A Guide to Tax Life in Korea : Do you know your business code?

When you start business in Korea, you have to register at Tax Office for Business Registration Certificate which looks like this.

But do you know what your business code(or 업종코드)is? The business code is not even shown on business registration certificate. However, it is much more important than you think.

Business code is a 6 digit number that classifies the same business group. If you do wholesale business, your business code will be in between 501101 and 525911. If you are IT service provider, 721000 can be your business code.

Why does this 6 digit number matter? Because it is a basic factor which NTS(National Tax Service) compares your business with others.
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1. For corporations(법인), business code is a key factor for tax risk management

NTS uses business code to compare a company’s performance with others under the same code. NTS looks at sales composition, purchase data, and income ratio under the same code. There is higher chance to an outlier going through tax investigation by NTS.

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2. For small business owners, your taxable income can be affected by applying expense ratio given to your business code

NTS allows small business owners with low sales volume to report income simply by multiplying expense ratio to top line instead of preparing an actual Profit&Loss report. This expense ratio is updated by NTS every year, as it is average of expense data under the same code group.
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3. For foreign freelancers, business code can affect your legitimacy of staying in Korea

Assume you work in Korea with E-2 visa, you are to work as an English teacher. Unless you sign a salary employment contract, you would be hired as a freelancer. The employer then reports your income to NTS with regular freelancer business code 940909. When you go to the immigration to renew your visa, the officer says you are not supposed to do any work than teaching, and you asserts that you’ve never done anything but teaching. But the officer shows your income tax report with business code 940909 and tell you that you are supposed to report 940903 which is the code for teaching.
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Check if your business is operating consistent with registered business code. Please feel free to ask any questions on this posting to myself.

Written by Ara Jung (CTA)

All information provided is of limited scope and not exhaustive or comprehensive of any subject. It is not intended to be legal, and should not be used in place of consultation with appropriate professionals

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