MyAIDevelopment · Product · Operations notes

Sole Prop · Corporation · VAT Type

This is general information, not legal or tax advice. Rules change often, so verify with the official source or a licensed tax accountant (semusa) or lawyer before acting.

There are two decisions to make first when you start a business.

  1. Who is the business — you as an individual (sole proprietor, gaein saeopja) or a separate corporation (beopin)
  2. How you pay VAT — as a simplified taxpayer (gan-i gwase-ja) or a general taxpayer (ilban gwase-ja)

The second choice applies only to sole proprietors. A corporation cannot be a simplified taxpayer.

Sole Proprietorship vs Corporation

Item Sole proprietor Corporation (stock company)
Setup Starts with business registration alone Articles of incorporation, capital paid in, incorporation registry, then business registration
Income tax Global income tax (6% to 45% per the NTS rate table) Corporate tax (fiscal years starting on or after 2026-01-01: 10%, 20%, 22%, 25%)
Ownership of money Money in the business account is the owner's money The corporation's money. The CEO needs a basis such as salary or dividends to take it
Liability Owner has unlimited liability for business debts Shareholders are in principle limited to their contribution
Investment No equity structure Equity investment by issuing new shares
Admin cost Low Registry filings, double-entry books, shareholder and board records

Do not pick a corporation on tax rates alone. The moment you take the corporation's money for personal use, tax on salary or dividends applies again, and withdrawals without a basis cause problems.

Tax Comparison Example (2026 tax year, illustration only)

A simple example that applies only the rate tables to the same taxable income (gwase pyojun). In practice the two tax bases are not the same number (the CEO's salary is a corporate expense; an individual gets income deductions, etc.), and reliefs, tax credits and social insurance are all left out.

Taxable income Individual: global income tax Individual: local income tax (10%) Individual total Corporation: corporate tax Corporation: local income tax Corporation total
KRW 100 million KRW 19.56 million KRW 1.956 million about KRW 21.52 million KRW 10 million KRW 1 million KRW 11 million
KRW 300 million KRW 94.06 million KRW 9.406 million about KRW 103.47 million KRW 40 million KRW 4 million KRW 44 million

How it was computed:

How to read it:

Decision Flow

flowchart TD
    A[Preparing to start] --> B{Plan to raise outside equity}
    B -->|Yes| C[Consider incorporating]
    B -->|No| D{Profit high enough that progressive income tax hurts}
    D -->|Yes| C
    D -->|No| E{Do B2B customers require tax invoices}
    E -->|Yes| F[Sole prop, general taxpayer]
    E -->|No| G{Expected annual sales below the simplified threshold}
    G -->|Yes| H[Consider sole prop, simplified taxpayer]
    G -->|No| F
    F --> I[Consider converting to a corporation later]
    H --> I

Simplified Taxpayer vs General Taxpayer

Item Simplified taxpayer General taxpayer
Criterion Individuals with prior-year gross supply below KRW 104 million (threshold applied from 2024-07-01) All other individuals, every corporation
VAT payment exemption No VAT payable if gross supply for the period is below KRW 48 million (tax periods starting 2021 onward) None
Filings per year One final return (January). But if you issued tax invoices in January to June, a preliminary return is due by July 25 (VAT Act Article 66(3)) Twice (final returns, individuals)
Tax invoices Must issue if prior-year gross supply is KRW 48 million or more; new or smaller businesses issue receipts Issues invoices
Input VAT 0.5% of invoiced purchase amounts credited (supplies from 2021-07-01) Full input VAT credit, refunds possible

Simplified status is not always better.

Switch Timing and Exclusions

Situation Detail (per the NTS simplified taxation Q&A and the statutes)
New business If first-year gross supply is expected to stay below the threshold, report simplified status together with the business registration application (VAT Act Article 61)
Threshold exceeded If gross supply for a calendar year reaches the threshold, you become a general taxpayer from July 1 of the next year. Check the tax office's notice of the change in taxpayer type
Just before a July 1 switch A business switching from simplified to general files and pays for January 1 to June 30 as a tax period by July 25
Exclusion regardless of sales Excluded industries under Enforcement Decree Article 109(2), such as manufacturing and wholesale, and the Simplified Taxation Exclusion Criteria notified by the NTS Commissioner (regions and industries, notice applied from 2024-07-01) bar simplified status even with small sales
Real estate rental, taxable entertainment venues Not excluded industries, but a separate threshold of KRW 48 million applies

Incorporation Basics

A stock company (jusik hoesa) is created in this order.

Decide trade name, purpose, head office
→ Draft articles of incorporation
→ Pay in capital (balance certificate)
→ File and pay registration license tax
→ Incorporation registry (Internet Registry Office or Online Incorporation System)
→ Corporate business registration
→ Social insurance workplace report (once staff or CEO pay starts)

Points to know:

Bad example:

We incorporated with KRW 1 million of capital and from the first month the CEO paid personal expenses with the corporate card.

Good example:

We set capital at six months of operating costs, fixed the CEO's pay through the articles and a shareholder resolution, and paid it as salary.

Converting from Sole Proprietor to Corporation

Many start as sole proprietors and move to a corporation once profit is stable.

Signals to consider converting:

Method Overview
New corporation, then move the business Create a new corporation and close the sole proprietorship. Contracts and accounts must be moved
Business transfer Transfer the whole sole-prop business to the corporation
In-kind contribution Contribute the sole-prop business assets to the corporation

If business fixed assets are transferred by in-kind contribution or business transfer and the conditions are met, capital gains tax can be carried over (Restriction of Special Taxation Act Article 32). There are net-asset requirements and application deadlines, so design the conversion with a tax accountant first.

Check when converting:

References