Let’s talk tax and let’s talk frank.
It’s tax season and to blog about taxation is tempting but it is one very ambitious feat. Much as I would like to be comprehensive, I can’t. Its complexity alone is daunting.
So, let me just write about our own personal experience particularly in education benefit. I have qualifiers as well as not all expats are equally taxed.
My husband is working with a Korean conglomerate (a chaebol). Recent Korean Tax Law requires for Korean companies to deposit to the employee’s account the educational benefits, including that of the dependents (children). As the amount is deposited to the employee’s account, it makes it a taxable income.
Multinational companies and international NGOs are not required to deposit the employee’s educational benefits to the employee’s account. Depending on their arrangement, the company may opt to deposit directly to the school. Some refund the educational expense with the company shouldering the income tax imposed. This said, expats with educational benefit for their children under MNCs and INGOs are not covered in this post.
A few years ago, Korean chaebols may deposit directly to the school the educational benefit given to the employee’s child/ren. Some expats who went through the change were able to negotiate for the chaebol they work for to shoulder the tax. You see, when “benefits” are deposited to your account, they will most likely be considered taxable income, unless you have a clear provision with the company that this is not so (and those per diems and other allowances that are, by law, not taxable). New and less experienced expats didn’t see this very grey area until tax computations are out.
In our case, the education benefit of the 2 boys were considered taxable income since these were deposited to my husband’s account (no arrangement with the chaebol for them to shoulder the tax). The tuition fee in an international school here in Seoul is way beyond what we can personally afford. Multiply this by 2 since our second son entered first grade last year in the same international school as our first son. Husband’s total income for 2016 increased dramatically on paper.
South Korea’s tax system has a progressive tax rate. Since hubby’s total income for 2016 has dramatically increased (only because of the additional educational benefit), he was moved up to a higher income bracket. And that means, higher tax! Another implication: A higher income bracket also means for your credit card purchases to qualify for tax exemptions, it shall total to 25% or more of your annual income. Our credit card purchases for 2016 DID NOT reach 25% of hubby’s annual income. OVERALL RESULT: shocking and exorbitant figure in his ITR (Income Tax Return). His tax can pay for the tuition of another child in an international school!
For future expats:
- who will be working with a Korean chaebol, and
- with dependents who will have education benefits
consider the above! Hopefully, knowing about this will guide you to negotiate your terms of employment.