Entertainment Expenses in Korea: The KRW 30,000 Card Rule, and the Ceiling Above It

Korea tests entertainment spending twice, and the first test is about the receipt

Take a Korean subsidiary to a client dinner costing KRW 180,000. Whether that KRW 180,000 reduces taxable income turns on two separate questions, and they are asked in order.

First: how was it paid? If the bill went on a corporate credit card, a cash receipt was issued, or a tax invoice was raised, the expense survives. If it went on someone’s personal card and was reimbursed through expenses, the whole KRW 180,000 is disallowed. Not the excess over KRW 30,000 — all of it.

Second, and only for what survives the first test: was the company’s total entertainment for the year inside its ceiling? The ceiling is a fixed base plus a slice of revenue, and it is smaller than most foreign-owned subsidiaries expect.

Most groups arriving in Korea know there is “a limit”. Very few have looked at which of the two tests is actually costing them money, and it is almost always the first one.

One naming point, because it causes real confusion in translated policy documents. What everyone still calls 접대비 was renamed 기업업무추진비 — “corporate business promotion expenses” — when the heading of Article 25 of the Corporate Tax Act was amended at the end of 2022. English summaries use both terms, sometimes on the same page. They are the same rule.

What counts as entertainment in the first place

Article 25 defines it broadly and deliberately so: amounts spent by a company, directly or indirectly, on people connected to its business, in order to make that business go more smoothly. Entertaining, hospitality, gifts of appreciation — the statute says “by whatever name” and means it.

That breadth is the point. A line item called “client relations”, “business development costs” or “sample gifts” is not outside the rule because of what it is called in the general ledger. The tax office reclassifies by substance, and a reclassification lands twice: the amount joins the entertainment pool for ceiling purposes, and if it was paid on a personal card it is disallowed outright on the evidence test.

The distinction that matters most in practice is between entertainment and advertising. Money spent on people who are identifiable counterparties to the business is entertainment. Money spent on an undifferentiated public — a campaign, a trade show stand, promotional items distributed generally — is advertising, and advertising has no ceiling. Getting an item on the wrong side of that line is one of the more common findings in a Korean corporate tax review.

The evidence test: the corporate card is not a policy preference

The list of acceptable payment evidence in Article 25(2) is closed. It runs to a credit card under the Specialized Credit Finance Business Act, a cash receipt, an invoice or tax invoice, a purchaser-issued invoice, and a prescribed withholding receipt. There is no residual category for “other adequate documentation”.

There is also a trap inside the card rule. Article 25(3) provides that where the sales slip is issued in the name of a merchant other than the one that actually supplied the goods or services, the amount is not treated as card-paid entertainment at all. That is aimed at slip-swapping between affiliated venues, and it means a card receipt is not automatically sufficient — the merchant on the slip has to be the merchant who served you.

The narrow relief is for expenditure where the fact of spending is objectively clear but the prescribed evidence cannot practically be obtained. The statute names expenditure in overseas regions and expenditure with farmers and fishers, and leaves the detail to the Enforcement Decree. This is a rule about places where Korean corporate cards and Korean tax invoices do not exist. It is not a general exemption for spending abroad, and a company treating every overseas dinner as exempt has misread it.

Separately, and more broadly than entertainment, Korean corporate tax requires qualifying payment evidence for any disbursement over KRW 30,000 for goods or services, kept for five years — seven where the transaction was cross-border. Failure to hold it attracts a 2% penalty on the amount, subject to an annual ceiling. The entertainment rule is the sharp end of a general documentation regime, not an isolated quirk.

The ceiling: a base amount, plus a slice of revenue

What survives the evidence test is then tested against an annual limit made of two parts added together.

The base is KRW 12,000,000 for a full twelve-month business year, or KRW 36,000,000 if the company qualifies as an SME for tax purposes, pro-rated by the number of months in the business year divided by twelve. A company incorporated in July with a December year end gets six twelfths of it.

The second part is a percentage of revenue, on a marginal scale.

Two adjustments sit on top, and both matter more to a foreign-owned entity than to a domestic one.

Revenue arising from transactions with related parties is counted at 10% of the amount the rate table would otherwise produce. A Korean subsidiary that manufactures or provides services almost entirely for its own group can show KRW 40 billion of revenue and still have a revenue component in the low tens of millions of won. If you have budgeted entertainment against turnover, this is where the arithmetic breaks.

And a company whose principal business is real estate rental, together with others specified by the Enforcement Decree, is capped at 50% of the combined base-plus-revenue figure.

There is one genuine relief worth knowing. Spending on cultural items — books, performance tickets and comparable cultural events — carries an additional allowance, capped at the lower of the cultural spend itself and 20% of the general ceiling. It is not large, but for a company that entertains with concert or exhibition tickets rather than dinners it is real, and it goes unclaimed routinely because nobody codes cultural spending separately in the ledger.

The SME question is where foreign subsidiaries lose most

Three times the base amount is a KRW 24 million difference in deductible expense, so it is worth being precise about who gets it. In practice the KRW 36 million base is claimed on Korean subsidiaries that are not entitled to it, and the mistake usually survives until an audit because the company looks small.

The tax definition of an SME is in Article 2 of the Enforcement Decree of the Restriction of Special Taxation Act, and it has more moving parts than a size test:

• Revenue must be within the sector-specific threshold in the Framework Act on Small and Medium Enterprises.
• Total assets of KRW 500 billion or more disqualify the company outright, whatever its revenue.
• The company must not belong to a disclosure-target business group, and must satisfy a substantive independence test by reference to the Framework Act’s Enforcement Decree.
• Real estate rental and consumptive service businesses are excluded where they are the principal business.

The independence test is the one that catches foreign groups. It looks through the shareholder register rather than stopping at the Korean company’s own balance sheet, and the Decree expressly provides for calculating the total assets of a foreign corporation for the indirect-ownership limb of that test. A Korean entity with thirty staff and modest revenue, majority-owned by a large overseas parent, is being measured against that parent.

If the answer is that the company is not an SME, that is not a reason to spend less. It is a reason to know the number before December rather than in March, when the return is being prepared and nothing can be changed.

What actually goes on the return

The add-back is not an internal adjustment. It is reported on the business promotion expense adjustment schedule — Form No. 23 under Article 82 of the Enforcement Rule of the Corporate Tax Act — which is filed as an attachment to the corporate income tax return alongside the tax adjustment statement.

That has a practical consequence worth stating plainly. The tax office already holds the company’s corporate card and cash receipt data. It sees the schedule showing what the company classified as entertainment, what it treated as evidenced, and what it added back. A subsidiary reporting a large entertainment figure with a small disallowance, on a card trail that does not support it, has published the discrepancy itself.

Getting this right is bookkeeping discipline more than tax planning: the classification has to happen when the expense is booked, not when the return is prepared. That is the same reason the external audit threshold tends to arrive as a surprise — the underlying record either supports the position or it does not, and by filing season it is too late to change how a year of receipts was captured. Our accounting and bookkeeping service codes entertainment against the ceiling through the year, and the tax and VAT compliance service prepares the schedule that goes with the return.

Where this genuinely does not need outsourcing: a company with two employees and a handful of client lunches a year is nowhere near either limit, and a competent local bookkeeper will keep it clean. The rules start to cost money at the point where entertainment is a budget line with an owner, and where a chunk of revenue is intercompany.

The three things to fix first

Entertainment is a small line in most Korean subsidiaries’ accounts and a disproportionate share of their audit adjustments, because the rules test how money was spent rather than whether it should have been.

Move company entertainment onto corporate cards and stop reimbursing personal ones over KRW 30,000. Calculate the ceiling in the first quarter, on the correct base, with related-party revenue haircut applied. And check the SME position against the shareholding rather than assuming it from the size of the office.

Figures current as at 28 August 2026, verified against Article 25 of the Corporate Tax Act (Act No. 21217, in force 1 January 2026) and Article 2 of the Enforcement Decree of the Restriction of Special Taxation Act (Presidential Decree No. 36423, in force 1 July 2026). Korean deduction thresholds are revised most years; confirm the current figure before relying on it. This is general information about how the rules work, not advice on a particular company’s position.