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Interactive U.S.-Korea Tax Guide

Your digital toolkit for navigating cross-border tax complexities for 2025.

Case Study Simulators

These interactive tools bring complex tax scenarios to life. Adjust the inputs to see how different choices can impact your global tax liability. This section is designed to provide a hands-on understanding of the core relief mechanisms and risks discussed in the report.

Scenario A: The U.S. Expat Employee in Seoul

Alex, a single U.S. citizen, earns a salary from a Korean company. This calculator models his U.S. tax liability after applying the Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credits (FTC). Adjust his salary and see how choosing between Korea's progressive vs. flat tax rates affects his bottom line and his ability to generate valuable FTC carryforwards.

Annual Salary: $150,000

Korean Tax Method

Korean Tax Paid:

Income Subject to U.S. Tax:

U.S. Tax (before FTC):

Available FTC:

Final U.S. Tax Due:

Excess FTC Generated:

Scenario B: The Korean Investor's U.S. Dividends

Ms. Kim, a Korean resident, receives dividends from a U.S. company. This simulator demonstrates the critical importance of filing Form W-8BEN to claim treaty benefits. See the dramatic difference in U.S. withholding tax and the final net dividend received. This highlights how a simple procedural step prevents significant and often unrecoverable double taxation.

Dividend Amount (USD)

Form W-8BEN Status

Withholding Rate:

U.S. Tax Withheld:

Net Dividend Received:

The chart visually compares the dividend amount kept by the investor versus the tax paid to the U.S. under both scenarios.

Scenario C: The U.S. Startup & PE Risk

A U.S. startup sends an employee to Korea for a client project. This creates a potential "Permanent Establishment" (PE), which could expose the U.S. company to unforeseen Korean corporate taxes. Answer the questions below to assess the PE risk level based on the U.S.-Korea Tax Treaty rules. This interactive tool helps visualize how business activities can cross a tax threshold.

1. Are services provided in Korea for more than 6 months in any 12-month period?

2. Is there a fixed place of business (e.g., dedicated office space) in Korea?

3. Does the employee in Korea have and habitually exercise authority to conclude contracts on behalf of the U.S. company?

PE Risk Level: Low

Based on the current inputs, the risk of creating a Permanent Establishment in Korea is low. The company's activities likely fall below the treaty thresholds that trigger a taxable presence.

Core Treaty Concepts

This section provides detailed explanations and interactive diagrams for the foundational rules of the U.S.-Korea Tax Treaty. Understanding these concepts is essential for effective cross-border tax planning, from claiming reduced tax rates to correctly determining your tax residency.

Withholding Tax Rate Comparison (2025)

The treaty provides a 'ceiling' on tax rates for cross-border payments. The table below shows the default rates vs. the reduced treaty rates. Proper documentation (like Form W-8BEN) is required to claim these lower rates.

Income Type	U.S. Default	Korea Default	Treaty Rate
Dividends (Portfolio, <10% owner)	30%	22%	15%
Dividends (Direct, >10% owner)	30%	22%	10%
Interest	30%	22%	12%
Royalties (Industrial)	30%	22%	15%
Royalties (Copyright)	30%	22%	10%

Dual Residency Tie-Breaker Wizard

If you are considered a tax resident of both the U.S. and Korea, the treaty provides a sequential "tie-breaker" test to assign residency to a single country for treaty purposes. Work through the steps below to see how it works.

Step 1: Permanent Home

Do you have a permanent home available to you in only one of the countries?

Step 2: Center of Vital Interests

To which country are your personal and economic relations closer? (e.g., family, social ties, political/cultural activities).

Step 3: Habitual Abode

In which country do you more frequently live?

Step 4: Citizenship

Are you a citizen of only one of the countries?

Step 5: Mutual Agreement

The tax authorities of the U.S. (IRS) and Korea (NTS) will settle the question by mutual agreement.

Warning for U.S. Citizens: The treaty's "saving clause" means that even if you are determined to be a Korean resident under this test, you are still required to file a U.S. tax return and report your worldwide income. The primary benefit is that Korea gets the first right to tax, and the U.S. must provide relief via the FTC.

Compliance Checklists & Resources

Proper documentation is the foundation of a defensible tax position. This section provides a practical checklist for audit readiness and curated links to official government resources and other helpful tools. Use these to ensure you are prepared and well-informed.

Audit Readiness Checklist

• ✓ For FEIE (Form 2555)

  Proof of bona fide residence (lease, bills) or physical presence (passports, travel logs).

• ✓ For FTC (Form 1116)

  Official Korean tax payment receipts (e.g., 'Receipt for Earned Income Tax Withholding') and proof of payment.

• ✓ For FBAR/FATCA

  Year-end statements and records of maximum value for all foreign financial accounts.

• ✓ For Residency Tie-Breaker

  Documents showing closer connection (family location, memberships, personal belongings).

• ✓ For PE Risk Mitigation

  Service contracts, employee job descriptions proving limited role, APA documentation if applicable.

Official Resources & Podcast

U.S. Internal Revenue Service (IRS)

• International Taxpayers Main Page
• U.S. Income Tax Treaties A-Z
• Publication 54, Tax Guide for U.S. Expats

Korean National Tax Service (NTS)

• NTS English Homepage
• Resources for Foreigners (Forms & Guides)

Tax-Saving Podcast

U.S.–Korea Tax Saver Podcast