Without a car logbook, deductible company car costs stop at ₩15,000,000

This guide is for foreign founders, managers and finance staff of companies in Korea that own or lease passenger cars for business. There is no penalty for not keeping a vehicle logbook (운행기록부). Instead, the amount you can deduct shrinks automatically. Without a logbook, the business use amount stops at ₩15,000,000 a year, and without business-only car insurance nothing counts at all.

The ₩15,000,000 line without a logbook

Article 50-2(7) of the Enforcement Decree of the Corporate Tax Act (법인세법 시행령) fixes the business use ratio (업무사용비율) for a company that has not prepared and kept driving records (운행기록등). The result is the well-known ₩15,000,000 line.

Precisely:

• If the business car-related costs (업무용승용차 관련비용) for the business year are ₩15,000,000 or less, the business use ratio is treated as 100%.
• If they exceed ₩15,000,000, the business use ratio is ₩15,000,000 ÷ the related costs.

So if related costs are ₩30,000,000 and there is no logbook, the ratio is 50%, and half drops out of deductible expenses (손금).

Two conditions that come before the logbook

The logbook is only the third gate. Two earlier conditions can turn the whole amount into zero.

The first is business-only car insurance (업무전용자동차보험). Under Article 50-2(4), item 2 of the Enforcement Decree, if the car is not covered by this insurance, its business use amount (업무사용금액) is ₩0. However carefully you keep the logbook, without the insurance all related costs are non-deductible (손금불산입). The insurance must cover the whole business year. If it covered only part of the year, only the ratio of actual insured days to required insured days counts, under the formula in paragraph 9.

The second is the registration plate. The proviso to the main text of paragraph 4 sets the business use amount at ₩0 for a car that does not carry the vehicle registration plate set by finance ministry ordinance (재정경제부령). This is the light-green plate (연두색 번호판). Check at acquisition whether your car must carry it.

The insurance must cover these drivers:

• officers or employees of the company
• people who drive for the company's business under a contract
• people set by finance ministry ordinance, where they are needed for the company's business

Leased and rented cars have another route. Under paragraph 8, if you sign a special lease clause (임대차 특약) that limits drivers to officers or employees and people who drive for the business under a contract, the car is treated as covered by business-only car insurance. You do not need to spend time looking for separate insurance for a rental or leased car.

What counts as car-related costs

Paragraph 2 lists what is included. If you think only of fuel, the calculation will be wrong.

You also have no choice of depreciation method. Paragraph 3 requires business cars to be depreciated by the straight-line method over a 5-year useful life, despite Article 26(1), item 2 and Article 28(1), item 2. Even if you reported the declining-balance method for other tangible assets, it does not apply to passenger cars. See the depreciation method report. For VAT on passenger cars, see non-deductible input VAT.

The ₩8,000,000 depreciation cap

One more limit sits on top. Under Article 27-2(3) of the Corporate Tax Act (법인세법), if depreciation within the business use amount exceeds ₩8,000,000 in a business year, the excess is not deducted that year but carried forward. Paragraph 4 applies the same ₩8,000,000 line to losses on disposal. Under paragraph 5, for companies that meet Presidential Decree conditions, such as having real estate leasing as their main business, each ₩8,000,000 becomes ₩4,000,000.

The carried-forward amount is not lost. Under paragraph 11 (제11항), from the next business year it becomes deductible, up to the amount by which that car's depreciation within the business use amount falls short of ₩8,000,000.

An amendment that would set the ₩8,000,000 cap differently for electric and hydrogen cars and for other cars is under discussion. Until its effective date and final wording are confirmed, calculate with the current ₩8,000,000 (₩4,000,000 for companies mainly in real estate leasing and similar).

Worked examples

Take one car with related costs of ₩30,000,000 a year. Assume it has business-only car insurance and the required plate.

If you keep a logbook and it shows a business use ratio of 80%, the business use amount is ₩24,000,000. Without a logbook, under Article 50-2(7), item 2 of the Enforcement Decree, the ratio becomes ₩15,000,000 ÷ ₩30,000,000 = 50%, and the business use amount falls to ₩15,000,000. The difference is ₩9,000,000.

If the same car's related costs were ₩14,000,000, the result changes. Because that is ₩15,000,000 or less, the business use ratio is 100% under paragraph 7, item 1, even without a logbook. That is why companies running one small car had no problem without a logbook. For an expensive car or one with high lease fees, having a logbook or not quickly makes a difference of several million won.

In every case, without the insurance this calculation does not happen at all. The business use amount is ₩0, so the full ₩30,000,000 is non-deductible.

Checklist

• Calculate the business use ratio as business distance divided by total distance driven (paragraph 5).
• Prepare and keep records for each business car (paragraph 6).
• Submit them at once if the head of the district tax office (관할 세무서장) asks (paragraph 6).
• Keep a separate file per car, not per business year.
• Set an internal rule first on whether commuting counts as business use.
• For weekend and night trips, write down the specific purpose.
• Match the opening and closing total distance to the odometer.
• For leased and rented cars, apportion the limit by the number of months in the contract period.
• For cars bought or sold during the business year, apportion the ₩8,000,000 by the number of months held.
• For leased cars, check the driver-limiting special clause in the contract.
• At acquisition, check whether the car must carry the light-green plate.
• Count the gap in days between the insurance start date and the start of the business year.
• First separate out cars excluded under the items of paragraph 1, such as those used in transport or car sales businesses.
• Cars with a temporary operation permit as autonomous vehicles are excluded under paragraph 1, item 3.
• Do not leave insurance premiums, automobile tax or tolls out of related costs.
• For finance-leased cars, include the interest on the lease liability in related costs.
• Decide on carrying forward disposal losses using the same ₩8,000,000 line.
• Keep a separate record of carried-forward depreciation and deduct it in later years.