Virtual Offices and Shared Offices — Are There Tax Audit Risks After Business Registration? Administrative Guide on Closure Cases, Tax Office Address Change Procedures, and Reissuance of the Business Registration Certificate

Introduction

In recent years, the entrepreneurial environment has changed rapidly. Following COVID-19, remote work and telecommuting have become more widespread, and small-scale entrepreneurs, freelancers, and startup CEOs seeking both cost savings and efficiency have increasingly turned to virtual offices and shared offices. The appeal is clear for those in the early stages of launching a business — the ability to rent only an address or use space on demand.

However, if you choose a virtual office or shared office for the purpose of obtaining business registration based solely on its affordability or ease of setup, you could face severe losses during future tax audits or National Tax Service (NTS) inspections. This guide provides a thorough and practical explanation of current NTS field administration, revised tax law provisions, actual closure cases, and administrative procedures that must be understood now.

The Concept of Virtual Offices and Shared Offices, and Changing Usage Patterns

A virtual office is a type of office where you do not physically use a workspace but rent only the business address. This was once an attractive option for startups, freelancers, and sole proprietors with limited initial capital before business registration. However, as the NTS has tightened scrutiny of actual occupancy and business operations, new regulations have been implemented.

Shared offices have also evolved in various forms. Traditionally, multiple small businesses would share time and seating in one company’s office space. However, some shared offices now operate in a manner similar to virtual offices, guaranteeing only minimal access. This has blurred the line between “legal registration” and “illegal registration.”

Over the past few years, the number of business registrations using shared or virtual office addresses has increased dramatically, prompting the government to step up monitoring and oversight. In particular, cases of “paper companies” — where no real business is conducted — abusing startup tax credits and other benefits have surged. If you cannot prove the existence of a substantive business, all tax incentives will be clawed back, and your future business operations will face disadvantages.

Legal Requirements for Business Registration — The Importance of the “Substantive Place of Business”

As of 2024, under current tax law, the NTS considers a substantive place of business the core requirement for business registration.

A substantive place of business must satisfy all of the following:

• Possess the human resources (owner, employees) and physical facilities (desks, computers, copiers, etc.) necessary for business.
• Be a location where actual work is performed.
• During on-site inspections, it must be possible to regularly verify the representative entering or working there.
• Documentary evidence such as tax invoices, contracts, mail or parcel deliveries, and credit card transactions issued from the business address must exist.
• A substantial portion of key records (finance, accounting, sales, etc.) should be managed at the location.

Virtual and Shared Offices — Main Red Flags for Tax Audit Targeting

Business owners using shared or virtual offices may become NTS targets if they exhibit the following behaviors:

• On-site inspections or routine tax audits reveal that the representative rarely enters the registered business address.
• The business location has little or no operational history such as transactions, bank account activity, credit card payments, client meetings, or contract signings.
• The same address hosts dozens or hundreds of corporations that repeatedly close and re-register.
• The business owner applies for tax benefits (income tax or VAT reductions, etc.) within days or a month of registration.
• The tax office requests proof of entry or work (electronic entry logs, CCTV footage, photos of office equipment) and the owner cannot provide it.

In such cases, if an inspection confirms the business was registered for formality’s sake, the NTS can impose administrative closure, claw back all tax benefits, and levy penalties of around 40%.

Closure Cases and Recent Strong Actions by the Tax Authorities — The Fate of Newly Registered Corporations

Case 1: “Virtual Registration to Exploit Startup Tax Reduction”

Mr. B, an IT sole proprietor, rented a low-cost virtual office found online to register his business. He initially received multiple benefits — a startup income tax reduction (up to 50% for five years for entrepreneurs after employment), VAT reduction, and access to policy loans. However, during an NTS audit, it was confirmed there were no records of entry, transactions, mail, or operations. As a result, he was ordered to return all reduced income tax and VAT, pay penalties of up to 40%, and was restricted from re-registering for two years unless he established an actual place of business.

Case 2: “Entire Shared Office Closed”

In Building C, where 60 companies were registered at the same address, Mr. D also rented an address for registration. Following a large-scale NTS inspection, all businesses without verified entry or activity were administratively closed and had their benefits clawed back. Pure shell companies with no internal transactions were struck from the register without prior notice based on the office manager’s report. Even legitimate tenants suffered significant collateral damage.

Case 3: “Failure to Change Address After Closure Led to Legal Liability”

Company E operated legitimately from a shared office but closed one of its locations due to financial difficulties. However, it failed to update its registered business address, resulting in joint liability (for arrears, penalties, etc.) being applied to its head office and other branches.

These examples show that even seemingly minor administrative steps — such as address changes or closure filings — can create serious risks.

Essential Measures to Minimize Risks After Business Registration

1. Maintain Consistent Entry and Work Records
   Keep both physical and electronic records, such as electronic entry card logs, visitor logs, entry photos, contracts, tax invoices, and transaction statements issued from the office.
2. Retain Proof of Actual Business Use
   Periodically document business activities in the office (photos, videos), receipt of parcels/mail, meeting schedules, and visitor consultations.
3. Use Business Bank Accounts and Cards
   Ensure there are regular business-related transactions in the vicinity of the office — e.g., payments at restaurants, gas stations, copy centers — to demonstrate activity centered around the location.
4. Manage Personnel and Employment Insurance
   Even for small corporations, ensure the representative or staff regularly work at the location, keep entry logs, and maintain payroll and 4-major social insurance records.
5. Systematically Manage Evidence
   Organize and periodically review all records to preempt any suspicion during inspections or audits.

Tax Office Address Change and Business Registration Certificate Reissuance — Procedures and Practical Tips

1. File “Change of Business Location” with the Competent Tax Office
   • Submit via Hometax (electronic filing) or visit the tax office with jurisdiction over the business location.
   • Required documents: Business location change report, lease agreement (or consent to use), building register, etc.
   • For corporations: Board resolution or minutes may be required.
   • The change is reflected immediately on the business registration certificate. All tax invoices, transactions, and mailing addresses should match to prevent misunderstandings or disadvantages.
2. Reissue of Business Registration Certificate
   • Required when the business location changes, lease agreement details are updated, or the legal representative changes. Can be done instantly via Hometax or in person at the tax office.
   • Required documents: Business change report receipt, ID, lease agreement, etc.
   • For re-registration after closure, be prepared to prove that the new site is an actual place of business.
3. Response to Administrative Closure Risk
   • If the NTS notifies you of administrative closure due to inspection findings (lack of entry, unavailability during inspection, absence of entry records), you have 60 days to submit evidence.
   • Failure to provide adequate proof results in closure, clawback of all benefits, penalties, and classification as a “problematic business” by the tax office.
   • For objections or re-registration, you must establish a substantive business location, complete with lease, personnel and equipment, work records, and operational evidence.

Checklist for Virtual Office and Shared Office Business Owners

• If you need an address for registration, use one where actual entry, income generation, and main business operations occur.
• Irregular entry (e.g., once a week or once a month), delegating all work to others, or pausing operations while keeping only the address significantly increases the risk of detection during inspections.
• When receiving startup tax credits or other government policy benefits, ensure that substantive business operations, income generation, and consistent income tax filings are maintained in accordance with the conditions.

Conclusion — Evidence of Actual Business Operations Is the “Best Shield”

Legally, business registration through a virtual or shared office is not automatically illegal. However, if you exploit the system without actual use for mere cost savings or convenience, such actions are highly risky under current tax audit trends and NTS practices.

Since 2024, standards for verifying substantive business locations have become stricter, and penalties for non-substantive registration have increased. Without careful prior management, both entrepreneurs and small business owners face serious risks, including clawback of benefits, closure, and future disadvantages.

Address changes, closures, and other administrative matters should be handled meticulously, and rapid responses via Hometax electronic filing and the competent tax office are essential to minimizing risks.

Moving away from the practice of renting only an address, if you maintain transparency in your business operations and carefully manage evidence, virtual and shared offices can still be used safely and legally.

It is hoped that this guide will serve as a reliable reference for evaluating business registration addresses, preparing for tax audits, and handling all related administrative processes in practice.