Korean Business Entertainment Expense Limit Calculator

This calculator works out how much of your business entertainment expenditure, meaning meals, gifts and hospitality for clients, counts as a deductible expense for income tax. The item used to be called entertainment expenses and is now called business promotion expenses in the statute. Enter the business size, the number of months in the tax period, revenue and the amount spent, and it shows the ceiling, how much of your spending is allowed, how much is disallowed, and any room left. Enter amounts spent on cultural activities or at traditional markets separately and the extra allowance they earn is included.

The point is that spending is not automatically deductible. Anything above the ceiling is real money that left the business but is ignored for tax, so your taxable income rises by that amount. This is one of the items most often disallowed in tax adjustments, which is why knowing the ceiling before the year closes and pacing the spending to it pays off.

Sole proprietors who deal with clients, and the people who keep their books. As the year end approaches, it tells you whether this year's hospitality spending is within the ceiling, and whether to spend only what remains or hold off until next year. It also helps when preparing the May income tax return, by fixing the disallowed amount in advance.

It matters most for businesses with heavy sales to affiliates or family companies. Revenue from related parties barely counts towards the ceiling, so guessing the ceiling from the size of turnover goes badly wrong. Anyone who started or closed a business during the year, and so has a tax period shorter than twelve months, should also check, because the basic ceiling shrinks in proportion to the months.

The basis is 소득세법 제35조제3항. The ceiling is the sum of two parts. The first is the basic ceiling in 제1호: regardless of revenue, ₩12,000,000 for an ordinary business or ₩36,000,000 for a small or medium enterprise as defined in 조세특례제한법 제6조제1항, multiplied by the months in the tax period over twelve. The second is the revenue-based ceiling in 제2호, which applies a sliding scale to revenue as computed under corporate accounting standards: 0.3% up to ₩10,000,000,000, then ₩30,000,000 plus 0.2% of the excess up to ₩50,000,000,000, then ₩110,000,000 plus 0.03% of the excess above that.

Revenue from transactions with related parties is treated differently under the proviso to the same subparagraph: only 10% of the amount produced by the scale counts. This calculator runs ordinary revenue through the scale first, stacks related-party revenue on top to find the increment, and adds 10% of that increment. The basic ceiling plus the revenue-based ceiling is the general ceiling.

Extra allowances then sit on top. Under 조세특례제한법 제136조제3항, amounts spent on cultural activities such as performances, exhibitions, books and sporting events earn an extra allowance of up to 20% of the general ceiling, and under 제6항 amounts spent at traditional markets or with local-currency and Onnuri gift certificates earn another 20%. Each extra allowance grows only by what was actually spent that way, so ₩1,000,000 of cultural spending adds ₩1,000,000 to the ceiling. These extras run until 31 December 2028. The allowed amount is the lower of the final ceiling and the amount spent, and the rest is disallowed. One more condition: any single occasion costing more than ₩30,000, or ₩200,000 for congratulatory or condolence payments, needs a qualifying receipt such as a card slip or tax invoice, or it is excluded before the ceiling is even considered. Enter only properly evidenced amounts.

Take a small or medium enterprise with ₩3 billion of revenue that spent ₩30,000,000 on business promotion over a full twelve months. The basic ceiling is ₩36,000,000, and the revenue-based ceiling is 0.3% of ₩3 billion, or ₩9,000,000, so the general ceiling is ₩45,000,000. The ₩30,000,000 is within it, so all of it is deductible and ₩15,000,000 of room remains. Had the business spent ₩50,000,000, the ₩5,000,000 above the ceiling would be disallowed and taxed as if it were income.

Now suppose ₩6,000,000 of that ₩50,000,000 went on cultural activities such as theatre tickets. The cultural allowance can go up to 20% of the ₩45,000,000 general ceiling, ₩9,000,000, but grows only by the ₩6,000,000 actually spent, lifting the final ceiling to ₩51,000,000. The whole ₩50,000,000 is now allowed and ₩1,000,000 of room is left. The same money, spent differently, made a ₩5,000,000 difference. An ordinary business rather than an SME would have a basic ceiling of only ₩12,000,000, a total ceiling of ₩21,000,000 on the same revenue, and ₩9,000,000 disallowed out of ₩30,000,000 spent. And if the business also had ₩1 billion of sales to an affiliate, that revenue would add only 10% of ₩3,000,000, or ₩300,000, to the ceiling.

The most common one is assuming a large turnover means a generous ceiling. The revenue scale starts at 0.3% and falls as revenue grows, so most of the ceiling is the basic amount. Related-party revenue counts at only 10%, so a business whose sales are mostly to affiliates has a ceiling that is tiny relative to its turnover.

The second is confusing an evidence problem with a ceiling problem. A single occasion above ₩30,000 without a card slip or tax invoice is not deductible even if the ceiling has room to spare, and a slip issued in the name of a different merchant does not count. The third is lumping cultural and traditional-market spending in with everything else and losing the extra allowance. Keeping them separate raises the ceiling.

The fourth is judging SME status by revenue alone. The definition in 조세특례제한법 uses industry-specific revenue and total-asset tests, so a small business may fail it and a larger one may pass. Finally, businesses that opened or closed during the year sometimes enter the basic ceiling as a full twelve months' worth. It is scaled down to the actual number of months.