“Persons under Article 2(3)” are non-juristic organizations (unincorporated associations or groups) that, for Korean income-tax purposes, are treated as one resident if their principal office or place of effective management is in Korea, or as one non-resident otherwise. This status is separate from “entities deemed corporations” under the Framework Act on National Taxes. In practice, these groups often obtain a unique identification number for tax administration and operate under internal rules (charter/bylaws) that authorize a representative to contract on the entity’s behalf.
Statutory text (exact quotation)
Article 2 (Tax Liability)
(3) This Act shall apply to non-juristic organizations, other than organizations deemed corporations under Article 13 (4) of the Framework Act on National Taxes (hereafter referred to as “entities deemed corporations”), among non-juristic entities under Article 13 (1) of the same Act, considering them as one resident where they have a principal office or substantive place of business management within the Republic of Korea, and as one nonresident in other cases: Provided, That in cases falling under any of the following subparagraphs, each member of the relevant entity shall, according to income classifications, be obliged to pay income tax or corporate tax [limited to cases where the members thereof are corporations (including an entity deemed as a corporation) under the Corporate Tax Act; hereinafter the same shall apply in this Article] on its income respectively pursuant to this Act or the Corporate Tax Act. <Amended by Act No. 10408, Dec. 27, 2010; Act No. 11611, Jan. 1, 2013; Act No. 16104, Dec. 31, 2018>
- Where profit distribution ratios among the members are fixed and the profit distribution ratios by member are confirmed;
- Where profit distribution ratios among the members are not fixed, but it is confirmed that, in fact, profit is distributed to each member.
What this entity type can do
An Article 2(3) entity may conduct a wide range of collective activities—community management, industry associations, resident or owner groups, alumni bodies, clubs, and other cooperative initiatives. It can collect dues, procure services, manage shared assets or facilities, and enter into agreements through its authorized representative. If it conducts commercial sales or fee-based programs, those transactions are recognized for tax purposes under the Article 2(3) rules.
What to be aware of when contracting
- Capacity & authority: Verify the charter/bylaws and ensure the named representative (or manager) has authority to sign and bind the group.
- Profit attribution: If profits are distributed to members (either by fixed ratios or in fact), tax liability can shift to the members for the confirmed portions; otherwise, the entity is taxed as one resident/non-resident. Draft contracts, invoicing, and settlements accordingly.
- Activity characterization: For fee-based services, document whether they are ongoing business activities, one-off events, or cost-sharing arrangements—this affects withholding, receipting, and year-end reporting.
Licenses and permits
The organizational form does not grant any business license. Licensing depends entirely on the actual activity: operating an academy, running welfare/health services, handling food and beverage, managing hazardous materials, or offering other regulated services will trigger the corresponding sectoral approvals. When contracting for regulated operations, request the underlying permit/registration that covers the service, location, and period.
Accounting and income-tax requirements
Default posture: The entity is treated as one taxpayer (resident or non-resident) and must comply with relevant filings (e.g., income tax on taxable income; VAT if it makes taxable supplies).
Member-level taxation: If profit distribution ratios are confirmed (in whole or part), the confirmed portions are taxed to the members; unconfirmed portions remain taxable at the entity level (per the statute’s allocation logic).
Books & records: Maintain clear bookkeeping to distinguish member contributions/dues, cost-sharing, and taxable receipts. When activities resemble a regular business, expect the usual compliance (issuance of appropriate evidence, withholding where applicable, and periodic returns).
Cross-border scenarios: If the group is a foreign non-juristic investment vehicle that is the de facto beneficiary of Korean-source income, special rules can deem it one non-resident for income-tax purposes.