“Yellow Umbrella” is the name of the small business and micro-enterprise mutual aid scheme run by the Korea Federation of SMEs. Contributions are deducted from business income under Article 86-3 of the Restriction of Special Taxation Act. The cap has four steps by business income — 6, 5, 4 and 2 million won — and when you later receive the money on closing the business it’s taxed as retirement income; cancel early and it’s other income. This sets out Article 86-3.
1. Business income of 40 million won or less: up to 6 million won a year; over 100 million won: up to 2 million won.
2. Property rental income is taken out — the deduction shrinks by that share.
3. Paid out on closure: retirement income. Cancelled before that: other income.
Four caps — Article 86-3(1)
| Business income | Annual cap | Worth noting (ours) |
|---|---|---|
| 40 million won or less | 6 million won | — |
| Over 40m up to 60 million won | 5 million won | — |
| Over 60m up to 100 million won | 4 million won | — |
| Over 100 million won | 2 million won | — |
The deduction is the smaller of the year’s contributions and the cap, multiplied by the share of business income left after subtracting property rental income. It can’t exceed business income minus rental income. Corporate representatives with total pay of 80 million won or less use wage income amount instead of business income.
Calculator
Updates as you type. The deduction is the smaller of payments and the bracket limit × (business income − rental income) ÷ business income, and can’t exceed business income minus rental income. Corporate representatives with total pay of 80 million won or less enter wage income amount instead. Tax saved depends on your rate, so it isn’t computed.
How much — our examples
| Example | Working | Worth noting (ours) |
|---|---|---|
| Business income 35m, paid 7.2m | 6 million won cap → 6 million won | The 1.2 million won over the cap isn’t deducted |
| Business income 50m (10m rental), paid 5m | 5m × 40 ÷ 50 = 4 million won | Cut by the 20% rental share |
| Business income 120m, paid 6m | 2 million won cap → 2 million won | — |
The figures are our examples. Whether you count as a micro-enterprise is in small business owner check.
Paying out and cancelling — Article 86-3(2)–(4), (7)
| Case | What the Act says | Worth noting (ours) |
|---|---|---|
| Income from the scheme | Treated as arising when actually received ((2)) | — |
| Paid out on closure etc. | Payout − cumulative contributions above what was deducted = retirement income ((3)) | Years of service set by Decree from membership |
| Cancelled before that | Refund − cumulative contributions above what was deducted = other income ((4)) | — |
| Cancelled, but retirement income | Members with 120+ months of payments cancelling for business deterioration, or for emigration etc. ((4) proviso) | Deterioration defined by Decree |
| Tax cap on cancellation | Limited to the refund ((7)) | — |
Both formulas subtract “contributions paid in excess of the amount actually deducted”. We read this as meaning money that never got a deduction isn’t taxed when it comes back; the deducted part is taxed later.
Checklist
- ☐ Which step is your business income in? The lines are 40m, 60m and 100m
- ☐ Rental income mixed in? The deduction shrinks by that share
- ☐ Corporate representative? Is total pay 80 million won or less?
- ☐ Over-cap payments get no deduction but aren’t taxed on the way out
- ☐ Early cancellation is other income — check the 120-month, deterioration and emigration exceptions
Questions that remain
Can employees claim it?
Paragraph 1 deducts from business income; the only wage-income case is a corporate representative with total pay of 80 million won or less. Employees’ usual deductions are in missed year-end deductions.
Does it expire?
The current Article 86-3 we read (text effective 18 September 2026) states no end date. Eligibility and payment rules sit in the SME Cooperatives Act and the Decree, which we didn’t set out.
Sources
- Korean law database (law.go.kr) — Restriction of Special Taxation Act Art. 86-3 — source (current text, effective 18 September 2026, Act No. 21467; checked 19 October 2026). Four caps, rental share and ceiling, wage-income rule for corporate representatives, timing of income, retirement- and other-income formulas, 120-month, deterioration and emigration exceptions, and the refund cap on cancellation tax.
- Not read. The Enforcement Decree (scope, deterioration test, years of service), SME Cooperatives Act Art. 115, and the Federation’s guidance.
- What we added. The “worth noting” column and the Korean everyday gloss.
Where to check further
- Korea Federation of SMEs (Yellow Umbrella) — eligibility, payments and cancellation.
- NTS Hometax — entering the deduction on the May return.
Written on 19 October 2026. The content is from the source; the glosses are ours.
