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In South Korea VAT is a national tax which is added to the supply of goods and services, as well as imported goods. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the value added to a product, material, or service, from an accounting point of view, by this stage of its manufacture or distribution. The manufacturer remits to the government the difference between these two amounts, and retains the rest for themselves to offset the taxes they had previously paid on the inputs. The current VAT rate is ten percent(10%) and is paid at the time of purchase.

(1)VAT Return
Periodic VAT returns must be submitted by all companies with a Korean VAT number, detailing all taxable supplies (sales) and inputs (costs). There are two return periods each year in South Korea, ie. 1st January – 30th June, and 1st July – 31st December. However, preliminary returns are also required at the end of the first and third calendar quarters. The return deadline in Korea is 25 days from the period end, and any associated VAT liability must also be paid by this deadline.

In the case of a tax credit (where the VAT incurred by the company exceeds the VAT charged on its sales in the reporting period), approved credits will be paid over to the company within 30 days of the return deadline.

(2)Zero rate VAT

The following goods and services are VAT zero-rated and the input tax incurred is refundable. Zero-rating is applicable only to traders who are residents or domestic corporations. However, in the case of international transportation service by ships or aircraft, traders who are non-residents or foreign corporations are subject to zero-rating on a reciprocity basis.

Goods for exportation
Services rendered outside Korea
International transportation service by ships and aircraft
Other goods or services supplied for foreign exchange earning

(3)VAT Exemption

(a)The supply of the following goods or services is subject to exemption and the input tax incurred thereon is not refundable. However, traders may elect not to be exempted.
Basic life necessities and services
Social welfare services
Goods or services related to culture
Personal services similar to labor
Other goods or services
Duty-exempt goods

(b) Waiver of exemption
In the case where the supply of goods or services eligible for zero rating is exempt from value-added tax, the traders may, subject to the Presidential Decree, elect not to be exempt from value-added tax. A trader who waives the ordinary exemption is not entitled to the exemption for 3 years after the beginning day of the first assessable year in which the waiver is intended to be applied.