Shared Offices Become Tax Havens as 'Address Laundering' Goes Unchecked

The South Korean government's expansion of tax benefits for startups in non-metropolitan areas, intended to foster balanced regional development, is being undermined by a growing practice of "address laundering." Companies are registering their official addresses in these designated regions while keeping their actual business operations in the Seoul metropolitan area. This allows them to unfairly claim tax breaks without contributing to local employment or economic revitalization, thereby diluting the original intent of the preferential tax policies.

An investigation by the Dong-A Ilbo revealed the ease with which this practice can be implemented. When inquiring with ten shared office spaces in both regional and metropolitan areas about registering a business address separately from the operational site, all ten confirmed it was possible. Some providers even offered contracts for "tax-saving addresses" for approximately 10,000 won per month, sometimes assisting clients in selecting suitable addresses based on their business type and age if a specific region wasn't initially chosen.

Under current regulations, income and corporate tax reductions for young startups vary by region: 75% for areas within the Seoul metropolitan region (excluding overconcentration zones) and 100% for non-metropolitan areas, applicable for five years. While tax authorities can reclaim evaded taxes or recover subsidies if a company is found to be using a non-operational address, reports suggest that some businesses manage to circumvent on-site inspections by arranging temporary setups. The government's recent tax reform proposals include significant tax cuts for non-metropolitan new industrial SMEs and those relocating outside the capital area. However, without rigorous post-verification, these tax policies risk becoming mere tools for tax evasion, leading to wasted public funds and creating disadvantages for genuinely local businesses.