If we run both a physical store and an online shop, how do we manage revenue?
Yes, you can run both an online shop and a physical store, but you need to track revenue and inventory separately by channel to file VAT accurately and manage inventory losses properly. Sales staff are filed as employment income if regularly employed, or as business income with 3.3% withholding if contracted per session, and the cost of samples or gifts-with-purchase given to customers free of charge is deductible as a marketing expense or supplies expense.
The Trickiest Part — Expiration Inventory and Sample/Gift Handling
Managing expiration dates and processing free marketing giveaways correctly are the key issues in cosmetics
Dispose of Expired Cosmetics with Supporting Documentation
When you dispose of cosmetics past their expiration date, keeping documentation such as a disposal confirmation or photos lets you record it as an inventory loss. Removing inventory from the books arbitrarily without documentation may be mistaken for unreported revenue.
Giving Away Samples/Gifts Isn't Revenue — But the Cost Is Deductible
Samples or gifts-with-purchase given to customers free of charge aren't recognized as separate revenue, but the cost of goods for those items is still properly deductible as a marketing expense or supplies expense.
Income Structure Features of Cosmetics & Beauty Retail
Key Expense Items
Must-Know for Cosmetics & Beauty Retail
Split Store Fixtures & Inventory Management by Category to Save on Taxes
From display cases to sample/gift-with-purchase costs, categorizing each item correctly is what cuts unnecessary tax
Long-Term Fixed Assets — Equipment Subject to Depreciation
Store fixtures: display cases, store lighting
Store equipment: POS system, tester display units
Once a per-unit purchase exceeds KRW 1 million, it's classified as a depreciable asset and must be expensed over its useful life.
Cost of Cosmetics/Beauty Goods — Inventory Asset Management
The cost of cosmetics and beauty goods is tracked as inventory at purchase and recorded as cost of goods sold when sold. Given their short shelf life, regular physical counts and disposal management are essential.
Personal-Service Costs — Sales-Staff Labor Costs
Sales staff are filed as employment income if regularly employed, or as 3.3% withholding business income if contracted per session.
Sample, Gift, and Marketing Costs
The cost of samples and gifts-with-purchase given to customers is expensed in full as a marketing or supplies expense at the time incurred.
| Category | Typical Examples | Tax Treatment |
|---|---|---|
| Long-term fixed assets | Display cases/lighting, POS, tester units | Depreciated once over KRW 1M |
| Cost of goods purchased | Cosmetics/beauty items | Tracked as inventory, loss recognized on expiration disposal |
| Personal service | Sales-staff labor costs | 3.3% withholding or employment income |
| Samples/gifts | Free samples, gifts-with-purchase | Expensed immediately (marketing cost) |