Semiannual withholding tax payment: apply only in June or December

This guide is for small employers in Korea and the payroll staff who pay their withholding tax. Withholding tax (원천세) is the income tax a company deducts from salaries and pays to the government, normally every month. A company with 20 or fewer regular employees can switch to paying twice a year, but it can apply only in June or December.

The rule: pay by the 10th of the next month

Under Article 128(1) of the Income Tax Act (소득세법), a withholding agent (원천징수의무자), usually the employer, must pay the income tax it withheld by the 10th of the month after the month of withholding. Payment goes to the tax office in charge of the withholding, the Bank of Korea (한국은행) or a post office (체신관서).

Article 128(2) makes an exception. Withholding agents specified by presidential decree, based on the number of regular employees, the type of business and other factors, may pay certain withheld tax by the 10th of the month after the last month of the half-year in which it was withheld.

Who can apply

Article 186(1), item 1 of the Enforcement Decree of the Income Tax Act (소득세법 시행령) covers withholding agents whose regular headcount (상시고용인원) in the previous year was 20 or fewer. Businesses in finance and insurance are excluded. For a business that has just started, the "previous year" means the half-year in which the application date falls.

Article 186(2) sets the calculation: the average of the regular headcount as of the last day of each month from January to December of the previous year. If headcount went over 20 for a month or two but the average is 20 or fewer, the company qualifies. The reverse also happens: hiring bunched at year-end can put the December figure over 20 while the average stays below. You can only do this calculation if you record headcount at the end of each month.

Apply in June or December only

Under Article 186(3) of the Enforcement Decree, a company that wants approval must apply to the head of the tax office in charge of its withholding (원천징수 관할세무서장) between the 1st and the last day of the month just before the half-year in which it wants to start paying semiannually.

• To start from the first half (January), apply in December.
• To start from the second half (July), apply in June.

If you miss that month, you wait for the next half-year. If you could not apply in December, you pay monthly for the first half, and the next chance is to apply in June to start in July. You cannot switch in the middle of a half-year.

This is why many companies tie the application to their year-end closing schedule. December is easy to miss because preparation for the year-end tax settlement (연말정산) overlaps with closing, so set a reminder at the end of November.

Approval, and approval by silence

Article 186(4) sets the approval process. The head of the tax office decides whether to approve, taking into account how faithfully the company has reported and paid withholding tax, among other factors. The office must give notice by the last day of the month after the half-year in which the application date falls.

One more sentence follows: if the withholding agent receives no notice by that deadline, the application is deemed approved (승인 간주). If you applied in December and receive no notice by the end of January of the following year, it counts as approved. Do not read silence as rejection. A company that keeps paying monthly in that case carries extra admin work even though it already qualifies for semiannual payment.

Article 186(1) also provides a second route: designation under rules set by the Commissioner of the National Tax Service (국세청장), instead of approval.

Semiannual payment is not always better

You make fewer payments, but other burdens appear:

• Six months of withholding tax goes out at once, so that month's cash need is larger.
• If settling a mid-year leaver's tax produces a refund, the chance to settle it is pushed back to the end of the half-year.
• Because you no longer check every month, calculation errors can build up for six months.
• You check everything once at the end of the half-year, so a correction reaches further back.
• Special collection of local income tax (지방소득세 특별징수) is a separate procedure, so check it as well. See the guide on local income tax withholding.
• The duty to file payment statements (지급명세서) continues regardless of semiannual payment. See the guide on monthly simplified payment statements.

If headcount rises above 20, the company no longer qualifies, so a company with hiring plans should re-check every half-year.

Checklist

• Tabulate regular headcount as of the last day of each month of the previous year.
• Calculate the 12-month average and confirm it is 20 or fewer.
• Confirm the company is not in the excluded finance and insurance businesses.
• For a new business, calculate on the basis of the half-year in which the application date falls.
• Apply in December to start in the first half, or in June to start in the second half.
• Mark on the calendar that the window runs from the 1st to the last day of the month before the half-year.
• Keep proof that the application was received.
• Wait for notice until the last day of the month after the half-year in which you applied.
• If no notice arrives, treat the application as approved and change the payment schedule.
• Change the payment schedule from the first month of the half-year and update the company calendar.
• After switching, keep doing the monthly payroll register and withholding tax calculations.
• Build into your cash plan that refunds from mid-year leavers' settlements are held until the end of the half-year.
• Handle local income tax special collection reporting and payment separately.
• If headcount goes above 20, check again whether the company still qualifies.
• Just before the semiannual payment, check all six months of calculations together.

If you employ foreign staff, see also the guide on the 19% flat tax for foreign employees.