Companies, in Korea, sometimes provide senior employees of the company a company car. A tax issue arises concerning the deduction of car expenses and the refunding of VAT. In practice “company cars” are, often, used for the company as well as private use. Thus, Korea has excluded deduction of expenses and exclusion of VAT for some automobiles.
Corporate Tax Law formalities require Korean companies and Foreign Capital-Invested Companies, in Korea, to have detailed operation records or sufficient evidence to claim deductions and exclusions. The rules have tightened over the past few years and a proactive and detail-oriented accountant is necessary.
For example, if the legal defined size of the company car is less than nine passengers:
- No VAT refunds are legally allowable (we have fund that some accountants in Korea are not even aware of this reality);
- Maintenance expenses are not deductible expenses; and
- Other expenses, including fuel are not deductible expenses.
If you have a nine passenger or more vehicle, it is advisable to keep detailed records indicating the distance used for the business purposes and non-business purposes. We suggest a logbook in the car and the sending of the logbook to your accountant on a monthly basic. Deductions are available for these automobiles.
Korean Tax Court Holding
The Tax Court and other courts have ruled, in short, that: “If a business owner purchases a car for his own business and if the car is not taxable under the Individual Consumption Tax Act Article 1 (2)-3 which is designed to carry more than nine (9) passengers, the purchasing VAT and its maintenance expenses are tax deductible.” ((Tax Court Holding (2014-571 Decided on 2015.01.07))
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