We split lesson fees with instructors under a revenue-share incentive system — how do I report taxes on that?
If you pay instructors a percentage of revenue under an incentive system, first confirm whether the instructor is settled as a business-income earner (3.3%). If so, you as the director must withhold 3.3% of the amount paid and file/pay it by the 10th of the following month. However, if the instructor works on a fixed schedule, reports to the academy regularly, and is directed by you, the substance may actually be employment, so it is important to classify based on the actual working arrangement rather than the contract wording.
The first thing to decide — academy registration or private tutor registration
The filing system itself differs depending on your operating scale and form
If it is a small-scale individual lesson operation, register as a private tutor
If you do not hire separate instructors and the director alone gives lessons to a small number of students at home or in a practice room, you commonly register with the local education office as a private tutor. In this case, you file comprehensive income tax as business income.
If you hire instructors or teach many students, academy registration is required
If you hire multiple instructors or teach many students in an academy format, you need to register as an academy under the Act on the Establishment and Operation of Academies and Private Tutoring. A registered academy is a VAT-exempt educational service.
Tax structure characteristics of arts & sports academies
Key expense categories
Must-read for arts & sports academies
Sort instruments, materials, and instructor fees by category to save on taxes
Sorting each item correctly, from high-value equipment to instructor fees, reduces unnecessary tax
Long-term fixed assets — instruments/audio equipment/flooring
Practice/performance equipment: pianos, orchestral instruments, audio mixers
Facilities: dance flooring, soundproofing
Anything over 1,000,000 KRW per unit is classified as a depreciable asset and must be expensed gradually over its useful life.
Consumables — practical materials
Paint, canvas, sports consumables, and similar items are expensed in full at the time of purchase. However, since the academy business is VAT-exempt, you cannot claim a separate input VAT credit.
Personal service costs — lesson instructor incentives
Revenue-share (incentive) instructors are generally subject to 3.3% withholding as business income, but if they work fixed hours and receive work direction from the director, employee status may be recognized, so classify based on the actual working arrangement.
Operating form — private tutor vs. academy registration
If you teach a small number of students alone without hiring instructors, you are a private tutor; if you hire instructors or teach many students, academy registration is required, and the filing system differs.
| Category | Examples | Tax treatment |
|---|---|---|
| Long-term fixed assets | Instruments, audio equipment, dance flooring | Depreciated if over 1,000,000 KRW |
| Consumables | Practical materials such as paint/canvas | Expensed in full immediately (no input VAT credit) |
| Personal services | Lesson instructor incentives | 3.3% withholding or employment income (employee-status review needed) |
| Operating form | Private tutor vs. academy registration | Filing system differs by scale |
Frequently Asked Questions
Check out other academy types too
Foreign Language Academy
Tax treaty exemption for native-speaker instructors, certified test-prep classes
Vocational & Certification Academy
Cooking/baking/beauty practical materials expense treatment
Exam Prep & Tutoring Academy
Instructor fee withholding, prepayment management, tuition refund tax treatment