Tax Guide for Auto Repair Shops | Insurer Settlements, Parts Input-VAT Credits

Q: When do we recognize insurer accident-repair fees as revenue?

Revenue is recognized based on when the repair is completed and billed to the insurer. Since there's often a lag before the actual deposit, recording revenue by the completion/billing date rather than the deposit date helps prevent filing errors.

Q: If we pay another mechanic to handle a repair, how do we file that payment?

If you pay an outside technician per job for a repair, and it qualifies as personal services, you must withhold 3.3% and file it by the 10th of the following month. If they work on a regular, ongoing basis, they may need to be treated as an employee.

Q: How do we expense the cost of parts?

The cost of parts and materials used in a repair is deductible as cost of goods sold or a supplies expense. Receiving a tax invoice when purchasing from a parts supplier also gets you the input VAT credit, so it's more favorable to use suppliers who issue tax invoices rather than pay in cash.

Q: Is the cost of disposing of waste oil or waste tires also recognized as an expense?

Yes, the cost of outsourcing disposal of waste oil, waste tires, and similar materials from operating an auto repair business is recognized as a business-related expense. Keep the disposal company's receipt or contract on file.

Can we recognize accident-repair fees from an insurer as revenue based on the deposit date?

No, insurer accident-repair fees should be recognized as revenue based on when the repair is completed and billed to the insurer, since there's often a lag before the actual deposit — recording revenue based on the deposit date instead of the completion/billing date can lead to filing errors. Purchasing parts from a supplier who issues a tax invoice gets you the input VAT credit, and we recommend withholding 3.3% on payments made per job to an outside technician and filing it.

The Trickiest Part — Insurer Accident-Repair Settlements

The settlement flow differs from ordinary repairs, making it easy to miss the correct revenue-recognition timing

The Basis Is Completion, Not the Deposit Date

Insurer accident-repair fees are often billed to the insurer after the repair is completed, with a lag before the actual deposit arrives. Recording revenue based on the deposit date rather than the actual point of supply can create a mismatch and lead to filing errors.

Prioritize Suppliers Who Issue Tax Invoices

Purchasing parts from a supplier who issues a tax invoice also gets you the input VAT credit, making it more tax-favorable than a cash purchase from a supplier who issues a tax invoice.

Income Structure Features of Auto Repair Shops

General repair revenue and insurer accident-repair settlements are mixed together

Parts/materials purchases make up a large share of costs, so managing purchase documentation is central

Using subcontracted technicians and outside labor is common

Key Expense Items

Parts and materials costs (cost of goods sold)

Depreciation on lifts and repair equipment

Subcontracted technician labor costs (3.3% withholding)

Waste-oil and waste-tire disposal costs

Must-Know for Auto Repair Shops

Split Repair Equipment & Parts by Category to Save on Taxes

From lifts to subcontracted technician pay, categorizing each item correctly is what cuts unnecessary tax

Long-Term Fixed Assets — Equipment Subject to Depreciation

Repair equipment: car lift, wheel-alignment equipment
Diagnostic equipment: OBD scanner
Tools & equipment: air compressor, welder, tire changer

Once a per-unit purchase exceeds KRW 1 million, it's classified as a depreciable asset and must be expensed over its useful life.

Parts, Consumables & Waste Disposal — Immediate Expense

Engine oil, filters, consumable parts, and waste-oil/tire/battery disposal costs are expensed in full at the time of purchase or payment. Keep the waste-disposal company's contract and receipts on file.

Personal-Service Costs — Subcontracted Technician Withholding

Payments to a subcontracted technician hired per job must be withheld at 3.3% as business income and filed by the 10th of the following month. If they work on a regular, ongoing basis, they may need to be treated as an employee.

Insurer Settlement & Invoicing

Recognize insurer accident-repair revenue and issue the tax invoice based on the completion/billing date, and it's safest to reconcile billed and deposited amounts separately in case of settlement delays.

Category	Typical Examples	Tax Treatment
Long-term fixed assets	Lift, wheel-alignment, diagnostic equipment	Depreciated once over KRW 1M
Parts, consumables & waste disposal	Engine oil/filters, waste-oil/tire disposal	Fully expensed immediately at cost
Personal service	Subcontracted repair technicians	3.3% withholding, filed by the 10th of next month
Insurer settlement	Accident-repair billing/settlement	Revenue recognized at completion/billing date

Frequently Asked Questions

When do we recognize insurer accident-repair fees as revenue?

If we pay another mechanic to handle a repair, how do we file that payment?

How do we expense the cost of parts?

Is the cost of disposing of waste oil or waste tires also recognized as an expense?

Check Out Other Specialties

Bicycle & Micromobility Repair

E-scooter battery waste disposal, shared-service repair contracts

Phone & Electronics Repair Shop

Documenting non-genuine parts purchases, separating manufacturer-authorized repair fees

Laundry & Dry Cleaning

Liability for damaged laundry, franchise fee processing

Back to the Repair & Maintenance Tax Hub

Tax Guide for Auto Repair Shop Owners