Deemed interest on a Korean director’s advance
When company money used personally by a director remains as an outstanding advance, repayment and tax adjustments need separate attention.
Multiplying only the year-end balance by an annual rate can miss earlier outstanding balances and repayments during the year.
This calculator compares leaving one verified net advance outstanding, repaying it in full on a selected effective date, and making installments from that date.
Use the comparison to prepare a repayment decision
Compare tax savings with the principal you can actually return to the company.
Save the CSV and discuss it with your Korean tax adviser alongside the director’s ledger, borrowing agreements and interest receipts.
The result does not determine filing eligibility or predict an audit outcome.
All amounts are KRW and the jurisdiction is South Korea: 2026 rules apply, with 2027–2028 shown as projections holding those rules constant.
When can the annual 4.6% rate be used?
The weighted-average rate is the default rule
Corporate Tax Act Enforcement Decree Article 89(3) and Enforcement Rule Article 43(1) generally use the weighted-average borrowing rate.
It is based on eligible non-related-party borrowing balances at the lending date, multiplied by their applicable borrowing rates and divided by the total eligible balance.
Enter the verified rate after reviewing its eligibility; the calculator does not reconstruct or approve the borrowing schedule.
The statutory overdraft rate is 4.6%
Enforcement Rule Article 43(2) specifies 46 per 1,000 annually.
Exceptions include an unavailable weighted-average rate and loans exceeding five years, subject to the statutory conditions and the affected loan’s scope.
If the corporation elects the overdraft rate with its return, it applies for the elected financial year and the next two financial years.
Lending to an individual director and lending to another corporation can require different checks.
Review the borrowing-corporation rate comparison, exclusion of related-party or unidentified-creditor borrowings, and treatment of floating-rate resets as new borrowings.
A lower rate in another year does not create permission to switch methods freely.
Balance-days, interest gaps and income adjustments
1. Add the balance for each included day
Annual balance-days = Σ(interval net balance × interval days)
The first included accrual day is included in the calculation.
On the repayment balance effective date, the reduced balance begins to apply.
These inputs are ledger accrual dates and may differ from the actual lending or repayment transaction date.
Verify first-day, last-day and opening-balance treatment with your adviser rather than assuming all transaction dates have the same treatment.
Do not offset another person’s balance or a director credit balance that is not eligible for offset.
2. Use the correct annual denominator
Deemed interest = balance-days × annual rate ÷ 100 ÷ 365 (366 in a leap year)
Official Form 19, the deemed-interest adjustment schedule, uses 365 for ordinary years and 366 for leap years.
The model sums annual balance-days and then discards fractions of one won from the interest result.
KRW 100 million outstanding throughout 2026 produces 36,500,000,000 KRW-days; throughout 2028 it produces 36,600,000,000 KRW-days.
Both generate KRW 4,600,000 at 4.6% when divided by the appropriate denominator.
3. Deduct booked interest and apply the threshold
Gap = max(0, deemed interest − company-booked interest)
The full positive gap becomes the modeled income adjustment if it is at least KRW 300 million or at least 5% of deemed interest.
Either condition is sufficient, and equality qualifies.
The percentage denominator is the fair-value deemed interest, not the loan principal.
Company-booked interest can differ from cash received because of income-year allocation and properly accrued interest receivables; verify the amount used in the tax schedule.
Inputs and documents: a practical sequence
- Confirm the net advance and accrual start: reconcile the director-specific ledger with bank transactions.
Review whether an offset against the same person’s credit balance is legally and contractually available.
- Set the repayment plan: select the first day using the reduced balance and choose an installment amount and interval of 1, 3, 6 or 12 months.
Month-end schedules add months to the original effective date each time, preventing cumulative date drift.
The final installment cannot exceed the remaining principal.
- Verify the interest method: use the borrowing records at the lending date and the previous deemed-interest adjustment schedules.
Check the continuing application period of any prior rate election.
- Enter annual company assumptions: provide booked interest, the baseline corporate tax base excluding this advance’s interest revenue, and adjusted average borrowing and paid interest.
Remove already included booked interest from the baseline to avoid counting it twice.
- Set director exposure assumptions: choose whether the income adjustment is assumed to be a bonus and select a verified national marginal tax rate.
Leave health and long-term-care insurance unassessed unless its scope and effective additional burden are confirmed.
- Calculate and save: compare tax, repayment cash and closing balances for all three scenarios, then download the CSV.
Changing an input hides old results until you calculate again, keeping assumptions and results aligned.
Worked example: a KRW 100 million advance
This fictional one-year example uses an opening advance included from January 1, 2026, an eligible annual rate of 4.6%, zero company-booked interest, a baseline corporate tax base of KRW 100 million and no company borrowing.
It assumes bonus treatment at a 24% national director marginal rate, with health insurance unassessed.
2026 repayment comparison for a KRW 100 million advance| Repayment plan | Deemed interest (KRW) | National + local taxes (KRW) | Principal repaid (KRW) |
|---|
| No repayment through year-end | 4,600,000 | 1,720,400 | 0 |
| Zero balance effective July 1 | 2,281,095 | 853,127 | 100,000,000 |
Without repayment, corporate national tax increases by KRW 460,000 and corporate local tax by KRW 46,000.
Director national tax is estimated at KRW 1,104,000, with KRW 110,400 in local tax.
A zero balance effective July 1 leaves 181 included days before repayment and reduces estimated tax by KRW 867,273.
The KRW 100 million repayment is cash the director must separately return to the company; it is not a tax cost to subtract from the savings figure.
Threshold and progressive-bracket examples
With deemed interest of KRW 4,600,000 and booked interest of KRW 4,370,000, the KRW 230,000 gap is exactly 5%, so the entire gap is adjusted.
Booked interest of KRW 4,370,001 leaves a KRW 229,999 gap, below both thresholds, resulting in no modeled income adjustment.
If the baseline corporate tax base is KRW 199 million, adding KRW 4.6 million crosses the KRW 200 million bracket boundary.
Corporate national tax then increases by KRW 820,000 and corporate local tax by KRW 82,000.
Borrowing-interest disallowance and director bonuses
When the company has borrowings
A non-business advance can cause borrowing interest to be non-deductible even when adequate interest revenue is booked.
Under Enforcement Decree Article 53, the model multiplies adjusted paid interest by advance balance-days divided by total borrowing balance-days, capped at a ratio of one.
A full-year KRW 100 million advance, KRW 200 million average eligible borrowing and KRW 10 million paid interest produce KRW 5 million of disallowed interest in this simplified example.
Director tax is a separate assumption
Income disposition under Enforcement Decree Article 106 depends on the beneficiary, external outflow and other facts.
Only when the bonus assumption is enabled does the model multiply the deemed-interest income adjustment by the selected director national marginal rate and add a local estimate equal to 10% of that national amount.
Disallowed company borrowing interest is not added to the director’s assumed bonus.
Corporate tax uses the 2026 general domestic-corporation national brackets of 10%, 20%, 22% and 25%, with standard local rates of 1%, 2%, 2.2% and 2.5% calculated separately.
The bracket thresholds are KRW 200 million, KRW 20 billion and KRW 300 billion.
Director tax is a marginal approximation using a selected 6%, 15%, 24%, 35%, 38%, 40%, 42% or 45% national rate, without salary deduction, tax-credit or bracket-crossing recalculation.
Health insurance is not automatically charged just because an adjustment is assumed to be a taxable bonus.
Optionally enter a verified effective additional rate covering the relevant director, company and long-term-care shares.
Use cases and interpretation limits
- Cash becomes available before closing: compare the tax and deemed-interest reduction with personal financing costs and living-cash needs.
The calculator does not recommend an optimal repayment date.
- Repayment is possible every few months: change the installment interval to inspect cumulative balance-days and the closing loan.
Principal outside the projection remains an obligation even though later years are not displayed.
- Interest has already been paid: first reconcile its income year and company-booked amount.
The same booked amount is used for all three scenarios, so rerun with scenario-specific actual assumptions if repayment changes booked interest revenue.
- A bad-debt write-off is being considered: Corporate Tax Act Article 19-2(2) restricts bad-debt deductions for qualifying non-business related-party advances.
Unrecovered principal and additional corporate tax are different amounts; the closing principal is not treated as a tax charge.
Scope of this estimate
The model covers one director’s loan and a full January–December year for a general domestic corporation.
It does not cover corporations within Article 60-2(1)(1), short financial years, multiple loans at different rates, additional new lending, offset eligibility or other non-business assets.
Remove excluded borrowings and prior interest disallowances from the borrowing inputs before calculating.
Loss carryforwards, minimum tax, credits, penalties, withholding settlements, the deductibility of insurance premiums and payment timing are excluded.
Entering zero as the baseline tax base does not implement a loss carryforward calculation.
Frequently asked questions
Can every advance use 4.6%?
No.
The weighted-average borrowing rate is the default legal rule.
Confirm the applicable exception or filing election and its continuing application period.
Does a year-end repayment erase the year’s deemed interest?
No.
Balance-days already accrued remain.
Interest decreases only from the date the reduced balance begins to apply.
Should I enter cash interest or booked interest?
The adjustment schedule uses company-booked interest.
Reconcile cash receipts, appropriate accrued receivables and the correct income year, then exclude that booked revenue from the baseline tax base to prevent duplication.
Does zero income adjustment mean zero corporate tax?
No.
Corporate tax on booked interest and borrowing-interest disallowance may remain.
The result includes these components separately.
Does unassessed insurance mean an exemption?
No.
It means the liability and effective additional burden have not been confirmed.
A verified 0% rate and an unassessed result are distinct, and a general insurance rate is not applied automatically.
Does the 2028 result use 2028 tax law?
No.
Leap-year days are reflected, but tax rates and rules are held at the verified 2026 settings.
Recheck the relevant income year before filing.
Is principal repayment included in total tax?
No.
Repayment and interest receipts are transfers between the director and company, separate from tax.
Use the repayment amount in a separate liquidity plan.
Official sources and update checks
The National Law Information OPEN API was checked on September 7, 2026.
The verified texts include Corporate Tax Act MST 280349, Enforcement Decree MST 283635 and Enforcement Rule MST 287787.
The relevant tax-rate provisions took effect January 1, 2026; the decree version took effect February 27 and the rule version July 1.
The current Form 19 search returned annex ID 18410623; its detail API returned an error, so the official publicly accessible PDF was cross-checked against Decree Article 88(3).
Recheck the overdraft rate, election rules, corporate and personal tax schedules, accrual forms and insurance scope annually.
The eligibility of the entered rate and tax treatment depends on each user’s supporting records.