When we receive a full year's tuition up front, like for an intensive retake program, when should we report the tax on it?
Since an academy is VAT-exempt, there is no VAT filing obligation on receiving tuition itself. However, when calculating comprehensive income tax or corporate tax, the principle is to allocate revenue across the period over which classes are actually held, rather than recording the full amount as revenue upon receipt. Recording a prepayment as full revenue in the period received can distort profit and loss, and this is a point commonly checked in a tax audit, so we recommend allocating it accurately by month in your books.
Tax structure characteristics of exam prep & tutoring academies
Key expense categories
Revenue recognition matters especially for intensive retake program prepayments
A full year's tuition needs to be allocated across the period classes are held, not the period it was received
Allocate across the teaching period, not the receipt date
Even if you received a full year's intensive retake program tuition in one lump sum in March, when calculating comprehensive income tax or corporate tax, the principle is to allocate revenue by month across the period classes are actually held. Academies are VAT-exempt so there is no VAT timing issue, but this allocation is a point commonly checked in a profit-and-loss review during a tax audit.
A mid-term withdrawal refund is treated as a revenue deduction
Refunds made under the standards set by the Act on the Establishment and Operation of Academies and Private Tutoring are deducted from previously recorded revenue. Recording the refund reason, amount, and date gives you supporting evidence to explain the deduction if revenue is ever reviewed.
Must-read for exam prep & tutoring academies
Sort prepayments, instructor fees, and textbook costs by category to save on taxes
Sorting each item correctly, from intensive-program prepayments to instructor fees, reduces tax-audit risk
Long-term fixed assets — academy management system/interior
Operating equipment: attendance management system build-out, interior
Teaching equipment: electronic whiteboards, recording equipment
Anything over 1,000,000 KRW per unit is classified as a depreciable asset and must be expensed gradually over its useful life.
Consumables — textbook/mock-exam printing costs
Textbooks, mock exams, and printing costs are expensed in full at the time of purchase. Since the academy business is VAT-exempt, you cannot claim a separate input VAT credit.
Personal service costs — hourly vs. full-time instructors
An hourly instructor on a per-contract basis is subject to 3.3% withholding as business income; a full-time instructor who reports to work regularly is withheld monthly as employment income according to the simplified tax table.
Prepayments/refunds — revenue recognition timing management
A full year's tuition, such as for an intensive retake program, is allocated as revenue across the teaching period rather than the receipt date, and mid-term refund amounts must be deducted from revenue.
| Category | Examples | Tax treatment |
|---|---|---|
| Long-term fixed assets | Attendance system, electronic whiteboards, interior | Depreciated if over 1,000,000 KRW |
| Consumables | Textbooks, mock exams, printing costs | Expensed in full immediately (no input VAT credit) |
| Personal services | Hourly instructors, full-time instructors | 3.3% withholding or employment income |
| Prepayments/refunds | Intensive retake program full-year tuition | Allocated revenue by teaching period; refunds deducted from revenue |