You must file a report on the status of your business establishment each year.
Operators required to report
- Any business operator (including business operators who permanently or temporarily close his/her business during the relevant taxable period) shall file a report on the present status of the relevant place of business (hereinafter referred to as "report on the present status of a place of business") with the head of a tax office having jurisdiction over the place of business, by February 10 of the following year of the relevant taxable period (Main body of Article 78(1) of the Income Tax Act).
- However, a report on the present status of a place of business shall be deemed to be already filed in any of the following cases (A provision of Article 78(1) of the Income Tax Act):
· Where the reporting period for the resident’s tax base has been altered due to the death of a business operator or his/her departure from the Republic of Korea (Article 74 of the Income Tax Act)
· Where a business operator who is required to pay VAT has reported scheduled or confirmed VAT, or a simplified taxable person has reported a tax report (Subparagraph 3 of Article 2, Article 48, Article 49, Article 66 and Article 67 of the Value-Added Tax Act)
Reporting method
- A business operator who is required to report the current status of his/her business establishment shall submit a current status of business establishment that contains the following matters to the head of a competent tax office along with the particulars of the amount of revenue and pertinent materials (Article 78(2) of the Income Tax Act, Article 141(1) and (2) of the Enforcement Decree of the of the Income Tax Act」, and Attached Form 19 of the Enforcement Regulations of the Income Tax Act).
· Personal information on the business operator
· The particulars of the amount of revenue by business type
· Details on the amount of revenue by payment method
· Statement of account, tax invoice, credit card sales slip and cash receipt details
· Matters related to the current status of the business establishment as prescribed under the ordinance of the Ministry of Economy and Finance
Income tax must be paid for annual operating income incurred every year.
Tax payers
- Any individual who has his/her domicile or place of residence for at least 1 year in the Republic of Korea (hereinafter referred to as “resident”) shall be imposed tax on all income (Subparagraph 1 of Article 1-2(1) and Article 3(1) of the Income Tax Act).
Tax declaration and payment
- A business operator shall report his/her income by filing a tax return with the head of a tax office having jurisdiction over his/her business establishment for tax payment, along with a ledger that contains the amount of business income and supporting documents, and shall pay the global income tax calculated based on such information (Article 70(4) and Article 76(1) of the Income Tax Act).
Period of declaration
- Period for filing a final return
· Any resident (including a resident with no tax base for global income or any loss) with the amount of global income in the relevant taxable period shall file a return on the tax base of such global income with the head of a tax office having jurisdiction over the place for tax payment, from May 1 to May 31 in the year following such taxable period to informational self-determination (Article 70(1) of the 「Income Tax Act」).
- Period of interim prepayment
· The head of a tax office having jurisdiction over the business establishment for tax payment shall issue a payment bill of the amount of tax for interim repayment (an amount equivalent to 1/2 of the amount of tax paid or payable as income tax on global income) during the period from November 1 to November 15 to the residents liable to pay the tax for interim tax prepayment (Later part of Article 65(1) of the Income Tax Act).
Persons subject to simple bookkeeping
- The National Tax Service has specially devised the simple bookkeeping for small business operators, which makes it easy for the operators to draw up income and expenses as if they are writing a housekeeping ledger, and provides benefits for the business operators to report and pay income taxes by calculating their own income based on the said bookkeeping.
- Any business operator below a certain scale by the following types of businesses shall be referred to as a "person subject to simple bookkeeping" and any business operator, other than a person subject to simple bookkeeping, shall be referred to as a "person subject to double-entry bookkeeping" (Article 160(3) of the 「Income Tax Act」 and Article 208(5) of the Enforcement Decree of the Income Tax Act).
· A business operator commencing a new business in the relevant taxable period
· A business operator whose total revenue for the preceding taxable period (including the revenue increased by determination or correction but excluding revenue occurring from transfer of for-business tangible assets under Article 19-(1)-20 of the Act) falls short of the following amount
(a) Agriculture, forestry, fishery, mining, wholesale and retail businesses as well as real estate sale business and other businesses not falling under items (b) and (c): KRW 300 million
(b) Manufacturing, lodging and restaurant business, electricity, gas, steam and water supply business, sewage, waste disposal, raw materials recycling and environment rehabilitation business, construction business (excluding non-residential building construction business), real property development and supply business (limited to residential building development and supply business), transportation business, publication, image, broadcast and telecommunications and information service business, financial and insurance business, and commodities brokerage service: KRW 150 million
(c) Real estate leasing service, real estate-related service, leasing service (excluding real estate leasing service), specialized, scientific, and technical service business, business facility management and business support service, educational service, health and social welfare service, service industry related to the arts, sports, and leisure, associations and organizations, repair and other personal service businesses, and family-employed activity: KRW 75 million
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Benefits of simple bookkeeping
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(Question) What benefits does the simple bookkeeping offer? (Answer) Income tax is calculated based on the self-entered actual income, and therefore, if any loss (deficit) has incurred, such amount can be deducted from the amount of income generated during the past 10 years. However, the loss carried forward arising out of the business income of real estate leasing service will be deducted from the corresponding business income only. Also, depreciation costs, bad debts, and reserves for retirement benefits may be recognized as necessary expenses. The income tax may be reduced by up to 20% by making entries in bookkeeping. The additional taxation of 20% for non-bookkeeping will not levied and if the person subject to simple bookkeeping reports his/her income by double-entry bookkeeping, 20% of the tax calculated based on the bookkeeping will be deducted (Main body of Article 56-2(1) of the Income Tax Act). In other words, the amount equivalent to 20/100 of the amount calculated by multiplying the ratio of business income calculated according to the relevant book to global income by the calculated tax on global income shall be deducted from the calculated tax on global income. On the other hand, if a person subject to simple bookkeeping fails to make an entry by double-bookkeeping or via simple bookkeeping, the income based on actual income cannot be calculated and thus any loss (deficit) will not be acknowledged. In addition, he/she will be subject to an additional 20% taxation for non-bookkeeping, and those who have failed to keep the books for the purpose of omitting income may face intervention for taxation such as undergoing a tax investigation. < National Tax Service – Return and Payment – Global Income – Guide to Simple Bookkeeping >
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Calculation of the amount of income
- A business operator who has kept and recorded books shall calculate the amount of income in the following manner: Amount of income = Total amount of income – Necessary Expenses (refer to Article 45(1) of the Income Tax Act).
You must pay value-added tax on your operating income.
Persons subject to taxation
- Any individual, corporation (including the State, a local government, or a local government association), unincorporated association or foundation, or other organization that falls under any of the following subparagraphs shall be liable to pay the value-added tax (Article 3(1) of the Value-Added Tax Act)
· An entrepreneur
· A person who imports goods
Taxation method
- The amount of VAT to be paid by an entrepreneur shall be (output tax amount – input tax amount) (Article 37(2) of the Value-Added Tax Act).
Tax declaration and payment
- VAT shall be paid in the location of each business establishment, but if an entrepreneur has no business establishment, he/she shall pay VAT in the location of his/her domicile or residence (Article 6(1) and (3) of the Value-Added Tax Act).
- An entrepreneur shall register each of his/her business at the head of a tax office having jurisdiction over his/her business establishment within 20 days of the commencement date of his/her business. However, a person who intends to newly start a business may file an application for business registration even before the commencement date of the business (Article 8(1) of the Value-Added Tax Act).
Taxable period
- The taxable period of value-added taxes for entrepreneurs shall be as follows (Article 5(1) of the Value-Added Act)
① Simplified taxable persons
· From January 1 until December 31
② General taxable persons
· First period: From January 1 until June 30
· Second period: From July 1 until December 31
- The initial taxable period for a person starting a new business shall be from the commencement date of the business until the end date of the taxable period in which the commencement date of the business is included. However, when an application for business registration is filed prior to the commencement date of the business, the initial taxable period shall be from the date of such application until the end date of the taxable period in which the date of application is included (Article 5(2) of the Value-Added Tax Act).
Simplified taxable persons
- Concept
· “Simplified taxable persons” refers to individual entrepreneurs who proceeds(referring to proceeds including the value-added tax) from the supply of goodsand services in the immediately preceding calendar year fall short of KRW 80 million (Article 61 (1) of the Value-AddedTax Act and Article 109 (1) of the Enforcement Decree of the Value-Added TaxAct).
- Amount of tax payable by simplified taxable persons
· The amount of tax payable by a simplified taxable person shall be an amount calculated according to the following formula. In such cases, if a simplified taxable person runs concurrently 2 or more types of businesses, the total amounts calculated by each of such business type shall be the amount of tax payable (Article 63(2) and (3) of the Value-Added Tax Act)
√ Amount of tax payable = [Revenue during the relevant taxable period (sum total of proceeds) × Value-added rate of the relevant business type × 10/100] Deductible amount of tax (input tax amount entered in the tax invoice)
- Value-added rate of the relevant business type
· The value-added rate of the relevant business type required for calculating the amount of tax payable is as follows (Article 111(2) of the Enforcement Decree of the Value-Added Tax Act)
√ Electric power, gas, steam and waterworks business: 5/100
√ Retail trade, renewable materials collection and sales business, and food service activities: 10/100
√ Manufacturing business, agriculture, forestry and fisheries, accommodation services, and transport and communication services: 20/100
√ Construction services, real estate leasing services and other services: 30/100
- Returns by simplified taxable persons
· A simplified taxable person shall submit a return on value-added tax of simplified taxable person, specifying the following particulars with the head of the tax office having jurisdiction over his/her place of tax payment, on the tax base and the amount of tax payable for each taxable period, and pay it to the head of the tax office having jurisdiction over the place of tax payment or the Bank of Korea, etc., within 25 days after the end of each relevant taxable period (Article 67(1) of the Value-Added Tax Act and Article 114(3) of the Enforcement Decree of the Value-Added Tax Act).
√ The entrepreneur’s personal details
√ The amount of tax payable and the basis for calculation thereof
√ The amount of penalty tax and the basis for calculation thereof
√ The details of the list of total tax invoices by seller submitted
√ Other information for reference
Mutual aid funds will be deducted from the global income.
Income deductions for mutual aid funds for small entrepreneurs
- Where a small entrepreneur joins, and makes deposits, in a mutual aid fund in the amount not exceeding KRW 3 million paid by installment on a quarterly basis, he/she shall be entitled to deduct the smaller of an amount deposited in the mutual aid fund for the relevant year, and of any of the following amounts, from the amount of business income for the relevant taxable year (Article 86-3(1) of the Restriction of Special Taxation Act」 and Article 80-3(1) of the 「Enforcement Decree of the Restriction of Special Taxation Act)
· If the amount of business income for the relevant taxable year does not exceed KRW 40 million: KRW 5 million
· If the amount of business income for the relevant taxable year is between KRW 40 million and KRW 100 million: KRW 3 million
· If the amount of business income for the relevant taxable year exceeds KRW 100 million: KRW 2 million
- Where a person receives mutual aid benefits from the mutual aid fund for small or micro enterprises, such benefits shall be deemed as retirement income, which shall be subject to income tax (Article 86-3(3) of the Restriction of Special Taxation Act and Subparagraph 2 of Article 22(1) of the 「Income Tax Act」).