What Happens When You Don’t Register Your Business in Korea

//What Happens When You Don’t Register Your Business in Korea

What Happens When You Don’t Register Your Business in Korea

*Disclaimer: This information is just what I know from reading books and from personal experience. Laws and policies can change year to year, so please remember that I am not a professional and information on this page is meant to give you an idea and may not be up to date.*

Is it Necessary to Register your Business in Korea?

In short, yes, obviously, but what if you only sell things occasionally on Naver Store Farm or Gmarket? What if you occasionally sell some baked goods to friends? Do you really have to register yourself as a business? What if your friend occasionally asks you to babysit his dog for 5,000won an hour? Do you really need to go to the tax office and register yourself as a dog babysitting business? Well, the simple answer to all of this is, no. If you are selling something (or your time) occasionally, then it isn’t necessary, but if you are consistently making money and it is consistently going unreported, then you can get in trouble if the government finds out about it.

Sometimes when I am on the subway, I see random salesmen walk in with a cart and sell things. They all have a well memorized pitch, something along the lines as, “this multi-color flashlight usually costs 5,000won, but today only, you can buy one for 3000won!” Honestly though, a part of me truly admires these salesmen because they have the courage to get in front of random strangers and pitch their products. Talk about hustling. Anyhow, it’s quite obvious that these people do not have a license that allows them to go on any subway and sell whatever item for whatever price they feel like. Why? Well, mainly because the government can’t keep track of what that particular salesman makes. And even street vendors require some sort of permit to sell on certain parts of the street, even though some do not have a permit.

If you go the route of trying to sell products in a Korean subway train, then you can get a warning and/or fine. You can see in the picture below, two subway patrolmen (not sure if they are just security or cops) talking to the man with a blue cart at the back of the subway train. If you look closely, it looks as though they are writing him up a ticket. I don’t know exactly what happened to the man, but the security guards escorted him off the train. I don’t know exactly what consequences he faced, but I do know that he wasn’t supposed to be selling things in/on the subway. But I also have a feeling that he will be selling his products on the subway train again.

So a good rule of thumb to have is, if you plan to actively build and grow a business, and it is your goal to make money consistently, then you need to register your business as soon as possible. All you need to do is go to the tax office the business (or you) are located in, and register it. If you occasionally sell things on Naver Store Farm or eBay, then you really don’t have to. So in short, you can actually sell things without a license, but you can’t continuously do so without one. If you do keep selling things and the government comes to the conclusion that you should have declared a business, you will be eligible to pay taxes on that business, even if you aren’t registered. However, it Is not easy for the government to find out, so some people don’t even register the money they make.

The easiest example I can think of is tutors in the education industry. I heard that in order for an illegal tutor to be caught, there needs to be a record of the tutor actually making money consistently. And that may be really difficult to track. So if you are making money doing side jobs here and there, then you probably can get away without registering a business. But if you want to build an actual business and consistently make money doing something, then you really need to be issuing receipts and reporting the money you make. Or else, there can be consequences.

Here is what happens if you have been running a “business” in Korea without a business registration and you get caught.

1: You will be forced to register your business. You will have to have a name and business address. Then the tax office will put you in whatever category you are. For example, my small English hagwon business was registered as an Education Service (교육서비스) and an English Gyosoopso (영어교습소). And I it was legally called IGL English Gyosoopso (아이지엘영어교습소). So I could technically only teach English in my business space at the time.

2. You will have to pay an extra tax, which is a percentage of your revenue/sales. This is called a Ga-San-Seh (가산세) on your revenue/sales. Ga-San (가산) means extra or additional and Seh (세) means cost. This extra tax is based on your overall sales for your first year or however many years they decide your “business” has been running illegally. The tax amount is 1% of your sales/revenue. So let’s just say you make 100 million won in a year without having your business registered. Then we would take 1% of that, which would be 1 million won. So right now you owe 1 million won for not registering your business.

Doesn’t seem like much huh? Well, there’s more!

3. You then have to pay the Value Added Tax (VAT) fee you already are supposed to be paying. Value Added Tax (VAT) in Korean is called Bu-Ga-Ga-Chi-Seh (부가가치세) but most people just call it Bu-Ga-Seh (부가세). This VAT in Korea is 10%, which is the extra 10% you may pay for certain expenses or charge for certain products. The final cost depends on a whole bunch of factors, but let’s just say that it is 10 million won, sine you may 100 million won in the last year. So now you owe 11 million won.

4. You then have to pay a fee for not reporting and paying your VAT Tax. The term in Korea is 신고하지 않은 부가가치세액에 대한 “무신고가산세”.  So since you already paid the 부가세, you will now have today an additional tax or 20% of the VAT. So 20% of 10 million won is 2 million won. So now you owe a total of 13 million won.

5. Then you have to pay interest on the VAT and in Korean this is called, “납부불성실가산세”. I am unsure how much interest this will be, but let’s just give it a number. Let’s just say the interest totalled to an extra 100,000 won. So now you owe 13.1 million won. 

6. Then you have to pay 소득세 (profit tax) and this all depends on how much money you make. But let’s just give it a number of 200,000won. So now you owe 13.3 million won.

7. Then you have to pay another 20% off the 소득세, which is called “무신고가산세”. So if we take 20% fro 200,000won, that would be 40,000won. So now you owe 13.34 million won.

8. Then you have to pay interest on the 소득세, which is called “납부불성실가산세”. I am unsure how much interest this will be, but let’s just give it a number. Let’s just say the interest totalled to an extra 100,000 won. So now you owe 13.44 million won.

8. Then there is the fine for not registering your business, which can’t be higher than 500,000won. So now you owe 13.94 million won.

So there are a bunch of consequences you can face if you do not register your business in Korea. And some of the numbers can be higher, depending on how much tax and interest you have to pay. Unless you are making some extra won on the side teaching a family friend or are selling used items on Facebook, it is a good idea to register your business. One thing it will do for you is make your business official and that can psychologically help you in taking your business more seriously. All the best in your business building in Korea. If you have questions, please comment and I will do my best to answer your question or at least make an effort to create a blog post that will.

*Disclaimer: This information is just what I know from reading books and from personal experience. Laws and policies can change year to year, so please remember that I am not a professional and information on this page is meant to give you an idea and may not be up to date.*

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