Question 1

What is the limit and required evidence for ceremonial expenses paid to clients?

Accepted Answer

Only ceremonial expenses related to the business are recognized.
Acceptable evidence includes wedding invitations, obituary notices, and SMS/KakaoTalk records.
The limit is KRW 200,000 or less per event to be treated as a business expense.

Question 2

How is the interim prepayment calculated for a sole proprietor?

Accepted Answer

1. 1/2 of the prior-period comprehensive income tax
2. If the first-half estimated interim tax is less than 30% of the prior-year tax, you may file and pay based on the estimate by December 1
3. Estimate formula: [(current-year first-half comprehensive income x 2 - loss carryforward - income deductions) x base rate] / 2 - current-year first-half tax credits and prepaid taxes

Question 3

How are penalties calculated for taxpayers subject to diligent-filing confirmation?

Accepted Answer

1. Penalty for failing to submit the diligent-filing confirmation report
   5% penalty on the assessed tax

2. Non-filing or under-reporting penalty
   Non-filing penalty = 20% (40% for fraudulent non-filing)
   Under-reporting penalty = 10% (40% for fraudulent under-reporting)

Question 4

Who is subject to diligent-filing confirmation, and what are the benefits?

Accepted Answer

Eligibility
1. Revenue exceeding the industry threshold for the year
2. Revenue includes deemed rental income, sales incentives, and fair market value of inventory at business transfer

Benefits
1. Income tax filing/payment deadline extended by 1 month
2. Tax credits for medical, education, and monthly rent
3. Diligent-filing confirmation fee credit (60% of the fee, up to KRW 1.2 million)

Deduction benefits are available when total salary is KRW 80 million or less

Question 5

What is the Yellow Umbrella Mutual Aid (Noran Usan) deduction limit?

Accepted Answer

1. Sole proprietor
   Annual income KRW 40 million or less: KRW 6 million
   Annual income KRW 40 million to KRW 100 million: KRW 4 million
2. Corporate representative
   Total salary KRW 80 million or less: deduction benefit available

Question 6

Until when can a comprehensive income tax amended return be filed?

Accepted Answer

1. Within 5 years after the statutory filing deadline
2. If originally under-reported, an additional tax penalty may apply

Question 7

Who must register a business-use bank account, and what is the penalty?

Accepted Answer

1. Subject parties
   Double-entry bookkeeping filers, diligent-filing confirmation filers, and corporations
2. Penalty
   0.2% of revenue for the period of non-registration, 0.2% of unused amounts

Question 8

How is comprehensive income tax calculated using the simple expense ratio?

Accepted Answer

[Total revenue - (Total revenue x simple expense ratio for the industry)] x tax rate

Question 9

What are the criteria for recognizing freelancer expenses?

Accepted Answer

Examples of deductible expenses
1. Business-related software purchases
2. Transportation and travel costs
3. Freelance workspace rent
4. Online tools, design resource tools
5. Equipment such as laptops and monitors

Expenses used for personal purposes are excluded, and receipts, card statements, or bank transfer records must be retained as evidence

Question 10

What are the effects of transferring goodwill?

Accepted Answer

1. Individual tax savings
   When an individual transfers goodwill to a corporation, the consideration is classified as other income. 60% of the appraised goodwill is recognized as necessary expenses, so comprehensive income tax is imposed only on the remaining 40%.

2. Corporate tax savings
   The corporation can record the acquired goodwill as an intangible asset and amortize it over 5 years.

Question 11

Can a used car or a car bought before starting the business be expensed?

Accepted Answer

1. Even if a vehicle was personally purchased before starting the business, it can be expensed if you value it as of the business-start date and record it as an asset on the books
2. Used cars can also be registered for business use if purchase documentation is kept

Question 12

What tax credits are available for sole proprietors?

Accepted Answer

1. Small- and medium-sized enterprise special tax reduction (including start-up credit)
   5%-30% reduction of income tax or corporate tax
2. Start-up tax reduction (Youth Start-up Credit)
   50-100% tax reduction for 5 years based on industry and region
3. Employment Increase Tax Credit
   KRW 4 million to KRW 15.5 million per new hire
4. Diligent-filing confirmation fee credit
   60% of the fee (up to KRW 1.2 million)

Question 13

Why pay the income tax interim prepayment? Who is subject?

Accepted Answer

It is a system for prepaying in November a portion of the tax that will be due the following May.

Excluded taxpayers
1. New businesses
2. Businesses that closed before June 30
3. Taxpayers with only withholding income such as wages, interest, or dividends
4. Taxpayers whose interim prepayment would be under KRW 500,000 because the prior year's tax was low

Question 14

When is cash-receipt issuance mandatory?

Accepted Answer

1. Transactions of KRW 100,000 or more
   In mandatory-issuance industries, a receipt must be issued even without customer request
   Failure to issue incurs a fine of 20% of the transaction amount
2. Transactions under KRW 100,000
   Issued only upon customer request

Question 15

How is the pension lottery prize taxed?

Accepted Answer

22% is applied up to KRW 300 million, and 33% applies to the portion above, with separate taxation ending the tax.
The withholding is applied each month based on the monthly amount received, not the total prize.
If you receive KRW 7 million per month, the 22% rate applies, leaving about KRW 5.46 million in hand each month.

Question 16

What are the allowable reasons for early withdrawal from an IRP account?

Accepted Answer

1. Home purchase or jeonse deposit preparation by a person without a home
2. Illness/injury requiring treatment of 6 months or more (self, spouse, or dependent)
3. Personal rehabilitation or bankruptcy declaration
4. Natural disasters or social disasters

Question 17

What are 'NTS-issued' cash receipts shown in the lookup?

Accepted Answer

They are cash receipts issued by the National Tax Service after a consumer files a cash-transaction confirmation report or a report of issuance refusal/non-issuance by a merchant.

Question 18

Pros and cons of Yellow Umbrella Mutual Aid

Accepted Answer

Pros
1. Income deduction (up to KRW 6 million per year)
2. Attachment-proof asset
3. Support upon business closure (severance-like benefit)

Cons
1. Risk of principal loss on early termination (up to 20% of principal)
2. 16.5% other-income tax rate applied on early termination

Question 19

Tax savings for academies, cram schools, and study rooms

Accepted Answer

1. Manage expense documentation carefully > Registering a business credit card makes expense management easier and increases tax savings
2. Save on taxes through labor-cost reporting > Hiring staff enrolled in the four major insurances increases tax reductions
3. Rent, utilities, telecom, rental, and public fees
4. Check health insurance, national pension, Yellow Umbrella, and pension savings > Yellow Umbrella: KRW 2-6 million income deduction per year; Pension savings: up to KRW 6 million annual tax credit
5. If the tax burden is heavy, consider converting to a corporation.

Question 20

Goodwill transfer

Accepted Answer

1. Establish a corporation
   Decide on the company name and corporate form (stock company, limited company, etc.)
   Determine capital (no statutory minimum, but match to business scale)
   Draft the articles of incorporation
   Register the corporation
   Obtain a business registration certificate

2. Request an appraisal
   Financial statements for the past 3-5 years (income statement, balance sheet)
   Copy of business registration
   Sales documentation (tax invoices, credit card sales, etc.)
   Lease agreement
   List of major clients

3. Execute the goodwill transfer agreement
   The contract must include:
   Transferor (sole proprietor) and transferee (corporation) details
   Specific contents of the goodwill being transferred
   Transfer price
   Payment method (lump sum or installments)
   Payment schedule
   Rights and obligations of the parties
   Contract date and signatures

Question 21

Seoul Metropolitan Area Concentration Control Region for Youth Start-up Tax Reduction

Accepted Answer

The Seoul Metropolitan Area Concentration Control Region is a key criterion when applying the Youth Start-up Tax Reduction.

It generally includes all of Seoul and parts of Gyeonggi Province and Incheon. Starting a business in this region results in a lower tax reduction rate than starting outside it.

Specifically, Youth Start-up Tax Reduction provides a 100% reduction outside the Concentration Control Region, but only 50% inside it.

The exact scope is defined in the Enforcement Decree of the Seoul Metropolitan Area Readjustment Planning Act, based on the business location.

Question 22

Tax savings for real-estate rental businesses

Accepted Answer

1. Deducting interest expense on loans
2. Managing repair and maintenance costs
3. Brokerage fees and tenant-related expenses
4. Expensing land-related costs
5. Utilizing building depreciation
6. Expensing taxes and public charges
7. Using rental-housing tax reduction benefits

Frequently Asked Questions (FAQ)

Frequently Asked Questions