One of the benefits of operating a small business in South Korea is the fact that you pay less taxes than when you are employed by a company or a Hagwon in Korea. There have been years where I somehow paid less than 1% of what I earned for my taxes for the year as a small business owner. I don’t know how that happened, but we hired an accountant who did the work for us. We paid her either 100,000won or 150,000won for all of the work, and we ended up paying around (or less than) 1% of what we earned for our taxes for the year, which was pretty shocking and exciting. So if we made 70,000,000won for the year, then we had to pay a tax of less than 700,000won. Of course the taxes can go higher or lower depending on the type of business you operate and the amount of money you make, but you’ll still be paying a lot less than if you were to make the same amount working for a company.
So paying less taxes are a good reason to start your own business in Seoul, South Korea.
I have worked for a public school, a Hagwon, and a Korean company in my 7 or 8 years of living in Korea. And I have made different types of salaries at these different types of businesses. I can say that I paid a lot more in taxes when I was working for someone in Korea and not running my own business in Korea. Let’s say I made 3,000,000 won in a month working for a Korean company. I would end up seeing probably around (or even less than) 2,700,000 won of that after all of the deductions. So about 10% of my income was going to either a pension, health insurance, or some other things I have no idea that even existed. So overall, things were/are a lot better as a business owner than receiving a monthly salary in Korea. It may seem like it is “safer” to get a salary every month, but it’s actually the smarter decision to start your own business, especially since you get to keep way more of the money you actually earn.
Value Added Taxes in Korea
When it comes to taxes, there are differences with companies that can charge Value Added Tax (VAT) and those that cannot charge VAT. If you didn’t know, hagwons cannot legally charge VAT. Even flower shops can’t charge VAT, even though Flower Gift Korea can charge VAT on certain products because we sell more than just flowers, and aren’t simply considered a “flower shop” on paper. So since we are obligated to pay VAT two times a year, we can also charge taxes on certain items like stuffed toys, chocolates, etc. When I was operating my small English Hagwon in Gangnam, Seoul, Korea, I only had to pay taxes once a year. And the tax was calculated according to our revenue and expenses. So that is why we were able to pay less than 1% for taxes when I was operating my English gyosoopso business in Korea. My English gyosoopso could not charge VAT, so we were only taxed once a year. My flower business has to pay 3 taxes a year; we have to pay a tax on the revenue (the money we make) every year, and a VAT every 6 months. VAT is a little more complicated to calculate, but in short, you have to list the things you bought that you paid and separate which purchases had VAT, and the amount of sales that you charged VAT and didn’t charge Vat for, and then there is a formula that shows you how much you owe for those 6 months. The last time we had to do our VAT reports, we paid less than 2%. So if we made 50,000,000 won worth of sales for 6 months, we had to pay less than/around 800,000 won for the VAT.
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Actually, the last time we did the VAT for our business, we were kind of new to the whole Brick and Mortar store thing. So we didn’t get tax receipts for certain expenses that we should have, we didn’t issue VAT receipts on sales when we should have, and we even issued VAT receipts for sales that we didn’t even charge VAT for. That means we could have paid less VAT for those 6 months, but we didn’t because we lacked knowledge. We now have a much better idea, so it will be a lot easier doing our taxes the next time around, and we should be able to pay less than what we paid (if we were to make the exact same amount in sales). However, if we end up making a lot more, we may end up paying more. But paying a lot of taxes means you are making a lot of money, so that can be a good thing.
How much money you make and tax amount
I am no accountant, but one important thing to do note is that if you make more than 75,000,000 won a year as a Hagwon business (or a business that does not charge VAT), your taxes go up and you are legally required to hire someone to manage your expenses/saes every month.The same goes for businesses that charge VAT and make more than 300,000,000 won a year. So this is very important information to keep in mind when starting and operating your own business in Korea.
Doing Your Taxes in Korea as a Business Owner
Doing your taxes in Korea isn’t that difficult, especially if you are just running your own small gongbubang or gyosoopso in Korea somewhere. If you are running your own Hagwon in Korea, then I suggest you organize all of your expenses and sales on a spreadsheet somewhere. Divide the file into months. You can just create different pages on one file and have a different tab for each month and then one tab (the little things that stick out at the bottom of the spreadsheet) for your overall year, so that you can see how much you are making/spending overall. This process of recording your expenses and sales would be considered “Keeping the Books” or “Book Keeping”. It is the first step to do when doing your taxes. Also, make sure to keep all of the receipts of your purchases in clips or in drawers somewhere, so you have all of the receipts. You are legally required to keep those receipts for 5 years. And that’s all you really need to do before you hire an accountant to help you with the rest. There’s obviously the part where you have to enter numbers onto either a paper form or an online tax form, but that is something your accountant can advise you about.
If you own a business that charges VAT, then you’ll have to create a different structure for your spreadsheet, one that is a little more complicated. You’ll have to divide your purchases depending on what your accountant advises. We had to divide our expenses like so; expenses that required us to pay VAT electronically, expenses that required us to pay VAT via paper receipt, expenses that didn’t require VAT via credit card, and expenses that didn’t require VAT without credit card. So it can be a little confusing to how you are to create your columns and rows, and we didn’t really know how to organize it properly until after we did it once with our accountant. We kept asking him how we were to organize it, but at the time we weren’t paying customers, so I guess he didn’t want to tell us. After we went through the process once, he told us he would send us a template to follow. I am unsure why he didn’t send it to us for the first time, but maybe he was afraid we would just use his template and go to a different account. Who knows.
Start Your Business in Korea
So up until now, you may have thought that doing your taxes as a business owner in Korea would be a lot of work and a reason NOT to start your own business in Korea. But as someone who has received salaries as an employee of a Korean company, a Korean Hagwon, and the public school teaching system in Korea from the Gangnam district, and as someone who has paid taxes as a Hagwon owner and an owner of a business that buys and sells goods, it probably is a very good reason as to why you should start your own business in Korea.