[SME Regulation Site④] Online Business 'Shaken' Due to Offline Address

[Planning] Visiting the Regulatory Site for SMEs
"Online-Based Small Business Owner Registration Standards Need Improvement"

Small Business Online Business (Image=Getty Images Bank)

[Asia Economy Reporter Kim Cheol-hyun] One of the most important things for small and medium-sized merchants selling products through large online platforms is their "address." Although online business is characterized by the ability to work from home, cafes, or anywhere with just a laptop, in reality, it is impossible to operate without an offline physical address. The irony of conducting business online but having to be rooted offline stems from business registration requirements. The problem is that online platforms limit the number of products a single business operator can sell, so to increase revenue, multiple business registrations are necessary, but the criteria for address registration are ambiguous. Depending on the tax office official in charge, multiple business registrations at the same address may or may not be allowed. This is why online small merchants are still searching for offline addresses.

According to the industry on the 14th, under the current Value-Added Tax Act, business operators must register their business address with the relevant tax office, but since specific criteria for address registration are not established, whether additional business registrations at the same address are allowed depends on the judgment of the official. Kim Guk-tae, CEO of EumLogics, said, "The criteria for business location addresses vary by tax office. In less congested areas, they may allow 3 to 6 registrations at one address at once, but in congested areas, only 1 or 2 are permitted."

The industry explains that as the number of small merchants doing online business increases, such ambiguous criteria create business difficulties. The case where additional business registration is impossible is interpreted as allowing only one business per address. Using shared offices or installing partitions in officetels can sometimes be recognized as new business registration addresses. Because of this, some rent shared office spaces divided into the smallest possible units or lease as little as 1.5㎡ to register a business. Since these are considered non-resident offices, it is essentially paying for the address only. From the small merchants’ perspective, this means bearing unnecessary rental costs.

The reason online small merchants need multiple business registrations is that large online platforms limit the number of products registered per business operator to reduce product quality degradation and consumer disputes amid intensified competition. The number of registered products directly affects sales for small merchants. To sustain and grow their business, multiple business registrations are necessary. CEO Kim said, "Because the number of products per business is limited, the income that can be generated under one business is also limited, so they have no choice but to increase business registrations. In many cases, up to 70 to 80 registrations are made due to the nature of the industry."

In online distribution, there are cases where offline space is not needed at all. This has been enabled by the activation of various startup methods such as purchasing agency services and matching domestic consumers with overseas sellers. Most of the business, including sales network operation and customer service, is conducted online. CEO Kim explained, "Some small merchants buy goods overseas or domestically and sell them online, and in the case of overseas direct purchase agency businesses, they do not keep inventory but ship directly from overseas upon order."

The industry insists that the ambiguous criteria for business registration addresses should be revised to allow additional business registrations at the same address for online distribution operators. Especially as the number of online small merchants increases, the concept that a business must have a physical address should change. CEO Kim said, "For businesses that do not require physical space, it is necessary to discuss removing the address criteria for business registration."