Mastering Bookkeeping Responsibility in Korea: A Sole Proprietor’s Guide
In South Korea, a sole proprietorship has specific bookkeeping responsibilities to ensure compliance with tax regulations. The key aspects of these responsibilities include:
Simplified Bookkeeping (간편장부):
This system is designed for small-scale business owners(ex.less than 75mil.won Revenue for tutoring business). It allows for an easier way of recording income and expenses, suitable for those with limited accounting knowledge.
Eligibility for Simplified Bookkeeping:
It's applicable to new businesses and existing businesses with annual revenues below certain thresholds, which vary depending on the business type.
- Tutoring, Rent, and other service: less than 75mil.won
- Manufacturing, Goods broking: less than 150mil.won
- Retail and whole sale: less than 300mil.won
- *Repair and personal service: less than 36mil.won from 2023FY
Recording Transactions:
Business owners must record transactions, including sales, purchases, and changes in business assets and liabilities, in the order they occur.
Benefits of Compliance:
Proper bookkeeping enables accurate calculation of income tax, including deductions for deficits over a 15-year period, and recognition of various business expenses and allowances.
Penalties for Non-Compliance:
Failing to maintain accurate records can result in penalties, including a failure-to-keep-books penalty, which can be a significant portion of the calculated tax or a percentage of the income(20%).
Tax Filing Requirements:
Sole proprietors are required to file comprehensive income tax returns in May, including details of all business transactions. This is essential for calculating the correct amount of tax due.
Document Retention:
Business owners must retain all financial records and supporting documents for a period of five years, as stipulated by South Korean tax laws.
Professional Advice and Assistance:
Given the complexities, sole proprietors are advised to seek professional advice or use accounting software to ensure compliance with bookkeeping and tax obligations.
FAQs:
What bookkeeping system is recommended for small-scale business owners in South Korea?
Simplified bookkeeping (간편장부) is ideal for small-scale businesses, offering an easy way to record income and expenses. This system is tailored for those with basic accounting knowledge.
Who is eligible for simplified bookkeeping in South Korea?
New businesses and existing businesses with annual revenues below specific thresholds, which vary based on the business type, are eligible for simplified bookkeeping.
What are the consequences of non-compliance with bookkeeping regulations in South Korea?
Non-compliance can lead to penalties like a failure-to-keep-books penalty, which could be a significant portion of the tax due or a percentage of the income.
How long should financial records be retained by sole proprietors in South Korea?
Financial records and supporting documents should be kept for a period of five years as mandated by South Korean tax laws.
Is professional assistance necessary for bookkeeping in South Korea?
Given the complexities, it’s advisable for sole proprietors to seek professional advice or use accounting software to ensure accurate bookkeeping and tax compliance.
For more details, please send an e-mail to jz@taxjz.com or If you would like a free consultation with an English-speaking Accountant in Korea, please schedule a call at: Schedule a Call with Jz
