Business entertainment expense limit: SMEs start from ₩36 million

This guide is for finance and tax staff at companies in Korea, including foreign-invested companies, who close the books and prepare the corporate tax return. Business entertainment expenses are deductible only up to a limit. That limit is a basic limit plus a revenue-based limit, added together, and for small and medium-sized enterprises (SMEs) the basic limit starts at ₩36 million.

New name, two-layer limit

The name "entertainment expenses" (접대비) disappeared from the law in 2024. Article 25 of the Corporate Tax Act (법인세법) now uses the title business entertainment expenses (기업업무추진비, literally "business promotion expenses"). Even if your ledger still has an account called 접대비, the tax adjustment (세무조정) follows this article. In practice, what matters more than the name is that the limit has two layers.

The limit is the basic limit plus the revenue-based limit, each calculated separately. You add them together; you do not pick the larger one. Even with small sales you get the basic limit, and the limit grows as sales grow.

Basic limit: ₩36 million for SMEs

The formula in Article 25(4)1 is simple: ₩12 million, or ₩36 million for an SME, multiplied by the number of months in the business year and divided by 12. Months are counted by the calendar, and days that make up less than one month count as one month.

• Basic limit, general companies: ₩12 million × months in the business year ÷ 12
• Basic limit, SMEs: ₩36 million × months in the business year ÷ 12
• Counting months: a part month is rounded up to one month
• SME test: an SME under Article 6(1) of the Restriction of Special Taxation Act (조세특례제한법)

For an SME with a December year-end that was set up in July, the business year has 6 months, so the basic limit is ₩36,000,000 × 6 ÷ 12 = ₩18,000,000. If you spend in the first year as if the full annual limit were available, half of it drops out of deductible expenses (손금).

Revenue-based limit: 0.3% up to ₩10 billion

Article 25(4)2 applies the following rates to revenue. The rates work in bands, so this is not a single multiplication.

Revenue (수입금액) here means sales calculated under corporate accounting standards, as set by Article 42(1) of the Enforcement Decree of the Corporate Tax Act. It includes sales of business divisions discontinued during the year. For revenue from transactions with related parties (특수관계인), only 10% of the amount produced by the rates above counts toward the limit. A company with a high share of sales to affiliates will find its limit smaller than expected because of this proviso.

For an SME with sales of ₩3 billion, the annual limit is ₩36,000,000 + (₩3,000,000,000 × 0.3%) = ₩36,000,000 + ₩9,000,000 = ₩45,000,000.

Real estate rental companies: the limit is halved

Under Article 25(5), for a company that meets conditions set by Presidential Decree, any amount above 50% of the combined basic and revenue-based limits is not deductible. Article 42(2) of the Enforcement Decree lists these conditions. Two of them have been confirmed for this guide; check Article 42(2) itself for the full list:

• At the end of the business year, the shares held by the controlling shareholders and related persons (지배주주등) total more than 50% of the issued shares or total capital.
• In that business year, real estate rental is the main business, or rent, interest, dividends and similar income add up to 50% or more of sales under corporate accounting standards.

The same conditions also apply to the rule that cuts the depreciation limit for company passenger cars from ₩8 million to ₩4 million (Article 27-2(5) of the Corporate Tax Act). A company that works mainly as a holding company can see both limits halved at once. For company cars, see also company car logbooks and business-use insurance.

Receipts are checked before the limit

The limit is the second gate. The first gate is Article 25(2). If a single occasion of entertainment costs more than the amount set in Article 41(1) of the Enforcement Decree and you have no qualifying receipt (적격증빙), that expense drops out of deductible expenses before the limit is even calculated.

• Congratulatory or condolence money (경조금): ₩200,000
• All other cases: ₩30,000
• Qualifying receipts: credit card slips, cash receipts, tax invoices, invoices (계산서), withholding receipts and the like
• Credit cards and similar must be issued in the company's name (Decree Article 41(6))
• A sales slip issued in the name of a merchant other than the actual supplier is not accepted (Decree Article 41(5))

The proviso to Article 25(2) opens only two exceptions. First, spending in a foreign country where there was no means of payment other than cash, so evidence was hard to obtain. Second, spending on goods supplied directly by farmers or fishers and paid through a financial institution; even then, it is accepted only if you attach a remittance statement (송금명세서) when you file the corporate tax return. Companies with frequent overseas trips can rely on the first exception, but cash spending in places where local cards can be used does not qualify.

Checklist before closing the books

• Even if the account is still called 접대비, make the tax adjustment as business entertainment expenses.
• Confirm SME status under Article 6(1) of the Restriction of Special Taxation Act.
• If the business year is shorter than one year because of incorporation, a merger or similar, reduce the basic limit by month.
• Use sales under corporate accounting standards as revenue, and include sales of discontinued operations.
• Total related-party sales separately and reflect only 10%.
• First filter out spending over ₩30,000 per occasion that lacks a qualifying receipt.
• Check congratulatory and condolence money separately against the ₩200,000 threshold.
• Find payments made with cards not in the company's name.
• Check that the business name and address on each sales slip match the actual supplier.
• For cash spending abroad, record that no other means of payment existed there.
• For direct purchases from farmers and fishers, confirm before filing that the remittance statement is attached.
• If real estate rental income comes close to 50% of sales, review the 50% reduction rule in advance.
• Check, as of the last day of the business year, whether controlling shareholders and related persons hold more than 50%.
• Check whether spending booked as employee welfare or advertising has an entertainment element mixed in.
• Treat the amount over the limit as an income disposition of "other outflow" (기타사외유출).

Work in this order: first reduce the amounts that drop out at the deductible-expense stage, then apply tax credits and reductions. If you find an omission after filing, a request for correction (경정청구) is still available. For the overall timeline, see preparing the corporate tax return.