[Loss Compensation] Q&A, Is Loss Compensation Provided to Small Businesses?

Average Daily Loss x Quarantine Days x 80% Adjustment Rate Applied... Up to 100 Million KRW per Quarter
Rapid Compensation Applications Open from the 27th, Appeals to Local City/County Offices

Minister Kwon Chil-seung of the Ministry of SMEs and Startups is giving a briefing on the implementation of the Loss Compensation Act at the Ministry of SMEs and Startups briefing room on the 8th. [Photo by Ministry of SMEs and Startups]

[Asia Economy Reporter Kim Jong-hwa] The government will compensate small businesses affected by COVID-19 gathering bans and business restrictions for 80% of their operating losses. The criteria for small businesses are annual sales of △10 billion KRW or less for accommodation and food services △30 billion KRW or less for arts, sports, and leisure-related services △50 billion KRW or less for wholesale and retail trade. The loss compensation system, which will accept applications and payments starting from the 27th, is explained in a Q&A format.

▲Who are eligible for small business loss compensation?

-The compensation targets small businesses under the 'Framework Act on Small and Medium Enterprises' that suffered significant operational losses due to compliance with gathering bans or business hour restrictions under Article 49, Paragraph 1, Subparagraph 2 of the Infectious Disease Control and Prevention Act from July 7 to September 30.

Gathering bans and business hour restrictions prohibit gatherings within business premises and limit operating hours fully or partially. Facilities subject to gathering bans include △entertainment and karaoke bars △clubs and nightclubs △emotional pubs △hunting pubs △colatecs and dance halls △hold'em pubs and hold'em game rooms, etc.

Facilities subject to business hour restrictions include △restaurants and cafes △karaoke rooms △direct sales promotion centers △bathhouses △swimming pools △indoor sports facilities △academies △movie theaters and performance halls △reading rooms and study cafes △amusement parks △water parks △arcades and multi-rooms △stores, marts, and department stores △casinos △PC rooms, etc. However, local governments may apply different quarantine measures by facility.

▲What are the criteria for small businesses?

-Small businesses are determined by annual sales regardless of the number of regular employees. According to Appendix 3 of the Enforcement Decree of the Framework Act on Small and Medium Enterprises, the sales criteria for small businesses vary by industry: accommodation and food services up to 1 billion KRW, arts, sports, and leisure-related services up to 3 billion KRW, wholesale and retail trade up to 5 billion KRW, etc.

△(up to 1 billion KRW) accommodation and food services, education services, etc. △(up to 3 billion KRW) arts, sports, and leisure-related services, professional, scientific, and technical services, etc. △(up to 5 billion KRW) wholesale and retail trade, information and communication services, etc. △(up to 8 billion KRW) transportation and storage, construction, mining, agriculture, forestry, fishery, textile product manufacturing, etc. △(up to 12 billion KRW) food and beverage manufacturing, metal processing product manufacturing, electrical equipment manufacturing, etc.

▲How is the loss compensation amount calculated?

-The loss compensation amount is calculated as 'average daily loss × number of days under quarantine measures × adjustment rate.' The average daily loss is calculated by multiplying the daily average sales decrease in the same month of 2021 compared to 2019 (pre-COVID-19) by the sum of the 2019 operating profit margin and the ratio of labor and rental costs to sales in 2019. The number of days under quarantine measures is the period from July 7 to September 30 during which the business complied with the measures as confirmed by local governments.

The adjustment rate is uniformly applied at 80% for both gathering bans and business hour restrictions. For example, assuming ① average daily sales in August 2019 of 2 million KRW, ② average daily sales in August 2021 of 1.5 million KRW, ③ 2019 operating profit margin of 10%, ④ labor and rental cost ratio to sales in 2019 of 25%, ⑤ 28 days under quarantine measures, and ⑥ adjustment rate of 80%, the August loss compensation amount is calculated as [(① - ②) × (③ + ④)] × ⑤ × ⑥ = [(2,000,000 - 1,500,000) × (0.10 + 0.25)] × 28 × 0.8 = 3,920,000 KRW.

▲Are fixed costs fully reflected?

-In the loss compensation formula, the 'average daily loss' is calculated by multiplying the daily average sales decrease in the same month of 2021 compared to 2019 by the sum of the 2019 operating profit margin and the ratio of labor and rental costs to sales in 2019. Among fixed costs, labor and rental costs, which are the largest burden for small business owners, are reflected in the loss compensation calculation.

▲What is the concept and legal basis of the adjustment rate?

-The adjustment rate estimates the direct loss caused by compliance with quarantine measures, considering that the prolonged COVID-19 pandemic has caused damage and hardship to the entire population and all industries. Article 12-2 of the 'Act on the Protection and Support of Small Businesses (Loss Compensation Act)' stipulates that loss compensation is provided when significant operational losses occur.

▲How is compensation calculated if there is no National Tax Service (NTS) filing data?

-Loss compensation primarily uses tax data such as VAT and comprehensive income tax filings held by the National Tax Service. If no applicable NTS filing data is available, statistical data such as the '2019 Expense Ratio Notice' for simplified expense rates and the '2019 Service Industry Survey Report' for labor and rental cost ratios to sales will be utilized as much as possible.

▲How is compensation calculated for businesses operating multiple locations?

-Loss compensation will be calculated and paid separately for each eligible business location (individual business registration number).

▲Is compensation provided if quarantine measures are violated?

-If quarantine measures under Article 49, Paragraph 1, Subparagraph 2 of the Infectious Disease Control and Prevention Act are violated, loss compensation may be partially or fully withheld or reclaimed before or after payment according to Paragraphs 4 and 5 of Article 12-2 of the Loss Compensation Act.

▲When, where, and how can loss compensation be applied for?

-Applications can be made online and offline. Rapid compensation applications open from the 27th, and confirmed compensation applications open two weeks later on November 10. Confirmed compensation refers to cases where applicants disagree with rapid compensation amounts or require local government facility classification verification. Online applications can be submitted at '소상공인손실보상.kr' without additional documents, and offline applications can be made at the district or county office where the business is located.

Confirmed compensation applications can be submitted both online and offline starting November 10, using the same methods as rapid compensation. Appeals can also be submitted online or offline after compensation payments.

▲When, where, and how can appeals be submitted?

-Appeals can be submitted online or offline after receiving recalculated compensation through confirmed compensation applications. Online appeals are submitted at '소상공인손실보상.kr' by entering the business registration number, verifying identity, and uploading additional required documents. Offline appeals require submitting additional documents and an appeal form to the district or county office where the business is located.

▲Is there a shortage of the loss compensation budget?

-It is the principle to pay all compensation amounts calculated according to the standards decided by the review committee. The government will ensure that loss compensation payments starting at the end of October proceed without disruption.

▲How is the call center operated?

-The small business loss compensation call center number is 1533-3300. From the 8th onward, about 400 counselors will be deployed daily, and from late October to late November, when inquiries are expected to peak, 800 to 1,000 counselors will be assigned.

This content was produced with the assistance of AI translation services.