Kim, the CEO of a small trading company in Gyeonggi Province, used to drive his personal vehicle to client meetings until last year. He paid for fuel and repairs with his personal credit card, and at year-end settlement he had to ask a tax accountant how to handle these expenses. As revenue grew, so did the number of client visits, and the mileage and maintenance costs were becoming too burdensome for a personal vehicle.

Early this year, Kim switched to a long-term rental of a Grandeur under the corporate name. The monthly rental fee was in the 1 million won range. His tax accountant explained that under this method, he could sufficiently claim expenses of a depreciation nature within the annual deductible expense limit.

The problem came next. Kim spent half a year without keeping a driving log, and only belatedly learned during tax filing season that the National Tax Service could apply a low business-use ratio. Because recognition is determined on a half-year basis, if the record is broken for even a single month, the entire period may not be recognized as an expense. He was also told that if he could not prove a 100% business-use ratio, the recognized expenses themselves would shrink, and records written up retroactively in bulk would be hard to accept in a tax audit. Kim has since started automatic GPS-based logging with a smartphone app, recording the date, departure and destination points, purpose of driving, and mileage without fail.

■ Corporate Vehicle Expense Treatment Splits Into Two Tracks

Corporate vehicle expense treatment is broadly divided into two tracks: depreciation, which spreads the vehicle's cost as an expense, and maintenance costs such as fuel, insurance, and repairs. Together, these are called business vehicle-related expenses. Depreciation is recognized as a deductible expense only up to about 8 million won per vehicle per year. Amounts exceeding the limit can be carried forward and deducted the following year, but the carryforward disappears if the vehicle is replaced in the meantime—a point often overlooked in practice. The more expensive the imported luxury car, the more significantly this limit issue comes into play.

■ Lease vs. Rental: The Difference Lies in VAT Refunds

A common explanation is that leases and rentals offer similar tax benefits. However, they may differ in the possibility of value-added tax refunds. Even for a vehicle rented under a corporate name, if it is a passenger car subject to individual consumption tax, input tax credit is in principle restricted. On the other hand, if the vehicle is exempt from individual consumption tax—such as passenger cars and vans with nine or more seats, compact cars with engine displacement of 1,000cc or less, trucks, or two-wheeled vehicles of 125cc or less—or if it is directly used for business in industries such as transportation, automobile sales, automobile leasing, driving schools, or security services, the VAT included in the rental fee can be deducted as input tax. It should also be verified that refunds may be restricted if the rental contract holder and the actual user differ, or if qualified evidence such as a tax invoice is missing.

■ Management Convenience and Cash Flow Are Also Selection Criteria

Management convenience is cited as one of the selection criteria. Rentals often come with a structure in which the rental company comprehensively manages insurance, maintenance, and taxes, resulting in a relatively lighter administrative burden. For leases, the fact that they are divided into finance leases and operating leases depending on the contract form, which changes the accounting treatment, is a point of comparison. For small and medium-sized enterprises with tight cash flow, it is also noted that rentals and leases with fixed monthly payments may be more advantageous for fund management than purchases requiring a large upfront sum.

■ Three Checkpoints

The checkpoints are summarized into three. First, driving log records must be kept continuously from the first day of the contract without interruption. Second, VAT refund eligibility varies depending on the vehicle type and industry, so it is necessary to confirm with a tax accountant before signing a contract. Third, the carryforward conditions for depreciation amounts exceeding the limit may vary depending on the timing of vehicle replacement, so if there is a replacement plan, it should be checked in advance.

[This article does not substitute for tax or legal consultation, and actual applicable standards may vary depending on each corporation's industry, vehicle type, and contract conditions. It is advisable to make a final confirmation of the exact deductible expense limits and VAT refund eligibility through the competent tax office or a tax professional. AI provided partial assistance.]