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2. Taxable, Nontaxable and Tax-exempt Income
  a. Taxable Income
Resident individuals are taxed on their worldwide 
income. Non-resident individuals are taxed only on Korean-source 
income.  Although similar, the definition of income applicable 
to non-residents is broader than that of income applicable to 
residents.
  b. Global and Schedular Income Taxation
Income derived by residents and non-residents is 
subject to global and schedular taxation. Under global taxation, 
real estate rental income, business income, wages and salaries, 
temporary property income, pension income, and "other income" 
are aggregated and taxed progressively. Interest and dividends 
were taxed globally until 1997, and then they were temporarily 
excluded from global taxation. A combined income of dividend and 
interest exceeding 40 million won is subject to global taxation. 
Currently, interests and dividends are subject to withholding 
tax of 14%.
Under schedular taxation, capital gains, retirement 
income, and timber income are taxed separately at varying tax 
rates.
(1) Global income
      Global income denotes income subject to global taxation 
and includes the following: interests and dividends, real estate 
rental income, business income, wages and salaries, temporary 
property income, pension income, and other income.
(a) Interest
i) 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
ii) Interest and discount amounts received during a tax 
year from deposits and installment savings payable 
both within and outside Korea
iii) Interest from trusts which invests more than 
50% of its assets into interest-yielding financial assets  
iv) Interest from non-commercial loans
v) Savings-type insurance premiums with a maturity of less 
than ten years
 
(b) Dividends
i)  Dividends and distributions of profits and retained earnings, 
and distribution of interest received from a domestic or 
foreign corporation during construction 
ii)  Distributions of profits received from a 
non-corporate entity such as private associations or foundations
iii) Deemed dividends and distributions; See 3.b. (2) 
("Dividend Income")
iv)  Amounts designated as dividend by the Corporation Tax Law
v)   Dividend-yielding financial assets
     (c) Real estate rental income
i)  Income from leasing land and rights pertaining thereto
ii)  Income from leasing mining and factory foundations, or mining rights
     (d) Business income
i)   Profits from livestock, forestry, hunting, and fishing industries
ii) Profits from mining and quarrying
iii) Profits from manufacturing
iv) Profits from provision of electricity, gas, and water services
v) Profits from construction business
vi) Profits from wholesale or retail trade, 
operation of a hotel, or catering
vii) Profits from transporting, warehousing, or communications
viii)  Profits from banking, insurance, and real estate dealing
ix)   Profits from real estate business, leasing, and business services
x)  Profits from educational services
xi)   Profits from health and social welfare services
xii) Profits from social and personal services
xiii)  Profits from household services
     (e) Wage and salary income
Class A:
i)  Wage, salary, remuneration, allowance, bonus, and any other 
allowance of a similar nature received in return for services
ii)  Income, other than retirement income, received due to retirement
Class B:
i)  Wages and salaries received from a foreign agency or 
from the U.N. Forces in Korea (excluding the U.S. Armed Forces)
ii)  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
     (f) Temporary property income
Gains from the alienation of mining rights, fishing rights, 
industrial property rights, industrial 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.
     (g) Pension income
i)  national pension
ii)  government employee pension
iii)  retirement pension
iv)  private pension, as set out in the Special Tax Treatment Control Law
     (h) 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, temporary property income,
retirement income, timber income, and capital gains. Other income
includes the following:
i)   prize money awards and other similar money or goods,
ii)  money or goods received from participation in a 
lottery, and any other prize won in a contest,
iii)  race ticket winnings,
iv)  fees for use of copyrighted materials received by any 
person other than the creator of the material,
v)  royalties given as consideration of using films or 
tapes for radio or television broadcasting, or from such use of 
other similar assets or rights,
vi)  rent derived from a temporary lease of real estate or 
personal property, goods, or places, and
vii) damages or indemnity payments for breach or 
cancellation of a contract.
(2) Schedular income
   Retirement income, capital gains, and timber income 
are items subject to schedular taxation and thus taxed 
separately at varying rates.
(a) 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
(b) Timber income
    Income arising from sale of timber as designated by law
(c) Capital gains
i) Income arising from the transfer of land or buildings
ii) Income arising from the transfer of rights related to real estate
iii) 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 : ¨ç or ¨è
¨ç  Shareholder or investor and his/her related persons whose combined 
shares are 3% or more of the total shares as of the end of the 
immediately preceding fiscal year of the year in which transfer of 
shares takes place.
¨è  Shareholder or investor and his/her related persons whose combined 
market price of shares are 10 billion won or more as of the end 
of the immediately preceding fiscal year of the year in which 
transfer of shares take place . 
iv) 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.
    
  c. Non-Taxable Income
Certain items of income are not subject to income tax. 
The following categories of income are not taxable.
(1)  Income dedicated to public goods: Profits from 
property placed in trusts for public welfare
(2)  Rents from certain categories of real estate: Income 
from the lease of rice fields or dry fields, rental income from specific kinds of houses
listed in the Presidential Decree
(3)  Interest, dividend income
(a) Interest from long term home savings; over seven 
years and less than 3 million won per quarter
(b) Interest from savings of less than 20 million won, 
to mutual financial institutions of agricultural or fishing associations  
(c) Interest or dividends from cost-of-living savings of 
less than 30 million won of the elderly (over 60 years old) or the disabled
(d) Dividends from stock of up to 50 million won owned 
for more than one year by employees or stockholders who are minority
stockholders
(4) Certain categories of business profits
 (a) Profits from a farmer's auxiliary business  
(i) Profits from raising livestock up to an 
amount specified by governmental guidelines: Profits earned from livestock
kept more than the number specified in the guidelines are taxable. If the actual
number of livestock exceeds the number specified in the guideline, that
portion of income is taxed.
(ii) Profits not exceeding 12 million won per year 
from other auxiliary businesses, such as fish breeding, straw production, etc.
(b) Profits from producing traditional wine: profits 
derived from producing traditional wine in the rural area (in case the income is 12
million won or less)   
(5) Wage and salary income and retirement income
(a) Pay received by certain enlisted men in the armed forces, or persons mobilized under law
(b) Compensation or other payments made for consolation 
received by those injured or debilitated while furnishing a service
(c) Education fees as prescribed by the Presidential Decree
(d) Payments in the nature of reimbursement for expenses 
actually incurred (including such items as overseas service allowance, housing
allowance received by foreign wage and salary earners)
(e) Wages received by persons serving with a foreign 
government or the U.N., and organizations thereof; in case of a foreign
government, the principle of reciprocity is applied
(f) Wages not in the form of an overseas service not exceeding 1.5 million won per month
(g) Reimbursement expenses prescribed by the Presidential Decree
(h) Allowances for night shifts, overtime work, and 
holiday duty received by blue-collar employees with monthly wages not
exceeding one million won
(6) Other income
(a) Awards or compensation received under the National Security Law
(b) Prizes of money or other property received upon 
conferment of a decoration or other public prizes under the law
(c) Compensation received by an employee from an 
employer for valuable inventions made in relation to performing his duties
(7)  Capital gains
(a) Capital gains from the disposition of real estate resulting from adjudication of bankruptcy
(b) Capital gains from exchanges, division, or 
annexation of farmland by the government and local autonomous bodies or from
the exchange of land by the owner for his own cultivation
(c) 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 must not be 
luxurious, 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 lifestyle, or due to rural exodus.
(d) Capital gains realized by farmers from the transfer 
of farmland for the purpose of acquiring another parcel of farmland in its place
(e) Certain capital gains resulting from the following 
transfers, normally classified as temporary property income, are exempt from tax
as follows:
i)  Gains arising from the transfer of paintings, 
writings or antiques, which have been designated by the government as a
state cultural property
ii) Gains arising from the transfer of paintings, 
writings or antiques to museums or art galleries, as prescribed by the
Presidential Decree
  d.  Tax-Exempt Income
(1)  A taxpayer having any of the following types of income may 
claim a credit against global taxable income.  The amount of credit is calculated by
multiplying the tax before exemption by a fraction (the amount of tax computed without
application of the credit, multiplied by a fraction (the amount of income described in
(a) and (b) below over the total income of the taxpayer)).
(a) Wages received by a foreigner working in Korea under 
a government agreement, paid by either government or by both
(b) Income earned from overseas transportation business 
by non-residents and alien residents, provided that reciprocal tax treatment is
granted to Korean taxpayers by the country of residence of the alien taxpayer
(2)  Capital gains
Exemption of capital gains tax for alienating farming land that has been cultivated for
more than eight years