South Korea VAT Guide for Businesses

  • Post category:South Korea

When the value-added tax (VAT) in South Korea came into effect in 1977, the government there was able to combine eight earlier indirect taxes into a single, less complex charge.

All across the country, it is applied to the provision of goods and services at a standard rate of 10%, with the exception of those that are zero-rated or exempt.

Every company that provides goods or services to South Korean organizations or consumers, even those that are not for profit, must register for VAT there.

South Korea VAT Guide for Businesses

Additionally, for a company to register for South Korean VAT, the organization must have a physical office there.

Digital service providers, including application developers, are an exception to this rule because they can sell to South Korean customers without necessarily having an office there. These businesses must still register for VAT and pay the tax on all sales made to local ultimate customers.

It is feasible to handle the accounts remotely because the South Korean tax site is accessible online.

VAT REGISTRATION PROCEDURE IN SOUTH KOREA

Within 20 days of the start of business, a foreign taxpayer should visit the NTS Hometax website and submit an application for business registration.

Refer to South Korea business incorporation page to know more about the business registration process.

Requirements for Business Registration are –

  • Name, phone number, address, email address, and website address of the business operator or representative (when a corporate business operator conducts operations under a different name, the transaction name shall be given);
  • information about a company’s registration (such as the registered country, address, and registration number), the type of e-service, and the date the e-service was first offered in Korea;
  • Name of the tax agent, resident number or tax registration number, contact information, and email address (if one is employed);
  • Account number is required when a taxpayer establishes an account with a bank or communications company in order to be eligible for a VAT refund.

A competent tax officer reviews the applicant’s information (such as the presence of a genuine business or document omission) and issues a streamlined registration of business numbers within five days of application. The taxpayer will thereafter be advised of the number via email.

VAT PAYMENT DATE

VAT must be paid into a foreign exchange bank account designated by the Commissioner of the Korea National Tax Service. The VAT account number will be communicated to taxpayers (including their tax advisor) through an email address. The details are included in the section under “Basic Information of Simplified Business Operator.”

VAT must be paid in KRW. Taxpayers are permitted to pay VAT in USD while being paid from overseas by using the prevailing standard foreign exchange rate. Taxpayers are required to pay their VAT 3 days before the payment period expires, taking into account the time needed to deliver a remittance. 

PENALTIES

If the payment is not made by the deadline, a tax payment notice will be sent. If a taxpayer doesn’t pay by the deadline, they are subject to a penalty tax equal to 3% of the outstanding tax. If the person still doesn’t pay, a monthly penalty tax of 1.2% will be charged.

SOUTH KOREAN VAT RETURNS

All businesses with a Korean VAT number are required to submit periodic VAT returns that list all taxable inputs (costs) and supplies (sales). In South Korea, there are two return periods per year, from January 1 to June 30 and from July 1 to December 31. Preliminary returns are still needed at the end of the first and third calendar quarters as well.

In Korea, the return window is 25 days after the period’s end, and any related VAT obligation must be paid by then as well. Tax credits that have been granted will be given to the firm within 30 days of the due date for returns in cases where the company has paid more in VAT than it has received in sales during the reporting period.

VAT RECOVERY

If a foreign business incurs Korean VAT on local products or services but does not make taxable shipments in Korea, the VAT may, in some cases, be recovered through a VAT reclaim. This legislation, however, only takes effect in cases when the tax refundable exceeds KRW 300,000 (about €200,000) and there is no VAT or a reciprocity agreement currently in place with the foreign taxpayer’s country of residence.

Reach out to us at Relin Consultants for further assistance.

FAQs

What’s the tax identification number?

Value Added Tax is referred to as VAT. In general, VAT must be paid when goods or services are sold. A 10-digit number called a “Business Registration Number” (XXX-XX-XXXX) identifies a person or entity as having registered for VAT in Korea.

What is Korea’s VAT rate in 2023?

In South Korea, the standard VAT rate in 2023 is 10%.

In South Korea, are there any VAT exemptions or reduced rates?

Yes, specific items and services might be subject to reduced rates or VAT exemptions. Basic food items, healthcare services, some educational services, and the export of goods, for instance, are typically excluded from VAT. Certain materials, such as books, periodicals, and newspapers, may be available at reduced rates.

In South Korea, are VAT invoices required?

Yes, companies in South Korea must provide VAT invoices for taxable supplies they provide to other companies or people. The VAT invoices must adhere to the invoicing rules established by the tax authorities and include particular information.

What are the consequences of failing to comply with South Korea’s VAT laws?

There may be penalties, fines, and other repercussions if South Korea’s VAT laws are broken. Depending on the violations, such as late filing, inaccurate reporting, or failure to register for VAT when necessary, different fines apply. To prevent potential fines, it is essential to ensure compliance.