[Exclusive] "No Mercy for Substance-less One-person Celebrity Corporations"... Ruling Party and Government Signal Strong Sanctions

Song Ga-in and Ryu Junyeol: One-Person Agencies With No Signage or Staff
Yang Moonseok: "Thorough Review" and Legal System Improvements Underway
Tax Authorities: "Highest Tax Rate Applied if Substance Over Form Principle Is Violated"

A building near Sinsa Station in Gangnam, Seoul serves as the registered address for singer Song Ga-in's private corporation, Gain Dal Entertainment. Upon visiting the site, it was found that the building is actually the headquarters of her agency, JG Star. A cafe operates on the first floor, while most of the other floors are used by the agency. Although a large JG Star sign hangs at the entrance, there were no visible indications of Gain Dal on the mailboxes or information boards. The corporation had not registered as a pop culture and arts planning business, but only recently expressed its intention to apply. A representative from the management company stated, "Gain Dal uses the fourth floor, and there are no issues."

The building of JG Star, the agency and address of singer Song Ga-in's one-person planning company, Gain Dal Entertainment. Photo by Lee Iseul

According to the registry confirmed on September 25, actor Ryu Junyeol established 'Deep Breathing' under his mother's name in 2018, changed its name to '9and10' in 2023, and transferred the ownership to himself. The corporation's address is registered at an apartment in Gwangjin-gu, Seoul. After signing an exclusive contract with the management company UAA on June 25 this year, he registered the corporation as a pop culture and arts planning business just five days later, on June 30. This means he secured a private corporation despite already having an agency.

Singer Kim Wansun established a private corporation with her apartment in Yongin as its headquarters, yet continued broadcast and performance activities for five years without registering as a pop culture and arts planning business. While it is legally permissible to use one's residence as a headquarters, it is difficult to consider this as meeting the requirements for an independent office. At the address of singer Sung Sikyung's private company, SK Jaewon, a tax and accounting consulting firm was found to be operating. Sung Sikyung's side explained, "We share the office and handle tax work together," but the consulting firm denied any association.

Entertainment Agencies in an Administrative Blind Spot

Unregistered entertainment agencies are, in effect, no different from unlicensed businesses. According to Asia Economy's investigation, corporations that are either unregistered or only formally registered are found to be in an administrative blind spot.

An official from the Ministry of Culture, Sports and Tourism explained, "We do not have the authority to directly impose sanctions such as business suspension or fines on unregistered agencies. Only criminal penalties exist, so unless there is a formal complaint, it is difficult to initiate an investigation." Currently, the ministry responds primarily to tips received through the Korea Creative Content Agency's counseling hotline. If a report is received, the ministry conducts its own investigation and, if a problem is identified, formally requests a police investigation. However, until December 31, a guidance period is in place to encourage registration, and with only two or three staff members in charge, active investigation or monitoring is virtually impossible.

There is also no obligation to check registration certificates at public events. A ministry official said, "We only verify registration status during processes such as recommending the employment of foreigners or certain service contracts, but there are no separate verification rules for participation in performances or events." As a result, unregistered or nominally registered unlicensed businesses have faced no restrictions in appearing on government or local government stages.

The head of one entertainment agency stated, "The practice of making exceptions for celebrities must end," and pointed out, "There needs to be a review of unlicensed operating periods and a comprehensive survey of unregistered businesses." Related discussions are also underway in the National Assembly. Yang Moonseok, a member of the Culture, Sports and Tourism Committee from the Democratic Party of Korea, emphasized, "The system must be thoroughly reviewed and sanctions strengthened for violations." Yang is preparing to supplement the relevant legal framework. A ministry official also commented, "Because entertainment agencies are personnel-based organizations, it is difficult to determine whether they are actually carrying out planning work," adding, "We are aware of the current issues and are considering ways to address them."

Celebrity Corporations: Tax Evasion or Legal Tax Saving?

More important than whether an agency is registered is the 'substance of the corporation.' Tax experts cite the following criteria for determining substance: the clarity of the contracting parties, the independence of a corporation established with 100% celebrity ownership, the actual provision of services stipulated in the contract, and whether the corporate entity is being used for tax avoidance. Key factors include how the name on exclusive or advertising contracts was changed and whether there is evidence that the corporation actually managed or supported the artist's activities.

The primary reason celebrities establish one-person agencies is the difference in tax rates. The highest personal income tax rate is 45%, while the corporate tax rate tops out at 24%. In particular, income up to 20 billion won is subject to a 19% tax rate, resulting in tax differences amounting to billions of won.

If a celebrity with an existing agency sets up a separate one-person corporation and pays only corporate tax, fairness issues arise. The National Tax Service plans to apply the highest tax rate to the profits of one-person agencies as personal income, in accordance with the principle of substance over form. This means that if a corporation files only for corporate tax without any personnel or physical facilities, it may be subject to a tax audit.

Ahn Wonyong, CEO and tax attorney at Dasol Tax Corporation, stated, "There is nothing wrong with a celebrity establishing a corporation to reduce taxes in itself," but added, "If a newly established corporation records revenue as corporate sales despite not actually supporting the celebrity's activities, it could be considered tax evasion." He further emphasized, "It is necessary to prove that management services not provided by the existing agency were actually delivered by the one-person corporation. Without such evidence, the claim of 'corporate sales' loses credibility."