Implementation of 'Extinguishment of Delinquent Taxes' for Closed Small Business Owners... "Aimed at Supporting Financial Recovery"

“Extinguishment of Tax Payment Obligation” System Implemented This Month
285,000 Delinquent Taxpayers with Balances of 50 Million Won or Less

Self-employed small business owners who are struggling to pay overdue taxes due to business closure can apply for a tax exemption of up to 50 million won.

The National Tax Service announced on March 12, 2026, that, starting in March, it will implement the "Extinguishment of Tax Payment Obligation for Delinquent Taxes" system to support the financial recovery of livelihood-based taxpayers who are unable to pay overdue taxes due to economic hardship.

The extinguishment of tax payment obligation system is designed to eliminate the obligation to pay overdue taxes for small business owners who have closed their businesses and are recognized, based on a factual investigation, as being unable to pay. According to the National Tax Service, the number of individual business owners who closed their businesses due to business downturn increased annually from 819,000 in 2021 to 925,000 in 2024.

If taxes remain unpaid for a long period for unavoidable reasons such as business failure, the individual may experience not only asset seizure but also difficulty in conducting everyday economic activity. If one has national tax delinquencies, the issuance of a tax payment certificate, which proves there are no outstanding taxes, is restricted, leading to disadvantages in loan reviews or securing financing from financial institutions. In particular, if the overdue amount is 1.5 million won or more, a daily late payment surcharge is imposed until the overdue amount is paid, causing the amount owed to continue to increase.

Furthermore, if the overdue amount is 5 million won or more, credit information is provided to financial institutions, which may result in lower credit ratings or denial of credit card issuance. If income tax or value-added tax is overdue, business-related permits or authorizations may be restricted, and if there have been three or more delinquencies and the overdue amount exceeds 5 million won, such permits or authorizations may be revoked.

The National Tax Service expects the extinguishment of tax payment obligation system to offer small self-employed business owners—who have no income or assets and are unable to pay—the opportunity to start over by eliminating the disadvantages caused by tax delinquencies.

The overdue amounts eligible for extinguishment must have arisen before January 1 of the previous year and include comprehensive income tax, value-added tax, and associated surcharges (penalties), as well as compulsory collection costs, provided these amounts are recognized as difficult to collect. To qualify for extinguishment, all businesses must have closed before the factual investigation date, and all relevant requirements must be met. Specifically, these requirements are: ▲ The total eligible overdue amount as of the factual investigation date is 50 million won or less; ▲ The average total business income for the three years prior to closure is less than 1.5 billion won; ▲ The applicant has not been punished under the Punishment of Tax-Related Offenses Act within the last five years and is not under investigation as of the factual investigation date; ▲ The applicant has not previously benefited from the extinguishment of tax payment obligation system.

Taxpayers wishing to apply for extinguishment of their payment obligations can visit a local tax office or apply via Hometax. Upon receiving an application, the head of the tax office will assess the applicant's ability to pay by visiting their registered address to review living conditions and checking the applicant’s income and asset status. Through this factual investigation, the economic hardship will be verified, and whether the applicant meets the legal requirements for extinguishment will be meticulously reviewed. Subsequently, after deliberation by the National Tax Delinquency Settlement Committee, a decision will be made within six months of the application date, and the applicant will be notified of the result.

As of January 1 of the previous year, there are 285,000 individuals with a combined overdue balance of up to 50 million won in comprehensive income and value-added taxes. The National Tax Service plans to proactively notify those taxpayers who are expected to meet the statutory requirements, such as business closure or lack of assets.

An official from the National Tax Service stated, “Through the extinguishment of tax payment obligation system, we aim to provide a fresh start for taxpayers whose businesses or livelihoods are threatened by delinquencies,” adding, “We will move away from uniform, collection-focused delinquency management and shift to a tailored system that considers payment ability, so that taxpayers can experience a more compassionate and considerate tax administration.”

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