Without a depreciation report, equipment defaults to declining balance

This guide is for foreign founders, managers and finance staff of new companies in Korea, and for any company that buys a new class of depreciable assets. You must report your depreciation method and your useful life choices by the first corporate tax return deadline. If you do not, the law fixes both for you, and the defaults keep applying in later years.

Two reports, one deadline

Depreciation is usually treated as a calculation, but a filing comes first. The Enforcement Decree of the Corporate Tax Act (법인세법 시행령) requires a report on the depreciation method (Article 26(3)) and a separate report on useful life (Article 28(3)). If you do not file, the values set by law apply. Once fixed, they must be used in later business years as well (Article 26(5) and Article 28(4)).

New companies often miss this because no one sends a separate notice of the deadline. Both reports are due by the corporate tax return deadline (법인세 과세표준 신고기한). If you do not file them with your first corporate tax return, the deadline simply passes.

The two articles set the deadline in the same way:

• New companies, and non-profit corporations that newly start a profit-making business: by the corporate tax return deadline for the business year that includes the day business started.
• Other companies that newly acquire depreciable assets: by the corporate tax return deadline for the business year that includes the acquisition date.
• Where to file: the head of the tax office with jurisdiction over your place of tax payment (납세지 관할세무서장). Filing through the National Tax Service's online network (국세정보통신망), known as Hometax (홈택스), is included.
• Useful life is reported in whole years (Article 28(5)).

For a company with a December year-end that was set up during 2026, the deadline is March 31, 2027. An existing company also gets a fresh choice when it acquires a class of assets it did not have before. For the timeline of the first return as a whole, see preparing the corporate tax return.

What applies if you do not file

Article 26(4) sets the default method for each asset type.

In practice, the biggest effect is on tangible assets other than buildings, such as machinery, vehicles and office equipment. Without a report they are fixed on the declining-balance method (정률법). This method gives large deductions in the early years and smaller ones later. Early-year losses grow, and that flows through to the limit on deducting carried-forward losses and to the financial disqualification tests in government support applications (see how tax loss carryforwards work). If you need to keep a profit in the early years, choose and report the straight-line method (정액법).

Useful life: choose within plus or minus 25%

Under Article 28(1)2, the company chooses and reports a useful life within a range: the standard useful life (기준내용연수) plus or minus 25% of it. The proviso to the same item says the standard useful life applies if you do not report by the deadline.

For an asset with a standard useful life of 5 years, the range is 4 to 6 years. If you do not report, it is fixed at 5 years.

Rules that apply whatever you choose

• Depreciation method report (감가상각방법신고서), Article 26(3): choose one method for each asset type.
• Useful life report (내용연수신고서), Article 28(3): choose in whole years.
• These are two separate forms. Filing one does not mean you are done.
• The useful life applied to each asset type and industry continues in later business years (Article 28(4)).
• If a business year is shorter than one year, use the converted useful life (환산내용연수) formula in Article 28(2).
• For that formula, count months by the solar calendar. Days that make up less than one month count as one month.
• Company passenger cars (업무용승용차) must use the straight-line method over 5 years, regardless of Articles 26 and 28 (Article 50-2(3)). See also company car logbooks and business-use insurance.
• Development costs are depreciated from the time the product can be sold or used.
• Donated assets that the company has the right to use (사용수익기부자산) are spread evenly over the period of use.
• Frequency use rights, airport facility management rights and port facility management rights are written off in equal amounts within the period announced or registered.

How the choice shows in the numbers

Take a machine with an acquisition cost of ₩100 million and a useful life of 5 years. Under the straight-line method, you depreciate ₩20 million every year. Under the declining-balance method, the first-year amount is much larger. The rate is applied to the remaining undepreciated balance, so the amount falls each year.

The 5-year total is the same. Only the timing differs. That timing moves three things at once:

1. The size of the loss in the first business years.
2. A larger loss shakes the debt ratio and equity, which can trip the financial requirements for guarantees and policy funds.
3. For a company receiving a start-up tax reduction, the income eligible for the reduction shrinks, and the reduction can become useless.

If you accept early losses to bring cash flow forward, choose declining-balance. If you need early profits to pass outside reviews, choose straight-line. If you do nothing, tangible assets other than buildings end up on declining-balance. So if you want straight-line, you must file.

Checklist

• Record the incorporation date and the business start date separately.
• Sort acquired assets into buildings, tangible assets other than buildings, intangible assets and development costs.
• For each asset group, test whether straight-line or declining-balance gives a better result in the early years.
• Check the standard useful life and work out the upper and lower limits of the plus or minus 25% range.
• Confirm that your chosen value stays inside the range.
• A report outside the range gets the standard useful life, unless you go through the lawful change procedure.
• Put both reports in your corporate tax return package.
• If you file online, keep the filing receipt.
• Set a checkpoint to review whether each newly acquired asset group needs a new report.
• The method you choose is hard to reverse, so keep a written record of why you chose it.