Income Deduction Application for Individual Investment Association Members
A guide for LP investors on how to apply for income deductions on contributions to Individual Investment Associations, including required documents and key considerations.
Income Deduction Application for Individual Investment Association Members
Participating in an Individual Investment Association (hereinafter "Association") as an LP entitles you to income deduction benefits. However, unlike direct investment, claiming income deductionsIncome Tax Deduction
Tax deduction system for venture enterprise investment: 100% for up to 30M KRW, 70% for 30-50M KRW, 30% for over 50M KRW. through an Association involves a few additional steps. This article walks you through the process of applying for income deductions as an Association LP, step by step.
The Basic Principle: Direct Investment vs. Association Investment
With direct investment, the investor applies for an income deduction based on the date they directly paid funds into a venture enterprise.
Investment through an Association works differently. The income deduction is applied not based on when the LP contributed capital to the Association, but based on the amount the Association actually deployed into venture enterprisesVenture Enterprise
An enterprise certified under the Special Act on Fostering Venture Enterprises, recognized for its technology and growth potential, receiving various tax, financial, and human resource benefits..
For example, if an LP contributed KRW 30 million to an Association in January 2025, but the Association only deployed KRW 20 million into venture enterprises during 2025, the income-deductible amount for 2025 is KRW 20 million. The remaining KRW 10 million (not yet deployed) becomes eligible for deduction in the year the Association actually makes that investment.
This is the most significant difference from direct investment, soStock Option
Stock purchase rights granted to venture enterprise employees. Up to 200M KRW/year in exercise gains are tax-exempt, with optional separate taxation. LPs must confirm the Association's investment deployment schedule with the GPGeneral Partner / Limited Partner
GP (General Partner) manages the fund; LP (Limited Partner) provides capital as an investor..
How Investment Confirmation Certificates Are Issued: Through the Association
With direct investment, the investor applies directly to KBAN for an investment confirmation certificateInvestment Confirmation Certificate
Document confirming investment in a venture enterprise. Required for income deduction applications.. With Association investment, the Association (GP) applies to KBAN to obtain investment confirmation certificates for each LP.
Certificate Issuance Flow
Venture enterprise investment deployed (GP)
↓
Report Association investment status to KBAN (GP)
↓
Apply to KBAN for LP-specific investment confirmation certificates (GP)
↓
KBAN review and approval
↓
Investment confirmation certificates issued per LP
↓
GP delivers certificates to each LP (GP → LP)
↓
LP applies for income deduction through Hometax
The GP's role is critical. The LP must request the investment confirmation certificate from the GP, who then processes it — only then can the LP apply for the income deduction.
When to Apply for the Income Deduction
The timing for an Association LP's income deduction application is the same as for direct investment.
Apply in May of the year following the year the Association deployed its investments (during the global income tax filing period).
- Association invests in venture enterprises during 2025 → Claim deduction in May 2026 global income tax filing
- Capital contributed in 2024 + Association deploys investment in 2025 → File in May 2026
LPs should receive a "notice of income deduction details" from the GP at year-end. This notice specifies the amount the Association invested during that year and the LP's proportionate share of the investment based on their ownership percentage.
Required Documents
Mandatory Documents
1. Investment Confirmation Certificate (issued by KBAN) Receive the investment confirmation certificate issued through the Association from your GP. The certificate includes: - LP's name and resident registration number - Association name and registration number - LP's attributable share of the deployed investment amount - Status of investee companies (list of companies the Association has invested in) - Investment confirmation certificate issuance number
2. Individual Investment Association Capital Contribution Certificate A document issued by the Association's GP, stating the LP's contribution amount, contribution date, and ownership percentage. Used as supplementary documentation when filing through Hometax.
3. Copy of Individual Investment Association Registration Certificate A copy of the Association's registration certificate registered with the Ministry of SMEs and Startups. This proves the Association is properly registered.
Supplementary Documents
- Capital contribution payment evidence (bank transfer records, etc.)
- Copy of Association bylaws (submitted upon request)
How to File Through Hometax
After receiving the investment confirmation certificate, apply for the income deduction when filing your global income tax return through Hometax.
Filing Steps
Step 1: Access and Log in to Hometax Log in to Hometax (www.hometax.go.kr) using a certified digital certificate or simple authentication.
Step 2: Complete the Global Income Tax Return Select 'Filing/Payment' > 'Tax Filing' > 'Global Income Tax' > 'Standard Filing (Regular Filing)'.
Step 3: Enter Income Deduction Items On the income deduction input screen, select 'Venture Investment Income Deduction'.
Investment Method: Select 'Individual Investment Association' Investment (Contribution) Amount: Enter the LP's attributable investment amount as stated on the KBAN investment confirmation certificate Certificate Number: Enter the number on the investment confirmation certificate
Step 4: Attach Documents Attach the investment confirmation certificate, contribution certificate, etc. as files. If the Hometax system automatically links KBAN data, processing may proceed without attachments.
Step 5: Confirm Deduction Amount and Submit Verify the income deduction amount calculated by the system and submit the final return.
Important Note: 3-Year Holding Requirement
If you withdraw from the Association or transfer your equity interest within 3 years after receiving the income deduction, additional taxes will be assessed.
However, the starting point of the '3-year holding' period is important. For Individual Investment Associations, the 3-year period begins from the date the Association actually deploys its investment into the venture enterprise, not from the date the LP made their capital contribution.
This is because there may be a time lag between the LP's contribution and the Association's actual investment deployment. For example, if you contributed capital in March 2024 but the Association made its first investment in August 2024, the 3-year holding period starts in August 2024.
Tax Assessment for Disposal Within 3 Years
If you dispose of your equity interest or withdraw from the Association within 3 years, you must pay taxes and interest (10.95% per annum) on the income deduction you claimed. This is called 'ex-post management assessment of income deductions.'
However, the following exceptions apply: - When the Association dissolves due to expiration of its operating period - Unavoidable circumstances such as bankruptcy of an investee company
Special Situations in Association Investment Income Deductions
When Association Investment Has Not Been Deployed or Is Delayed
If the LP's contributed capital has not yet been invested into a venture enterprise (currently held in cash), no income deduction can be claimed for that amount. Apply for the income deduction in the year the investment is deployed.
When the Association Invests in a Non-Qualifying Company
If the Association invests in a general company rather than a venture enterprise, the income deduction does not apply to that investment amount. LPs must confirm with the GP that all of the Association's investments are being made in qualifying venture enterprises.
When Participating in Multiple Associations Simultaneously
If you participate as an LP in multiple Associations simultaneously, obtain separate investment confirmation certificates from each Association and apply for the income deduction on the combined total. However, the combined deduction amount must not exceed 50% of your total comprehensive income.
Income Deduction Is Maintained Even After the Association Dissolves
When an Association dissolves normally upon expiration of its operating period, previously claimed income deductions are not subject to assessment. The dissolution of the Association itself does not constitute a violation of the 3-year holding requirement. However, this only applies to investments that already satisfied the 3-year holding requirement before dissolution.
Practical Checklist
As an LP, verify the following to correctly apply for your income deduction:
- [ ] Receive the annual investment deployment status from the GP (at year-end or beginning of year)
- [ ] Request and receive the investment confirmation certificate (request from GP)
- [ ] Verify the LP's attributable investment amount on the investment confirmation certificate
- [ ] Apply for the income deduction on Hometax using the 'Individual Investment Association' method
- [ ] Confirm the starting date of the 3-year holding requirement (based on investment deployment date)
- [ ] Track and manage any carryforward deductions
Income deductions through an Individual Investment Association involve one more step than direct investment, but they offer the benefits of professional portfolio management and diversified investment. Smooth communication with the GP is the key to applying for income deductions on time.