How do I report wages if I hire a pastry chef or floor staff as a freelancer?
In principle, a pastry chef who works regularly should be treated as an employee for wage income purposes, while a freelance pastry chef contracted per job should be withheld at 3.3% as business income. Baking equipment like ovens and proofers is classified as a depreciable asset once a single transaction exceeds 1 million KRW and must be expensed over its useful life, and if you use tax-exempt agricultural/livestock ingredients like flour, butter, and eggs, it's also worth checking whether you qualify for the deemed input tax credit.
The Most Confusing Part — Spoilage Losses and Deposit Revenue Recognition
Given the industry's short shelf life, handling losses and managing prepayments correctly is key
Spoilage losses need documentation to be recognized
Desserts and bread discarded after expiring can be reflected as an inventory loss if you keep documentation such as a disposal confirmation or photos. Removing them from your books arbitrarily without documentation can be mistaken for missing revenue.
Cake deposits are recognized as revenue when completed and delivered
Deposits collected in advance for orders like birthday cakes should, in principle, be recognized as revenue when the cake is actually completed and delivered. Recognizing the full amount as revenue as soon as the deposit is received can be an accounting error, so manage it as deferred revenue instead.
Income Structure of Dessert & Bakery Cafes
Key Expense Items
Must-Read for Dessert & Bakery Cafe Owners
Split Your Baking Equipment & Ingredient Costs by Type to Save on Taxes
From ovens to cake deposit revenue, categorizing each item correctly cuts unnecessary tax
Long-Term Fixed Assets — Depreciable Equipment
Baking equipment: ovens, proofers, dough mixers
Display equipment: dessert display refrigerators
If a single transaction exceeds 1 million KRW, it's classified as a depreciable asset and must be expensed over its useful life.
Baking Ingredients — Reviewing the Deemed Input Tax Credit
Baking ingredients like flour, butter, eggs, and fruit are fully expensed at the time of purchase. If you use tax-exempt agricultural/livestock products as raw materials, also check whether you qualify for the deemed input tax credit.
Personnel Service Costs — Pastry Chef Wages
Pastry chefs and floor staff are reported as employment income if working regularly, or withheld at 3.3% as business income if contracted per job.
Cake Deposit Revenue Recognition
Deposits and down payments collected for pre-orders should, as an accounting principle, be managed as deferred revenue and then converted to revenue once the cake is completed and delivered.
| Category | Examples | Tax Treatment |
|---|---|---|
| Long-term fixed assets | Ovens/proofers/display refrigerators | Depreciate if over 1 million KRW |
| Baking ingredients | Flour, butter, eggs, fruit | Fully deductible at purchase, review deemed input tax credit |
| Personnel services | Pastry chefs, floor staff | 3.3% withholding or employment income |
| Deposits & prepayments | Cake pre-orders | Revenue recognized at completion & delivery |
Frequently Asked Questions
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