In Summary
Topic
Key Point
Determination Criteria
The applicable bookkeeping or estimated-expense method is generally determined based on the business sector and prior-year revenue. The detailed thresholds are summarized in the table below.
Double-Entry Bookkeeping
The most formal bookkeeping method. It records not only revenue and expenses but also assets, liabilities, and capital. It is required once the business exceeds certain revenue thresholds.
Simplified Bookkeeping
A lighter bookkeeping method available to certain smaller businesses. It allows the taxpayer to report income based on actual revenue and expenses without full double-entry records.
Standard Expense Rate
An estimated-expense method where certain major expenses must be supported by documents, while other expenses are estimated using the prescribed standard rate.
Simple Expense Rate
A more favorable estimated-expense method generally available to smaller businesses. It usually allows a higher estimated expense ratio and requires less documentation.
Strategic Choice
If the business has high start-up costs, significant actual expenses, or early-stage losses, keeping books may be better than using an estimated-expense method.
Tax Benefit of Bookkeeping
If a simplified-bookkeeping taxpayer voluntarily uses double-entry bookkeeping, a bookkeeping tax credit may be available. The credit is generally 20% of the relevant calculated tax amount, capped at KRW 1 million.
Introduction
Many sole proprietors in Korea ask how they should maintain their accounting records and report business income for tax purposes. Unlike corporations, sole proprietors are not always required to keep books using double-entry bookkeeping. Depending on the business sector and prior-year revenue, a sole proprietor may be allowed to use simplified bookkeeping or an estimated-expense method.
This article explains the main methods used to determine taxable business income for sole proprietors in Korea: double-entry bookkeeping, simplified bookkeeping, the Standard Expense Rate, and the Simple Expense Rate. It also discusses practical strategies for choosing the right method, especially for businesses with high start-up costs or early-stage losses.
Bookkeeping and Estimation Methods
There are two broad approaches to calculating taxable business income: bookkeeping-based reporting and estimated-expense reporting.
Under the bookkeeping-based approach, taxable income is calculated based on the taxpayer’s actual accounting records. The two main bookkeeping methods are double-entry bookkeeping and simplified bookkeeping. Double-entry bookkeeping is the more formal method and records not only revenue and expenses but also assets, liabilities, and capital. Simplified bookkeeping is a lighter method available to certain smaller businesses, where the taxpayer records revenue, expenses, and major business-related transactions in a simpler format.
Under the estimated-expense approach, taxable income is calculated without full accounting records. Instead, expenses are estimated using prescribed expense rates. The two main methods are the Standard Expense Rate and the Simple Expense Rate. Under the Standard Expense Rate method, certain major expenses such as purchase costs, rent for business assets, and employee wages may be separately recognized based on supporting documents, while other expenses are estimated using the standard rate. Under the Simple Expense Rate method, expenses are generally estimated by applying the simple expense rate to revenue. The actual expense rates vary depending on the business sector and are updated by the National Tax Service. As a rough guide, Simple Expense Rates are often much higher, sometimes around 60% to 80%, while Standard Expense Rates are often much lower, sometimes around 10% to 20%. This is why the Simple Expense Rate can be significantly more favorable for very small businesses, while the Standard Expense Rate may require stronger supporting documents for major expenses.
The applicable method depends mainly on the business sector and prior-year revenue. However, certain exceptions apply. For example, professional service providers may be required to use double-entry bookkeeping regardless of revenue level, and some taxpayers may be excluded from using the Simple Expense Rate.
The table below summarizes the applicable bookkeeping or estimated-expense method by business sector and prior-year revenue, based on the Enforcement Decree of the Income Tax Act as amended in 2026 and effective July 1, 2026.
Business Sector
Prior Year Revenue(KRW mn)
Bookkeeping Method
A
Agriculture, forestry, fishery, mining
Up to 60
Simplified Bookkeeping
(Simple Expense Rate)
Wholesale and retail
60 – 300
Simplified Bookkeeping
(Standard Expense Rate)
Real estate sale
Over 300
Double-Entry Bookkeeping Obligation
B
Manufacturing
Up to 36
Simplified Bookkeeping
(Simple Expense Rate)
Lodging and restaurant
Electricity, gas, steam and air conditioning supply
Water supply
Sewage, waste disposal, Raw material recycling
36 – 150
Simplified Bookkeeping
(Standard Expense Rate)
Construction (excluding non-residential building construction)
Real estate development and supply(limited to residential building development and supply business)
Transportation and storage
Information and communication
Financial and insurance
Commodities brokerage service
Over 150
Double-Entry Bookkeeping Obligation
C
Real estate leasing service, real estate leasing business, real estate activities business
Up to 24
Simplified Bookkeeping (Simple Expense Rate)
Specialized, scientific, and technical service
Business facilities management and business support services and rental and leasing activities
Educational service
Health and social welfare service
24 – 75
Simplified Bookkeeping (Standard Expense Rate)
Service industry related to art, sports, and leisure
Associations and organizations
Repair and other personal service
Family-employed activity
Over 75
Double-Entry Bookkeeping Obligation
Exception for First-Year Businesses
If this is your first year of business in South Korea, you qualify for the Simple Expense Rate (most favorable) under much higher revenue thresholds based on your current-year sales: Group A (under KRW 300M), Group B (under KRW 150M), and Group C (under KRW 75M).
Practical Strategy: When Bookkeeping May Be Better Than Estimation
Although estimated-expense methods may look simple, they are not always the best choice. The right method depends not only on revenue level but also on the cost structure of the business.
For an early-stage business with significant start-up costs, bookkeeping may be more beneficial than using an estimated-expense method. For example, a business may spend a large amount on interior construction, equipment, software, marketing, professional fees, rent, or payroll before it generates stable revenue. If the taxpayer uses an estimated-expense method, these actual costs may not be fully reflected.
By keeping books, the business can calculate taxable income based on actual revenue and actual expenses. If the business records a tax loss, that loss may generally be carried forward and used against future income, subject to the applicable rules. This can be important for businesses that expect losses in the first year but profits in later years.
Another point to consider is the bookkeeping tax credit. If a taxpayer who is eligible for simplified bookkeeping voluntarily keeps books using double-entry bookkeeping and files the tax return based on those books, a bookkeeping tax credit may be available. The credit is generally 20% of the relevant calculated tax amount, capped at KRW 1 million. This can partially offset the additional cost of maintaining more formal accounting records.
Therefore, the estimated-expense method should not be selected only because it is simpler. If actual expenses are high, if the business is expected to make a loss, or if the owner wants more reliable financial records for funding, visa, investors, or future incorporation, bookkeeping may be the better strategic choice.