In Summary

Corporate tax and VAT are separate questions

Business setup costs paid before incorporation may be assumed by the company when they relate to its business and meet the applicable requirements. For VAT purposes, coordinate the supply and invoicing schedule with suppliers so that tax invoices can be issued under the business registration number within the applicable deadline.

Introduction

Before a company in Korea is incorporated, its founders often need to sign a lease, fit out the office, and engage advisers for the incorporation. These setup costs may be assumed by the company after incorporation when they relate to its business and meet the applicable requirements. However, corporate tax deductibility and input VAT recovery are separate questions, and several steps must be taken before the money is spent. This article focuses on setting up a Korean stock company (jusik hoesa) and explains, as of October 2026, how to handle contracts, the articles of incorporation, payments, tax invoices, and accounting so that setup costs paid before incorporation can be properly assumed by the company.

Before Incorporation

• Contracts

Before incorporation, identify the founder acting for the proposed company—the promoter—in the contract, together with the proposed company name and the business purpose of the transaction.

For continuing arrangements, such as a lease, agree with the counterparty on the company’s assumption of the contract after incorporation. Once the company is established, enter into a new contract in the company’s name or execute an amendment or transfer agreement replacing the promoter with the company as the contracting party, and obtain the necessary counterparty consent and company approvals.

For services completed before incorporation, retain the engagement agreement, invoices, and evidence of the work performed. These documents should demonstrate why the expenditure belongs to the company’s business; a subsequent reimbursement alone does not establish eligibility.

• Articles of Incorporation

Under Article 290(4) of the Commercial Act, formation expenses to be borne by the company take effect only if stated in the original articles of incorporation. To stay on the safe side, list all formation expenses the company will bear, such as incorporation service fees, together with their amounts or an upper limit, in the original articles. Before finalizing the articles, provide the incorporation adviser with the relevant expense items and amounts.

The registration and license tax, local education tax, and court registration application fees paid for the incorporation registration can generally be borne by the company without being separately stated in the articles. These are imposed on, or paid for, the company’s own registration; the promoter or incorporation agent pays them only because the company does not yet legally exist.

Distinguish formation expenses from ordinary business preparation costs. Rent, equipment purchases, and other operating preparations do not become formation expenses merely because they are paid before incorporation.

• Payment

Preferably, the promoter should pay on the company’s behalf through the promoter’s own bank account or card, and retain the contracts, invoices, and bank transfer records or card receipts. If someone other than the promoter pays, document whom they paid on behalf of and who is entitled to reimbursement.

Tax Invoices and Business Registration

• General Rule

The general rule is to obtain tax invoices identifying the actual business recipient and its business registration number within the applicable issuance deadline. If registration is still pending, check the supply date and invoicing arrangements with the supplier before the transaction.

Eligible invoices received under a Korean resident registration number may be processed through Hometax’s conversion procedure after registration, subject to the applicable conditions. This should not be assumed to apply equally to invoices issued under passport details.

• Foreign Entrepreneurs Awaiting Business Registration

For D-8 applicants and other foreign entrepreneurs awaiting business registration, the preferred approach is to arrange for tax invoices to be issued directly under the business registration number. Coordinate the supply schedule with suppliers, taking into account the expected registration completion date and allowing time for possible delays. Where the applicable invoicing rules allow, tax invoices may be issued by the 10th of the month following the month of supply, so business registration should be completed before that date. Once the business registration number is available, promptly provide suppliers with the registration certificate and request issuance under that number within the applicable deadline.

This creates a practical win-win arrangement: the supplier can issue the tax invoice on time, and the business can receive it under its own registration number, avoiding penalties associated with late issuance or late receipt. It also avoids uncertainty over transferring invoices issued under the founder’s personal identification details. The invoice must still identify the actual recipient of the supply, and the other input VAT deduction requirements must still be met; obtaining a company number does not turn a personal purchase into a company transaction.

If an invoice has already been issued under the founder’s passport details, do not assume that it can automatically be converted to the company’s registration number or claimed as the company’s input VAT. Its eligibility and the appropriate filing procedure require separate confirmation.

• Business Registration Deadline for Pre-Registration Purchases

Wherever practicable, apply for business registration before receiving major taxable supplies. For purchases made before registration, the VAT exception generally requires an application by July 20 for January–June supplies, or by January 20 of the following year for July–December supplies, subject to statutory deadline adjustments. These are registration application deadlines; they do not extend the invoice issuance deadline or automatically establish eligibility for VAT recovery.

After Incorporation

• Reimbursement

After incorporation, prepare a reimbursement schedule identifying each payment, its business purpose, the amount, VAT, and the person who paid. Have the company approve the amounts it will assume and record the corresponding liability before reimbursement, then settle it through the corporate bank account.

• Accounting Treatment

Classify the amounts accepted by the company according to their nature. Ordinary advisory fees are generally recorded as expenses, unless attributable to an asset acquisition or another transaction requiring different treatment. Equipment is recorded as fixed assets where the applicable recognition requirements are met, goods for resale as inventory, and refundable lease deposits as deposit assets rather than expenses. Fees directly attributable to acquiring assets or issuing shares require separate consideration.

Record the amount owed to the person entitled to reimbursement and clear the liability when payment is made, and recognize recoverable input VAT separately from expenses and asset costs. A payment that is not tax-deductible does not automatically qualify for capitalization. Likewise, accounting recognition alone does not establish corporate tax deductibility or VAT recovery.