Deduction of Input Tax for “Credit Card Sales” in Korea

1.      Overview of the regulation

It's the principle that the input tax amount which are issued by credit card sales slip and debit card sales slip is not deductible as tax credit of Value-Added Tax (“VAT”) because it's not included the category of Tax Invoice or Invoice. However the present VAT system is allowed the tax credit if it's qualified to meet certain criteria.

2.      Deductible conditions for Input Tax credit

The company is provided the Goods and Service from the general taxpayers and received the credit card sales slip(Incl. debit card sales slip, prepaid card sales slip and cash receipt slip) which is separated VAT amount and have to meet the following requirements;

(The credit card sales slip issued by simplified taxpayer is not deductible)

(If the credit card sales slip issued by manufacturers and wholesalers, it's possible to deduct the credit card sales regardless of the type of business)

ü  Must be submitted “the statement of reception of credit card sales slip”

ü  The credit card sales slip(Incl. debit card sales slip, prepaid card sales slip and cash receipt slip) have to keep till 5 years after the date of a final return in the taxable period of the transaction

3.      Exclusion of input tax credit

3.1. The following's suppliers are not allowed the tax credit

-       Public bath/bath house business, Barbering and hairdressing business

-       Transport of goods and passengers (Excl. transport of chartered bus)

-       The businesses which are issued the ticket

3.2.In case of receiving the credit card sales slip for non-deductible input tax as following purchaser

-       Non-presentation of statement of reception of credit card sales

-       False record of Credit card (in vase of using the different franchising name)

-       Purchase in relation with entertainment expenses

-       Purchase of assets, etc. which is not related their own business

-       Purchase in relation with VAT exempt business

-       Purchase of non-business purpose small vehicle and maintenance expenses (ex. Sedan, Fuel cost)

-       The expenses which is more than 20 days before the date of business registration