Tax Prepaid Classification Income Tax Special Tax for Rural Development Interim Prepayment for Global Income 1 Tax paid on filing of Provisional margins from sale of land etc. 2 Tax amount pre-noticed of Provisional margins from sale of land etc. 3 Tax occasionally assessed 4 ꊊꊓ Interest Income 5 ꊊꊔ Dividend income 6 ꊊꊕ Tax withheld and Tax collected Business income 7 ꊊꊖ by Taxpayer association Wage & salary income 8 ꊊꊗ Pension income 9 Other income 10 Withholding tax allocated to partnership ꊉꊓ ꊊꊘ Total tax amount prepaid ꊉꊔ ꊊꊙ Do not use this column.

127 122 Part Ⅴ. Forms [Form 40 ⑴] (Page 20) Instructions for Preparing ꊝꊭ Calculation of Global Tax on Financial Income Do not use this sheet when your financial income consists of only non-taxable income and interest dividend income subject to separate taxation as prescribed as in the Personal Income Tax Law and the Tax Incentive and Limitation Law. 1. Definitions of the terms (1) Financial Income refers to interest income dividend income that are globally taxed besides interest income dividend income subject to non-taxation or separate taxation under the Personal Income Tax Law and the Tax Incentive and Limitation Law. (2) Financial income free from withholding means interest income and dividend income not withheld under Article 127 of the Personal Income Tax Law (financial income received from abroad). (3) Amount exceeding threshold means the amount remaining after deducting the Comprehensive taxing threshold amount(40 million won) from the taxable financial income. 2. Choice of the column (1) When comprehensively taxed aggregated financial income(4+8) is more than 40 million won a year. : Write in column ❷ (2) If aggregated financial income(4+8) not withheld under Article 127 of the Personal Income Tax Law is less than 40 million won a year. : Write in column ❸ * The sum of interest income and dividend income less than 40 million won is separately taxed under Article 127 of the Personal Income Tax Law. Hence, no need for global income tax return. 3. 1, 2, 3 : enter the aggregate amount of 5 Taxable Interest Income classified by income classification code in ❺ Details of Interest Income. 4. 5Dividend income subject to gross-up : enter the sum of 6 Dividend Income for Gross-up of code 21 from ❻Details of Dividend Income on page 7. 6Dividend income not subject to gross-up : enter the sum of 5 Dividend Income of code 23 from ❻Details of Dividend Income on page Dividend besides 5, 6 : subtract 6 from 5 (sum of code 21 and 22 respectively) from ❻ Details of Dividend Income on page Gross-up for dividend received : enter the sum of 7 under code 21 of ❻Details of Dividend Income on page ,, : enter the total income amount(excluding interest income and dividend) from 5 Income after deficit/deficit Carried Over in ❾ Details of Global Income, Details of Deficit and Deficit Carried Over Deduction on page 13. However, dividend as prescribed in of the Tax Incentive and Limitation Law and 171(6)-3 of the Personal Income Tax Law are added to other global income. Enter the amount remaining after the deduction, if business loss or deficit carried over is deducted from interest income. 8. For income deductions under,, and, enter the amount derived from Sum of Exemption and Deductions on 11 Details of Exemptions and Deductions(page 15) ,, : sum the financial income withheld respectively at 15%(incurred between Jan. 1, 2001~Dec. 31, 2004) and at 14%(incurred since Jan. 1, 2005) 10. under ❹ Tax credit for dividend on page 21 : enter lesser of and ( - ). Taxpayers are not required to complete an additional application form.

128 Individual Income Tax and Benefit Guide for Foreigners [Form 40 ⑴] (Page 21) ꊝꊭ Calculation of Global Tax on Financial Income ❶ Computation of Financial Income Classification Amount Classification Amount 1Interest income from non-commercial loans 2Interest income not withheld 3Interest income besides 1, 2 5Dividend income subject to gross-up 6Dividend income not withheld 7Dividend income besides 5, 6 4Total interest income (1+2+3) ❷ In case where the amount of column (4+8) exceeds the threshold amount(40million won) 8Total dividend income (5+6+7) ❸ In case where the amount of column (4+8) is under the threshold amount(40million won) Classification Amount Classification Amount 9Financial income (4+8) Financial income not withheld(2+7) ꊉꊒGlobal taxation threshold 40,000,000 ꊋꊔ 14/100, 15/100 ꊉꊓAmount exceeding threshold (9- ) ꊉꊔGross-up for dividend received ꊉꊕGlobal income other than financial income ꊉꊖGlobal income ( + + ) ꊉꊗIncome deduction ꊉꊘTax base ( - ) ꊉꊙBasic tax rate ꊉꊚTax calculated ꊉꊛ 14/100, 15/100 ꊊꊒTax amount comparatively calculated ( + ) ꊊꊓInterest from non-commercial loans [(1) 25/100] ꊊꊔFinancial income from sources other than non-commercial loans (9-1) ꊊꊕ 14/100, 15/100 ꊊꊖGlobal income other than financial income ꊊꊗIncome deduction ꊊꊘTax base ( - ) ꊊꊙBasic tax rate ꊊꊚTax calculated ꊊꊛTax amount comparatively calculated ( + + ) ꊋꊒCalculated global income tax amount (greater of or )) ❹ Tax credit for dividend Lesser of and ( - ) ꊋꊕGlobal income other than financial income ꊋꊖIncome deduction ꊋꊗTax base( - ) ꊋꊘBasic tax rate ꊋꊙCalculated tax ꊋꊚCalculated global income tax amount ( + )

129 124 Part Ⅴ. Forms [Form 40 (1)] (Page 22) Instructions for Preparing 18 the Statement of Estimated Income Amount This form, one for each business place, shall be filled out when an estimate return is filed using the Standard Expense Rate. The column is filled in the order of 1~ 9, ~, 10~ Income Classification Code : Real Estate Rental Income "30" Business Income "40" 2. 2 Serial No. : Set a serial no. by business place regarding the real estate rental income and the business income. If the number of business place is more than two, write down the real estate rental income, the sum of the real estate rental income, the business income, and the sum of the business income by sequence. 3. Under boxes 1~ 9, enter 7, 8, 9, by line of business and the total amount of each line in column Total Amount, if there exists more than one line of business at a business place. If there is only one line of business, enter the total amount in the right column Total 4. In the case of Purchase Expenses( ~ ) and Rental Expenses( ~ ) in Details of Calculation of Primary Expense (1) The received amount in regular evidential document (Tax Invoice, Invoice, Credit Card Sales Slip and Cash Receipt)is entered in (2) Evidence document other than regular evidential document being received, enter in respectively the amount mentioned in Details of Primary Expenses. (3) The amount of such transactions which are not liable to regular evidential document as each purchase amount is under 30,000 won shall be entered in. 5. In the case of Wages Expenses( ~ ) (1) The amount of Receipt for Withholding Statement Payment (employee contributions) for wages and retirement payment submitted to the competent district tax office is entered in. (2) In case the withholding receipt or payment statement can not be submitted, enter in : Primary Expense included in Beginning Inventory and 12Primary Expense included in Ending Inventory are filled only in the case they can be calculated separately : The amount of column of Details of Calculation of Primary Expenses for the Current Tax Year is entered in : Enter Standard Expense Rate(%) by line of business : Enter Simplified Expense Rate(%) by line of business : 9 Gross Revenue (1-18Simplified Expense Rate) : 19 (multiplier designated by the Commissioner of the National Tax Service) 12. : Enter the Standard Income Amount of. A taxpayer may enter the lesser amount of or.

130 Individual Income Tax and Benefit Guide for Foreigners [Form 40 ⑴] (Page 23) ꊝꊮStatement of Estimated Income Amount A. Calculation of Income (Only for the taxpayer subject to Standard Expense Rate) 1 Income Classification Code ( ) ( ) Total( ) 2 Serial No. 3 Place of Business 4 Taxable Period 5 Trade Name from to 6 Tax Registration No. 7 Kind/Type of Business / / / 8 Kind/Type of Business Code 9 Gross Revenue 10 Included in Beginning Inventory 11 Paid for the Current Tax Year (= ) 12 Included in Ending Inventory 13 Total Amount ( ) Expenditure Calculated by Standard Expense Rate ꊉꊘ Total Expense (13+15) 14Standard Expense rate(%) 15Amount(9 14) Standard Income Amount (9-ꊉꊘ) (if 0, This is 0) Income calculated by Simplified Expense Rate Simplified Expense Rate(%) Amounts {9 (1- )} Alternative Income Amounts ( Rate Regulated by National Tax Service) Income Amount (The lesser of or B. Details of Calculation of Primary Expenses for the Current Tax Year (Per Each Place of Business) (B) Received Classification Total (A) Amount in Regular (C) Amount included (=B+C+D) Evidential in Details of Primary Document Expenditures Purchase Expenses Rental Expenses Wages Expenses Total ( =11) ) Attachments : Details of Primary Expenses Do not use this column. (D) Amount not included in Details of Primary Expenditures

131 126 Part Ⅴ. Forms [Form 40 ⑴] (Page 24) 19 Calculation of Global Tax on Financial Income(For Career House Trader) 1. A taxpayer shall fill in this form if he/she is a resident professionally engaged in real estate transactions under Article 69 of the Personal Income Tax Law, and has gains from house (including its ancillary land) transactions subject to global income (Applicable to a taxpayer who has profits from sales of housing or land falling under one of any categories as specified in through 2-7 of the Personal Income Tax Law) 2. Sum: Enter gains from the sale or purchase of a house acquired by residents whose household members possess two or more houses. Gains are calculated by subtracting necessary expenses and capital gains deduction(2.5million won, *unregistered gains from real estate transactions are not deducted) from sales prices as provided by Article 163 (1) ~ (5) of the Presidential Decree of the Personal Income Tax Law Tax Rate: Enter whichever one that is applicable of the tax rates provided by Article 55 and Article 104 of the Personal Income Tax Law. 4. Calculated Tax Amount : The greater amount of ꊉꊘ or ꊉꊙ 5. Under column 8 Sum of Global Income, enter the following information: (1) 1 Total Income: Enter the sum of 5 Interest Income (page 5), 8 Dividend Income(page 7), 8 Gross Income Amount(page 9), 5 Gross Receipt(page 11), and dividend income under Article of the Tax Incentive and Limitation Law (page 13). (2) 3 Income Amount: Enter the sum of 5 Income After Deficit/Deficit Carried over (page 13). (3) 2 Necessary Expenses: Enter 1 Total Income - 3 Income Amount (4) 4 Income Deduction: This amount is the same as the sum of Income Deduction page Global Income from Sources Other than Gains from Transaction of 3 houses or more: First fill out Sum through Gains from Transaction of Unregistered House and subtract the amount from 8 Total Global Income(calculated as in item 9).

132 Individual Income Tax and Benefit Guide for Foreigners [Form 40 ⑴] (Page 25) 19 Global Income Tax Calculation Form (For Career House Trader) Name Address Resident Registration No Comparisons of Calculated Global Income Tax Classification of Gains from Transaction of House Item 8 Sum of Global Income 9 Sum (ꊉꊒ+ꊉꊓ) ꊉꊒ Global Income from Sources Other than Gains from Transaction of House ꊉꊓ Sum (ꊉꊔ+ꊉꊕ ) Global Income from Sources Gains from Transaction House ꊉꊔ Gains from Transactio n of 2 houses ꊉꊕ Gains from Transacti on of 3 houses ꊉꊖ Land for non-busin ess purpose ꊉꊗ Gains from Transaction of Unregistered Houses 1Total Income (House Sales /Purchase Value) 2Necessary Expenses 3Income Amount 4Income Deduction (Capital Gains Deduction) 0 5Tax Base 6Tax Rate 60% 70% 7Calculated Tax Amount ꊉꊘ ꊉꊙ ꊉꊚ ꊉꊛ ꊊꊒ ꊊꊓ ꊊꊔ ꊊꊕ Reference 1. This form shall be prepared and submitted by a career house trader who has gains from transactions of houses and etc. according to Article 64 of the Income Tax Act. 2. When a career house trader has financial income subject to global taxation, the trader shall also submit "Calculation of Global Tax on Financial Income (taxpayers having both financial income and gains from transaction of house).

133 128 Part Ⅴ. Forms [Form 40 ⑴] (Page 26) Instructions for Preparing 20 Calculation of Global Tax on Financial Income (Taxpayer having both Financial Income and Gains from Transaction of House) 1. Definitions of the terms (1) Financial Income refers to interest income dividend income that are globally taxed besides interest income dividend income subject to non-taxation or separate taxation under the Personal Income Tax Law and the Tax Incentive and Limitation Law. (2) Financial income free from withholding means interest income and dividend income not withheld under Article 127 of the Personal Income Tax Law (financial income received from abroad). (3) Amount exceeding threshold means the amount remaining after deducting the Comprehensive taxing threshold amount(40 million Won) from the taxable financial income. 2. Choice of the column ( or ) (1) When comprehensively taxed aggregated financial income(4+8) is more than 40 million won a year. : Write in column (2) If aggregated financial income(4+8) not withheld under Article 127 of the Personal Income Tax Law is less than 40 million won a year. : Write in column * The sum of interest income and dividend income less than 40 million won is separately taxed under Article 127 of the Personal Income Tax Law. Hence, no need for global income tax return. 3. 1, 2, 3 : enter the aggregate amount of 5 Taxable Interest Income classified by income classification code in ❺ Details of Interest Income Dividend income subject to gross-up : enter the sum of 6 Dividend Income for Gross-up of code 21 from ❻Details of Dividend Income on page 7. 6 Dividend income not subject to gross-up : enter the sum of 5 Dividend Income of code 23 from ❻Details of Dividend Income on page Dividend besides 5, 6 : subtract 6 from 5 (sum of code 21 and 22 respectively) from ❻Details of Dividend Income on page Gross-up for dividend received : enter the sum of 7 under code 21 of ❻Details of Dividend Income on page 7. 7.,, Global income other than financial income : write the total income amount excluding interest income and dividend income from 5income after Deficit/Deficit Carried Over of ❾Details of Global Income, Deficit and Deficit Carried Over Deduction on page 13. However, dividend as prescribed in of the Tax Incentive and Limitation Law and 171(6)-3 of the Personal Income Tax Law are added to other global income. Enter the amount remaining after the deduction, if business loss or deficit carried over is deducted from interest income. 8. When the tax amount of each ꊋꊖ ㆍꊋꊚ ㆍꊌꊚ ㆍꊍꊕ is calculated, if dividend income(code 28 of ❻ Details of Dividend Income) of investors is included in other global income amount, the lesser of 1 and ➁ below should be entered. 1 (Other global income amount-income deduction) basic tax rate ➁ Dividend income of investors 14%+[(other global income amount-dividend income of investors)-income deduction] basic tax rate 9. 15,, : Enter the amount from Sum of Exemptions and Deductions of Details of Exemptions and Deductions on page ,, : sum the financial income withheld respectively at 15/100 (incurred between Jan ~Dec. 31, 2004) and at 14/100 (incurred since Jan. 1, 2005) 11. under Tax credit for dividend (see page 27) : enter the smaller of 12 or [ - (the larger of or ). Taxpayers are not required to fill out additional application forms.] 12., Gains from Transaction of House before Capital Gains Deduction : enter the amount from Sum( + +ꊉꊖ+ꊉꊗ) of 3 Income Amount on Global Income Tax Calculation Form (Fro Career House Trader) page 25.

134 Individual Income Tax and Benefit Guide for Foreigners [Form 40 ⑴] (Page 27) 20 Calculation of Global Tax on Financial Income (Taxpayer having both Financial Income and Gains from Transaction of House) ❶ Computation of Financial Income Classification Amount Classification Amount 1Interest income from non-commercial loans 5Dividend income subject to gross-up 2Interest income not withheld 6Dividend income not withheld 3Interest income besides 1ㆍ2 7Dividend income besides 5,6 4Total interest income (1+2+3) 8Total dividend income (5+6+7) ❷ In case where the amount of column (4+8) exceeds ❸ In case where the amount of column (4+8) is the threshold amount(40million won) under the threshold amount(40million won) Classification Amount Classification Amount 9Financial income (4+8) Financial income not withheld(2+7) ꊉꊒGlobal taxation threshold 40,000,000 x 14/100, 15/100 ꊉꊓAmount exceeding threshold (9- ) Global income other than financial income ꊉꊔGross-up for dividend received Global income( ) ꊉꊕGlobal income other than financial income Income deduction ꊉꊖGlobal income ( + + ) Tax base ( - ) ꊉꊗIncome deduction Basic tax rate ꊉꊘTax base ( - ) Tax calculated ꊉꊙBasic tax rate Tax amount comparatively calculated ( + ) ꊉꊚTax calculated Gains from Transaction of House before Capital Gains Deduction ꊉꊛ x 14/100, 15/100 Tax Base not including Gains from Transaction of House( - ) ꊊꊒTax amount comparatively calculated ( + ) Basic tax rate ꊊꊓGains from Transaction of House before Capital Gains Deduction Tax calculated ꊊꊔTax Base not including Gains from Transaction of House( - ) Tax on Gains from Transaction of House(ꊉꊛ on page 25) ꊊꊕBasic tax rate Tax amount comparatively calculated ( + + ) ꊊꊖTax calculated Calculated global income tax amount (greater of ㆍ ) ꊊꊗTax on Gains fromtransaction of House (ꊉꊛ on page 25) ❹ Tax credit for dividend ꊊꊘTax amount comparatively calculated ( + + ) ꊊꊙInterest from non-commercial loans(1) 25/100 ꊊꊚFinancial Income in including Profit from Non-Business Loan(9-1) ꊊꊛ x 14/100, 15/100 ꊋꊒGlobal income other than financial income( ) Income deduction Tax base( - ) Basic tax rate Tax calculated Tax amount comparatively calculated ( + + ) Tax Base not including Gains from Transaction of House( - ) Basic tax rate Tax calculated Tax amount comparatively calculated ( ) Calculated global income tax amount(greater of ㆍ ㆍ ㆍ ) The lesser of or [( -(greater of or )]

135 130 Part Ⅴ. Forms [Form 40 ⑷] (Page 1) From Note Head of District Tax Office - *Helpline of district tax office: This is an important mail with private information, and should be promptly delivered to the taxpayer himself/herself or the taxpayer's proxy. Recipient - <For taxpayers with single income, who are subject to Simplified Expense Rate> Global Income Tax Return 1. Please note that penalties are imposed if a taxpayer fails to file a return even if taxes were paid. Please make sure that fill out this form and submit it to the district tax office by mail or e-filing service. 2. For the convenience of corporate taxpayers, the NTS provides partial or whole documents and basic guide material regarding global income tax return based on the information the Service has on the taxpayers. Rewrite the pre-written wrong data correctly according to your own data. 3. Other income such as wages and salaries, etc. besides amount of income written in this form shall be reported comprehensively using the following Form 40 (1) 4. Please refer to the explanation on each form and the instructions on page 4 before preparing the return documents. To Guide for global income tax return

136 Individual Income Tax and Benefit Guide for Foreigners [Form 40 ⑷] (Page 2) (For the year of ) Final Return Base and Computation of Ref. No- Residency Resident1 Tax to be paid For Global Income Tax and Inhabitant Tax /Non-resident2 Nationality Citizen1 /Foreigner9 (Single Income - Simplified Expense Rate) State of State Residence code ❶ Basic Information 1Name 2Resident Reg. No - 3Company Name 4Tax Reg. No Address 6 7Home Phone No 8Business Phone No 9Mobile No 10Type of Return 13Business Type code ꊼꋅEstimate- Simplified Rate 11Classification by bookkeeping 14Simplified Expense Rate(%) 2. Simplified Bookkeeping Basic Rate Excess Rate 12Type of Income 15Return Classificatio n ❷ Bank Account for Tax Refund ꊉꊘName of Bank/post office ꊉꊙAccount No ꊼꋃ Real Estate Rental Income ꊽꋃ Business Income 10.Regular 20.Amended declaration 40. Return after due date ❸ Computation of Global Income Tax Classification ꊋꊓWrite down your Gross Revenue ꊋꊔNecessary Expense based on Simplified Expense Rate : ꊋꊓGross Revenue 14Simplified Expense Rate(%) ꊋꊕAmount of Global Income : ꊋꊓ-ꊋꊔ ꊋꊖ Total Income Allowances : Total of Detail of Income allowances (ꊌꊔ~ꊌꊙ) List names of personal deductions Personal Deduction list of inco me Relati onship Name Nationalit y Resident Registration No Basic deduction Classification ꊋꊗB a s i c D e d u c t i o n ꊋꊘPerson who is 70 or older AddꊋꊙPerson who is 65 or older ition al ꊋꊚThe handicapped Ded ꊋꊛFemale worker ucti ꊌꊒLineal descendant less than 6 on years of age ꊌꊓNew born/newly adopted No. of persons ꊌꊔAdditional deduction for dedu households with multiple children ction ꊌꊕTotal personal deduction(ꊋꊗ~ꊌꊔ) ꊌꊖEnter the deduction amount of donation expenses referring the instruction of donation deduction(page 4) ꊌꊗStandard Deduction : 600,000won ꊌꊘPersonal pension savings deduction : Fill out the blank with the less amount between the 40% of personal pension savings paid in the previous year and 720,000won ꊌꊙPension savings deduction: Fill out the blank with the less amount between pension savings paid in the previous year and 3,000,000won ꊌꊚPension insurance premium deduction : write down the amount of the national pension insurance premium paid up last year. ꊌꊛTax Base : ꊋꊕ-ꊋꊖ (If the amount is less than 0, this is 0 ) ꊍꊒTax Rate: Enter the tax rate by referring to the instruction(page 4) ꊍꊓTax Calculated : ꊌꊛ ꊍꊒ-Progressive Deduction by referring to the instruction(page 4) ꊍꊔTax Credit : Enter the total of tax credits below(ꊍꊕ~ꊍꊙ) ꊍꊕTax credit for taxpayer association : Enter the amount of Tax credit for taxpayer association listed in line 33 of Receipt of Taxpayer Association. ꊍꊖTax credit for e-filing : If taxpayer directly files a e-filing return through a internet, 20,000 List won is available of tax ꊍꊗTax credit on political fund donations: The entire amount for donations of 100,000 won or less credi made to political parties (by support groups, the National Election Commission, etc) during the t current year, and 100,000 won for donations exceeding 100,000 won ꊍꊘTax credit carryovers(including e-filed tax credits which was not deducted from the previous year) ꊍꊙ ꊍꊚSpecial Tax Deduction for Small&Middle Size Business ꊍꊛTax Determined : ꊍꊓ-ꊍꊔ-ꊍꊚ(if the amount is less than 0, this is 0) Amount Amount

137 132 Part Ⅴ. Forms [Form 40 ⑷] (Page 3) Classification Amount ꊎꊒPenalty Taxes : Enter the total of detail of penalty taxes(ꊎꊓ~ꊎꊛ) Classification Calculation Base Target Rate Amount Unreported Amount 40/100 ꊎꊓFailure Intentional Gross Revenue 14/10,000 to file Unreported Amount 20/100 returns Unintentional Gross Revenue 7/10,000 ꊎꊔUnder-rep Under reported 40/100 Intentional orting of Gross Revenue 14/10,000 income Unintentional Under reported 10/100 Det ail of pen alty tax es ꊎꊕExcessive refund claim ꊎꊖUnfaithful payment(refund) ꊎꊗUnfaith ful report ꊎꊘUnfaithful registration of co-invested business place Intentional Excessive Refund 40/100 Unintentional Excessive Refund 10/100 Sum of Days Unpaid ( ) Amounts Unpaid 3/10,000 Failure to submit Non-submission Amt. 2/100 Withho lding receipts Late submission Amt. late submitted 1/100 Failure to register /Fraudulent register Fraudulent registration of profit allocation ratio Gross Revenue 0.5/100 Gross Revenue 0.1/100 ꊎꊙFailure to maintain adequate Calculated Tax books and records Amount 20/100 ꊎꊚ Failure to issue receipts Non-issuance Amount 5/100 of credit card sales Number of Non-issuance 5,000W ꊎꊛ Stores not issuing Gross Revenue 0.5/100 Non-issuance Non-issuance Amount 5/100 of cash receipts Number of Non-issuance 5,000W ꊏꊒTotal Tax Determined : ꊍꊛ+ꊎꊒ Tax Prepaid ꊏꊓInterim Payment ꊏꊔTax withheld and withholding agent tax reg. No(Tax Reg. No ) ꊏꊕEarned Income Tax Credit ꊏꊖTax Due or Tax Refundable : ꊏꊒ-ꊏꊓ-ꊏꊔ-ꊏꊕ ❹ Computation of Inhabitant Tax ꊏꊗTax Base : ꊏꊒTotal Tax Determined ꊏꊘTax Rate 10% ꊏꊙTax Calculated : ꊏꊗ(=ꊏꊒ) 10% ꊏꊚTax Withheld : ꊏꊔ 10% Tax Due or Tax Refundable : ꊏꊙ - ꊏꊚ I declare that I have examined this form and to the best of my knowledge and belief, it is true, complete, and is accordance with Article 70 of the Income Tax Law, Article of the Local Tax Law, and Article 45-3 of the Framework Act on National Taxes Income earner name signature To Head of District Tax Office Attachments 1. Handicap verification records: Only when applicable and with no previous submission 2. [Form 45] Details of Donations and donation payment receipts: Only when applicable. 3. Residence Registration Record or Family Register Record: Submission unnecessary if no changes have occurred since the previous submission. 4. This return should be sent to the tax office by May 31..

138 Individual Income Tax and Benefit Guide for Foreigners [Form 40 ⑷] (Page 4) Instructions 1. 14Simplified Expense Rate is applied to the self-employed whose aggregate income of the previous year is below the amount listed as below by line of business and to new starters of the current year.(your Simplified Expense Rate is computerized and specified on the tax return form) (1) Agriculture, Hunting & Forestry, Fishing, Minning, Wholesale and Retail Trade, and other types of business which do not fall under following categories : 60 million won (2) Manufacturing, Hotels and Restaurants, Electronic Gas and Water-supply, Construction, Transport, Storage & Communications, Finance & Insurance : 36 million won (3) Real Estate, Service(Personal Service) : 24 million won Starting from Jan. 1,2008, simplified expense rate shall not apply to self-employed individuals with professional occupations(e.g.,doctor, lawyer, tax account, etc.) as specified in of the Enforcement Decree of Income Tax Law Name of Bank/post office & 17 Account No.: fill out if the taxpayer has tax due or tax refundable in ꊏꊔTax Due or Tax Refundable. 3. Detail of Personal Deduction : Enter personal information on the taxpayer him/herself, spouse and dependents subject to personal deduction. (1). Relationship code : Please state relationship to employee Yourself=0 Linear ascendant of yourself=1, Linear ascendant of spouse=2, spouse=3, Linear descendent=4, Brother and Sister=5, others=6 spouse of Linear descendent=7 (and spouse for 4, 5, 6, 7) (2) Nationality code : Citizen 1, Foreigner 2 4. ꊋꊗBasic Deduction : 1,000,000 won per capita is deductible(number of persons 1,000,000 won) for yourself and family (1) a spouse whose annual income is not more than one million won in the aggregate (2) a dependent falling under any of the following items and living together with the resident (including his spouse) and whose annual income is not more than 1 million won in the aggregate. The handicapped among dependents qualify for deduction regardless of age. (1) A lineal ascendant aged sixty or older(fifty-five for female) (2) A lineal descendant of the resident or adopted person living together with resident aged twenty or less (3) A taxpayer whose children and their spouses are disabled (4) A sibling aged under twenty or over sixty (5) A recipient under Article 2(2) of the National Basic Living Security Act 5. Additional Deduction : If a taxpayer subject to the basic deduction meets any of the following conditions, he/she can receive additional deduction ꊋꊘ70 years or older: 1.5 million won per dependent ꊋꊙ65 years or older: 1 million won per dependent ꊋꊚA handicapped person: 2 million won per dependent ꊋꊛA female worker having no spouse and a householder having dependents, or a woman having a spouse: won per dependent ꊌꊒA child under six years old or an adoptee : 1 million won ꊌꊓNew born or newly adopted : 2 million won 6. ꊌꊔAdditional deduction for households with multiple children : If the number of children eligible for basic deduction is 2, enter 500,000 won. If the number of eligible children is 3 or more, enter the sum of 500,000 won for the first and second child combined and 1 million per child from the 3rd child. 7. ꊌꊖDeduction for donations: Fill out the form 45 of the Statement of Donation first and deduct certain amount from donations within the deduction limit below by types of donation codes. ➀Donations regarding code 10, 20, 21 of the Statement of Donations: ꊋꊕGlobal income amount ➁Donations regarding code 30, 31: (ꊋꊕGlobal income amount-➀deducted amount for donations) 50% ➂Donations regarding code 42: (ꊋꊕGlobal income amount-➀~➁ Deducted amount for donations) 30% 4Donations regarding code 40, 41: (ꊋꊕGlobal income amount-➀~➂deducted amount for donations) 10%+[the lesser between (ꊋꊕGlobal income amount-➀~➂deducted amount for donations) 5% and donations regarding code 40] 8. ꊍꊒ Tax Rate is applied to the tax rate in the table below according to your tax base of ꊌꊛ. ꊍꊒ Tax calculated : tax base(ꊌꊛ) tax rate(ꊍꊒ) - progressive deductions (Unit : 1,000 won) Tax rate Progressive deduction Tax rate Progressive deduction Tax Base Tax Base Not more than 12,000 8% 0 Over 46,000~Not more than 88,000 26% 5,220 Over 46,000 12,000~Not more than 17% 1,080 Over 88,000 35% 13,140 * if tax base is 13,150,000 won : 13,150,000 17% - 1,080,000 =1,155, ꊎꊓ,ꊎꊔ Penalty for Failure to File Returns or Intentional Under-report : Enter the larger of the amounts calculated applying penalty rate on the Un(Under) reported or revenue(in case of unreported). 10. ꊎꊙPenalty for No-Bookkeeping : A taxpayer subject to Simple Bookkeeping, with gross revenue of over 48 million won during the preceding year, fails to keep book and file a estimate return by Standard(Simplified) Expense Rate, enter the amount equivalent to 20/100 of the calculated tax amount. 11. If a taxpayer fulfills obligations such as filing returns correcting under-reporting registering co-invested business place and profit allocation ratio properly within 1 month after the due date, reduce the concerned penalty taxes by 50% and enter the figure. 12. ꊏꊔTax withheld and withholding agent tax reg. No.: Enter the total income tax withheld by withholding agents when a taxpayer (insurance agent, salesperson and etc.) was paid for the personal service he/she provided. Enter the reg. No. of a withholding agent whose payment sum was the largest. 13. ꊏꊕEarned Income Tax Credit: Enter the figures of "❺ Amount requested as earned income tax credit" from the earned income tax credit application form (for tax reassessment revision, enter the figures of "❼ refund money of earned income tax credit").

139 Appendix