Tax & Accounting Office Haeon

When your Korean business has reached a stable trajectory and you start to worry about taxes, even if just a little, it's time to consider joining the Yellow Umbrella Mutual Aid in Korea.

The Yellow Umbrella Mutual Aid is a program operated by the "Korea Federation of SME(Small Medium Enterprises)" under the "Ministry of SMEs and Startups" of the Republic of Korea. It offers benefits that are too good to pass up, including annual income deductions of up to 5 million won (approximately $3,800 USD) on contributions, as well as the ability to recover all contributions and accrued interest without penalty in case of business closure.

1. Benefits of Yellow Umbrella Mutual Aid

① Income Deduction

Yellow Umbrella Mutual Aid allows for income tax deductions on annual contributions as follows:

※1 Maximum income deduction limit: From 2025, it will be increased to 5 million won and 4 million won respectively.

※2 Total salary for corporate representatives: From 2025, it will be increased by 10 million won from 70 million won to 80 million won.

However, corporate representatives with a total salary exceeding 80 million won (approximately $61,000 USD) cannot receive any income deductions. For both individual business owners and corporate representatives, the amount of income deduction decreases as income increases.

Therefore, if the main purpose of joining Yellow Umbrella Mutual Aid is for income deduction, you should consider your income level when deciding on the monthly contribution amount.

※1: The monthly contribution for Yellow Umbrella Mutual Aid can be set from a minimum of 50,000 won to a maximum of 1 million won in 10,000 won increments. This can be changed by calling the Yellow Umbrella Mutual Aid representative number or directly through the website using a public certificate.

※2: Comprehensive Income Tax Rate Table in Korea

※3: For those who joined after 2019, real estate rental business income is excluded from income deduction.

- Exclusion of real estate rental business income from deduction targets

- Exclusion of the proportion of real estate rental business income from the deduction amount

② Compound Interest Accumulation

Each year, compound interest is accumulated on the contribution amount at the "standard rate" set by Yellow Umbrella Mutual Aid. The standard rate is around 3%, which is not insignificant considering that you can borrow up to 90% of the total contribution amount at any time through a loan application. This allows for appropriate asset growth even after income deduction.

③ Low-Interest Loans on Contributions

You can receive low-interest loans of about 90% of the expected cancellation refund amount. The loan interest rate is set at the [standard rate + 0.8~0.9%] (3.9% as of Q4 2024). The loan interest rate is the same for all Yellow Umbrella Mutual Aid members regardless of individual credit ratings, as it is based on your own cancellation refund amount. The interest rate may change every quarter (January, April, July, November).

A key point to note is that compound interest continues to accumulate on your entire contribution amount even if you take out a loan. In other words, 3% compound interest continues to accumulate on the full amount of contributions regardless of the loan, and 3.9% loan interest is charged on the loan amount, resulting in an ultra-low interest rate loan of 0.9% (confirmed through a call with a Yellow Umbrella Mutual Aid consultant).

Example:

Total accumulated contributions of 10,000,000 won (approximately $7,600 USD) accrue compound interest at the standard rate (3% as of Q4 2024) regardless of the loan. Monthly interest is paid on the loan amount of 9,000,000 won (approximately $6,840 USD) at the loan rate (3.9% as of Q4 2024). Effectively, a loan is possible at an interest rate of 0.9%.

④ Relatively Easy Termination Conditions for Business Owners

While similar tax-deductible personal pension savings apply a 16.5% other income tax when withdrawn for purposes other than pension, Yellow Umbrella Mutual Aid applies a relatively lower “retirement income tax” instead of other income tax when cancelled due to "business closure" (see details on receiving mutual aid benefits below).

⑤ Protection from Seizure When Receiving Mutual Aid Benefits

To enhance the effectiveness of protecting the right to receive benefits for small business owners receiving Yellow Umbrella Mutual Aid benefits and to improve convenience, it is possible to open a "Happy Keeper Account" (Article 118-3 of the Small and Medium Enterprise Cooperatives Act).

2. Enrollment Conditions

① Average Annual Sales of 1 Billion to 12 Billion Won Or Less Over 3 Years 

Yellow Umbrella Mutual Aid is available to representatives of small businesses and small enterprises, but the range of small businesses and small enterprises is broad, with average annual sales over 3 years ranging from 1 billion won to 12 billion won depending on the industry. Therefore, most people who have recently started a business can join.

② Restricted Industries

Certain industries are not eligible to join Yellow Umbrella Mutual Aid.

※ Real estate rental businesses can join, but those who joined after 2019 are not eligible for income deduction.

3. Receiving Mutual Aid Benefits

① Receiving Mutual Aid Benefits vs. Cancellation Refund

Under certain conditions, you can normally receive the accumulated "contributions + interest" as "mutual aid benefits." If these conditions are not met, you will receive a "cancellation refund" due to contract termination.

② Criteria for Mutual Aid Benefit Payment

⒜ Closure of individual business or withdrawal from joint business

⒝ Closure or dissolution of corporate business

⒞ Death of the member (individual business owner or corporate representative)

※ For cases ⒜-⒞, if the number of contribution payments is 6 or less, only the paid contributions are returned; from the 7th payment onwards, paid contributions + interest are paid normally.

⒟ Claim for mutual aid benefit payment by members aged 60 or older who have made 120 or more contribution payments

⒠ Retirement of corporate representative due to illness or injury

⒡ Cases requiring medical treatment for 6 months or more due to illness or injury

⒢ Cases where a decision to commence rehabilitation proceedings, simplified rehabilitation proceedings, or personal rehabilitation proceedings has been made in accordance with the "Debtor Rehabilitation and Bankruptcy Act"

⒣ Cases where bankruptcy has been declared in accordance with the "Debtor Rehabilitation and Bankruptcy Act"

③ Example Table of Mutual Aid Benefit Payment upon Cancellation

④ Taxation on Mutual Aid Benefits

When receiving mutual aid benefits, "retirement income tax" is levied on the contributions and interest for which income deduction was received.

4. Cancellation Refund

① Cancellation Refund Amount

If you need to terminate early without meeting the above conditions, you will receive a "cancellation refund" instead of mutual aid benefits. You can check the cancellation refund conditions that apply to you through the link below.

cancellation refund conditions

② Taxes Imposed on Cancellation Refunds

Yellow Umbrella Mutual Aid divides cancellations into (a) general cancellation, (b) deemed cancellation, and (c) forced cancellation. While (a) general cancellation and (c) forced cancellation are subject to 16.5% other income tax, (b) deemed cancellation is subject to "retirement income tax" like "mutual aid benefits".

⒜ General Cancellation

This refers to the termination of the contract according to the free will of the contractor.

⒝ Deemed Cancellation

• When an individual business owner member transfers the entire business to a spouse or child

• When an individual business owner member converts to a corporation through in-kind contribution

• When a corporate representative member retires from the representative position for reasons other than illness or injury

⒞ Forced Cancellation

This is a forced contract termination that the Korea Federation of SMEs can take when mutual aid contributions are overdue for 12 months or more, or when mutual aid benefits are received through fraudulent means.

5. Frequently Asked Questions

Q1. Can a corporate representative with multiple businesses have multiple memberships?

You must choose only one business to join, and mutual aid benefits will only be paid for the closure or retirement of the chosen business. The chosen business cannot be arbitrarily changed.

Q2. What is the most advantageous way to join if someone is both a corporate representative and an individual business owner?

For corporate representatives with a total salary of 80 million won (approximately $61,000 USD) or less, income deduction is applied to the earned income amount, while for individual business owners, income deduction is based on business income. Therefore, it's advantageous to join based on whichever has the higher maximum tax rate. However, for corporate representatives, if the total salary exceeds 80 million won, no income deduction is applied at all, so future salary levels should also be considered.

Q3. What are the conditions for old age among the maturity reasons?

This refers to cases where a member who has paid contributions for 10 years or more claims benefits when they reach 60 years of age or older.

Q4. Is the Yellow Umbrella Mutual Aid product included as inherited property if the member dies?

Yes, it is included.

Q5. Can I continue to pay contributions even after closing my business without claiming them?

It's possible, but the interest on contributions paid after business closure is reduced to 1/2 for one year and 1/4 after one year. Also, if you have received income deductions, there's a risk of tax collection, so it's recommended to apply for mutual aid benefits upon business closure maturity.

Q6. Can I continue to pay even if I'm eligible for old age maturity?

If you meet the old age conditions but haven't closed your business, you can continue to pay until you apply for termination.

6. Why Clients Choose Haeon for Korean Corporate Establishment & Management?

① One-Stop Professional Service

Haeon is a Korean legal group with lawyers and accountants working together, providing one-stop services for all aspects of corporate operations, from establishment to subsequent tax filing and accounting. In a rapidly changing business environment, Haeon will work together so that clients can focus solely on their business in Korea.

② Direct Communication with Korean Experts Without International Brokers

In Korea, only licensed attorneys or Beommusa Lawyer can legally represent clients in corporation establishment matters. Similarly, tax representation and accounting audits can only be performed by certified professionals such as certified public accountants(CPA).

Unlicensed brokers for Korean corporation establishment often subcontract the work to Korean professionals after accepting clients. By choosing Tax & Accounting Office Haeon, clients can work directly with Korean experts without paying excessive fees to unlicensed brokers.

③ Easy English Communication

Tax & Accounting Office Haeon has a certified public accountant who served as an English interpreter for the Korean Army, facilitating communication between U.S. and Korean forces. This ensures that even clients who don't speak Korean can receive comprehensive assistance with Korean corporation matters.

For expert consultation on corporate establishment and operation please contact Haeon