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I would like to briefly explain the more stringent expenseregulations for corporate-owned passenger vehicles and how to deal with them.
Such a change has been made due tohigh-priced vehicles are bought and operated by corporations, and causing theexcessive corporation expense, or a company is acquiring vehicles in the nameof corporations and used them for private purposes like family members.Existing system has become a social issue and stringent rule was introduced in2016 to regulate the use of corporation's expenses for private purposes.
First of all, the general concept of the limitation of cost -First, in order to restrict the use of a vehicle owned by a corporation byanyone other than its employees, only the driver's insurance of thecorporation's employee's name shall be recognized for the corporation-ownedvehicle. It is a basic premise.
Next is depreciation limit, which is a system introduced torestrict the use of high-priced vehicles for corporate business vehicles.
Lastly, it is necessary to create an operating log, so thatonly the vehicle maintenance expenses such as the fuel cost for the operationdetails confirmed by the operating log will be recognized as a manual expense.
However, a business purpose car refers togeneral vehicles of corporations and vehicles used in taxi companies or rentalcar serviceare not subject to the cost limitation.
Below items are the details of the cost limitfor each item.
1. Driver's insurance (business-specific car insurance)
In accordance with the amendment of the law, corporate ownedvehicles shall be joining (employee driver's license) automobile insurance thatis only compensated when employee of the corporation were driving. Not only forthe car insurance but also, depreciation and vehicle maintenance fee isrecognized as the corporation's deduction cost. (Article 27-2 of CorporateIncome Tax Act, Article 50-2 of the Enforcement Decree of the Corporation TaxAct).
In some corporations, corporate vehicles have been used forthe personal purpose, rather than employees of corporations. This system wasintroduced with the intent to block the use of corporation vehicles forpersonal purposes as a countermeasure against these parts.
Therefore,corporations have to check whether they signed up for "driver's insurancefor employees."
2. Depreciation expenses
To acquire and use excessively expensive vehicles compared tothe size of a company's business, the company considers that the company'sprofits are over-consumed, and in such a case, the tax law limits thedepreciation cost for the vehicle value to a certain extent.
This system was also introduced in 2016. In order to controlthe expenditure on high-priced commercial passenger cars, if the depreciationcost per vehicle exceeds 8 million won per year for business passenger cars,the excess depreciation cost is denied. However, at this time, the deductedamount is deferred and after 5 years of depreciation period, the amount isrecognized as expense up to annual depreciation limit or recognized as expensefor lump sum at the time of disposal.
In the case of a leased vehicle, the amount of depreciationexpense is recognized up to 8million won, Excessive amount is not recognized asexpense and disposed as other expenses and the amount is deferred. (However, ifthe repair expenses are not separately classified, 7% of the total leasedamount, which automobile tax and insurance fee is deducted, shall be deemed asrepair expenses.)
However, if the amount not recognized as expenses is less than 8 million won, the shortage amount shall be processed as expense and the rest amount is recognized as expense when 10 years after the termination of the leased period.
3. Operational log
As one of the measures to limit expenditure on businesspassenger cars, recognition of the cost of car maintenance expenses, such asfuel costs, is only recognized per each portion of the mileage that is used forbusiness purpose. The checking of the mileage is confirmed by the “log book”which is recorded per each vehicles for business purposes.
Now, we can recognize that it is very important to create a'driving record' for record the maintenance fee as expense. Also, according tothe system, it is necessary to be able to check the total mileage and themileage used for business use based the logbook.
In case a company does not record driving log and businesspurpose vehicle and that expense is less than 10million KRW, the portion usedfor business purposed vehicle is deemed to be 100%. And when the expenseexceeds 10million KRW, the portion is calculated as 10million KRW divided bybusiness purpose vehicle expense,
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