This is a comprehensive guide covering the essential documents, bank and card accounts, salary decisions, and expense management know-how that founders must take care of immediately after incorporating. It covers how to secure proper documentary evidence, prevent executive loan (provisional payment) problems, and understand the relationship between corporate tax and income tax to build a long-term tax-saving strategy. This provides practical guidelines for founders who have just started their corporation.
1. Four Essential Documents You Need Right After Incorporation
Once company registration is complete and you have your business registration certificate, it is time to prepare documentation for actual operations. Since the representative and the corporation are legally distinct entities, more careful document preparation is needed compared to a sole proprietorship.
1) Corporate Registry Extract This is the document that proves the corporation's legal identity, similar to a personal ID card. It contains all the basic information about the corporation.
2) Articles of Incorporation This is essentially the company's constitution. It should include key provisions such as executive compensation, retirement benefits, and survivor compensation rules. If these provisions were omitted during the rush of incorporation, it is advisable to amend the articles now.
3) Shareholder Register This document shows who the true owners of the company are. Many founders mistakenly assume they are the owners, but the shareholders are the actual owners.
The owners of the company are the shareholders. In small and medium enterprises, because the representative is usually also a shareholder, people tend to think the representative is the owner, but the owners are the shareholders.
If you want to change the shareholder composition, right after incorporation is the ideal time. Since there is no revenue or performance yet, the share value is low, making it possible to transfer shares at par value with minimal tax implications. If you are considering tax-saving strategies such as distributing dividend income by bringing family members in as shareholders, consult with a tax professional and set this up early.
4) Corporate Seal Certificate & Seal Card This document proves that the corporate seal has been registered with government authorities. You need the corporate seal card to obtain this certificate. Although the system was recently updated for the first time in 110 years to allow online issuance for some purposes, real estate sales and financial institution submissions still require visits to the registry office or unmanned issuance machines.
2. Opening Bank Accounts and Registering with Hometax
Once your documents are ready, choose a primary bank and open a corporate bank account and corporate card.
Tip for Resolving Transfer Limit Issues When you first open a corporate bank account, the transfer limit is set very low (300,000-1,000,000 KRW) as a voice phishing prevention measure. This can be frustrating, but you can raise the limit by submitting legitimate transaction evidence (sales tax invoices, lease agreements, etc.) to the bank.
You can't even transfer salaries because the limit is too low. In this case, the bank will request documentation proving revenue or other supporting documents, and once you submit the appropriate paperwork, the limit can be changed quickly.
Certificate Issuance and Hometax Registration You need to apply for internet banking and get certificates issued at the bank. Instead of an expensive universal joint certificate (110,000 KRW), it is much more economical to get separate banking (4,400 KRW) and electronic tax invoice (4,400 KRW) certificates. You must use these to register a new Hometax account under the corporation's name (separate from your personal account).
3. Setting Salary and Reporting Labor Costs
Setting the Representative's Salary The representative's salary should be determined within the range of estimated net income after subtracting expected revenue minus fixed costs (rent, employee salaries, etc.).
- Too low: Profits accumulate in the corporation and you may face a large tax bill later.
- Too high: The company's debt ratio worsens, or you may exceed the executive compensation cap in the articles of incorporation and lose the ability to claim it as a deductible expense.
Employee Salary and Family Employment When paying employees, you must issue wage statements to avoid penalties. If family members actually work at the company, their labor costs must be reported. Thinking "they're family, so I don't need to report it" can backfire -- if you later cannot prove that they actually worked, the payments may be reclassified as the representative's provisional payment (executive loan), creating significant disadvantages.
If family members are actually working together, you must report their labor costs... If what was clearly paid as wages gets reclassified as the representative's provisional payment, the company suffers disadvantages and the representative must pay it back, which is an enormous setback. The advantages of having a corporation gradually disappear.
4. The Essentials of Expense Processing and Documentation
The most important thing in running a corporation is the habit of securing proper documentary evidence.
Four Types of Proper Documentary Evidence You Must Collect
- Tax invoices (electronic/paper)
- Invoices (tax-exempt)
- Credit card sales slips (corporate card/debit card)
- Cash receipts (must be issued as expenditure verification with the business number entered)
Cautions
- Simplified receipts/transaction statements: These are not proper documentary evidence. (Simplified receipts are acceptable for small amounts under 30,000 KRW.)
- Bank transfer records: Transfer records alone cannot serve as evidence. You must obtain tax invoices or equivalent documentation.
- Avoid using employee personal cards: If employees use personal cards for company expenses, the tax office system may not recognize them as proper evidence, requiring additional explanation. It is better to issue individual corporate cards (corporate cards in the employee's name) to employees.
Vehicles and Condolence Expenses
- Vehicles: Enrollment in employee-exclusive insurance is mandatory. If the vehicle value is high or annual costs exceed 15 million KRW, you must keep a driving log.
- Condolence expenses: By saving wedding invitations or funeral text messages, you can claim up to 200,000 KRW per occasion as a business expense.
5. Initial Fund Settlement and Tax Invoice Timing
Pre-Incorporation Expenses and Capital Expenses paid personally by the representative before incorporation (interior work, etc.) can be deducted if tax invoices are issued in the corporation's name after business registration. Additionally, amounts spent personally by the representative and the capital to be paid into the corporation must be clearly settled. Failing to actually deposit the capital into the corporate bank account can create provisional payment problems.
Tax Invoice Issuance/Receipt Golden Time
- Sales: Must be issued by the 10th of the following month after the transaction occurred.
- Purchases: Receiving invoices is equally important. If the other party issues late, the purchaser (your company) can also be penalized. Especially for things like monthly rent, be sure to request timely issuance from the landlord.
For sales, I issue them myself so I can control the timing. But for purchases, the other party issues them, so some people just sit back and wait. That's also wrong... If you don't receive a tax invoice for that month's purchases by the 10th of the following month, you become subject to penalties.
6. Conclusion: The Big Picture of Corporate Tax and Income Tax
When running a corporation, you should not simply think "corporate tax rates are lower than income tax rates, so it's better." Corporate profits ultimately need to be taken out by the representative, and taxes arise in that process.
Three Taxes to Consider When Running a Corporation
- Corporate tax paid by the corporation
- Earned income tax when the representative takes salary
- Dividend income tax, capital gains tax, inheritance/gift tax when accumulated profits (retained earnings) are eventually withdrawn
Instead of celebrating low corporate taxes, you should compare the sum of these three taxes against what you would pay in income tax as a sole proprietor to truly assess which is more advantageous.
You must always remember that the net profit remaining in the corporation will eventually be taxed... Since it wasn't all collected as corporate tax right away and was left behind, it will eventually be taxed. Comparing the combined total of these three taxes (corporate tax, earned income tax, and retained earnings-related taxes) against income tax -- if the corporation's total tax burden is lower, then you can truly say "I'm glad I incorporated."
Setting up after incorporation is the process of building the company's foundational strength. We hope this summary helps you manage everything carefully for a successful corporate operation