According to Korean tax law, any person or entity paying income such as interest, dividends, salaries, retirement income, business (freelance occupation) income or other income to individuals is required to withhold a certain amount of tax at source when the income is paid. The tax withheld must then be paid to the government on or before the tenth day of the next month following the month of payment and withholding.

When paying certain domestic source income to foreign corporations with no permanent establishment in Korea, the person or entity must withhold a certain portion of the income at the time of payment and pay the withheld tax to the government by the due date.

In most cases, 100% of the income is used as the tax base. In some cases, only a portion of the income, for example 20% or 25%, is the tax base. The withholding tax rate varies from 1% to 90% according to the type of income and income earner.

In addition to this withheld income tax, a surcharge called inhabitant tax is withheld. This inhabitant tax amount must be reported and paid separately by the withholding company. Generally, the companies maintain two accounts to record the withholding of income tax and inhabitant tax separately, but this practice is not legally binding.

The recipient of a payment due to withholding tax receives a withholding tax receipt, which states the amount of tax withheld and the data of the withholding companies.