South Korea to Cancel Tax Debts for Closed Micro-Businesses Under 50 Million Won

South Korea’s National Tax Service is launching a program to extinguish certain tax debts for livelihood-stricken individuals. Starting January 1, 2025, the plan targets delinquent taxpayers with combined income tax and value-added tax arrears of 50 million won or less, affecting about 28,500 people.

The measure focuses on small, closed businesses where collection is deemed impractical after a field survey. The goal is to give these micro-entrepreneurs a path to recover, by removing the long-standing financial penalties and restrictions tied to overdue taxes.

Officials say the broader economy is improving, but sentiment among very small business owners remains weak, with more individuals closing shops or going out of business each year. Persistent unpaid taxes can compound financial distress by triggering interest, penalties, and limits on financial activity.

Under current rules, outstanding arrears can lead to credit problems, jeopardize licenses, and complicate access to loans. For example, overdue amounts above 1.5 million won accrue daily late penalties, while arrears over 5 million can be reported to banks and risk a drop in creditworthiness or credit-card eligibility; multiple delinquencies can even affect business permits.

The new extinction mechanism requires applicants to meet several conditions: having closed all business operations and facing genuine economic hardship; arrears not exceeding 50 million won; average annual business income in the three years before closing below 1.5 billion won; no tax-crime penalties in the past five years and no ongoing investigations; and not having benefited previously from the extinction program.

Applications can be submitted at a local tax office or via the Home Tax portal. Tax office heads will conduct an on-site survey to verify living conditions and financial status before determining eligibility, with a formal decision by the National Tax Arrears Settlement Committee within six months of the application. Applicants will be informed of the outcome.

The National Tax Service rolled out a new Tax Arrears Management Team on the 5th to speed up such assessments. If applicants cannot apply in person due to mobility or other reasons, officials may apply on their behalf with the applicant’s consent.

For international readers, the policy signals Korea’s broader effort to balance debt collection with social safety nets for small businesses. As a major technology and manufacturing hub, Korea’s ability to reboot micro-enterprises can influence domestic demand, domestic supply chains, and the resilience of its tech ecosystem. The program could also shape how foreign suppliers and lenders assess risk in Korea’s SME sector, and it reflects ongoing policy attention to how tax administration supports entrepreneurs while safeguarding fiscal integrity.