Overview of Value Added Tax in Korea

1.     Tax payer

a.     A person who engage in the supply of goods or services independently in the course of business, whether or not for profit, is liable to value-added tax.

b.     A person to imports goods and service is liable to value-added tax

c.     Taxpayer including individuals, corporations, the government and local governments, associations of local governments, any bodies of persons, and unincorporated foundations of any other organizations are generally subjected to Value Added Tax.

2.     Zero-rating and Exemptions

a.     Zero-Rating

The following goods and services are 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.

(1)   Goods for exportation

(2)   Service rendered outside Korea

(3)   International Transportation service by ships and aircraft

(4)   Other goods or service obtaining foreign currencies

b.     Exemptions

The supply of the followings goods or services are subject to exemption and the input tax incurred thereon in not refundable. However, traders may elect not to be exempted.

(1)   Basic life necessities and services

(2)   Social Welfare services

(3)   Goods or service related to culture

(4)   Personal service similar to labor

(5)   Other goods or service including goods or service rendered by religious, charitable, scientific, or other organizations which promote the public interest and goods or services supplied by the government

(6)   Duty-exempt goods

3.     Tax base

a.     Tax Base

The tax base of Value-added tax for the supply of goods or service is an aggregate amount of the value as specified under the following. However, value-added tax is not to be included in the tax base.

(1)   If the supply is for a monetary consideration, its consideration

(2)   If the supply is for a non-monetary consideration, its market value

(3)   If the actual consideration is considered to be unduly less than that which might reasonably be expected or if there is no consideration, its market value

(4)   In the case of the inventory goods at the time of the closing down of a business, the market value of inventory goods

b.     Tax base

The rates of value-added tax is 10 %.

4.     Simplified Taxation

a.     Individuals Eligible for Simplified Taxation

VAT is chargeable on the basis of turnover for a trader whose gross turnover (or proceeds including VAT) of the supply of goods or services deriving from all his business places during the immediate proceeding year is less than KRW 48 million (called “ a trade eligible for simplified taxation”). However, a trade engaged in mining, manufacturing, professional business such as lawyers, accountants, entertainment business subject to individual consumption tax, whole sale, or real estate sales business shall be excluded from the range of trade eligible for simplified taxation.

b.     Tax base and Tax amount

(1)   Tax base: VAT inclusive turnover during the taxable period

(2)   Taxable amount:

Tax amount payable = Aggregate amount of supply during the concerned taxable period x average rate of value-added as prescribed by the Presidential Decree for each category of business(ranging from 15% through 40%) x 10 %