Non-deductible Input VAT Tax on the Korean VAT Act

1.     Overview

Generally all of the Input tax can be deducted from output tax under the Value Added Tax Act however in certain cases or special purpose, government do not allow the refund of input VAT by the VAT Act. Therefore I'd like to enumerate the list of non-deductible input tax as following. It'll be helpful to understand the overall picture of VAT system in Korea.

2.     No input tax amount provided in each of the followings shall be deducted from an output tax amount:

2.1.  No receipt or false record of tax invoice and not submitted the list of the total tax invoices by customer or omitted or mistakenly entered a tax invoice

If a list of the total input tax invoices by customer is not submitted, the relevant input tax amount; or if a list of the total input tax invoices by customer is submitted, but all or any of the registration numbers or the values of supply by transaction parties, among the items to be entered on the list, are omitted or mistakenly entered, an input tax amount on the omitted or mistakenly entered portion, input tax amount involved shall be excluded;

2.2.  An input tax amount on disbursements which are not directly related to business

Even though company spent & disbursed the expenses and if it's not directly related to business, the related input tax can't deduct from the output tax.

Ex) If bought the Fixed asset which are not directly related to business, the acquisition cost, maintenance & repair expenses and interest cost are excluded the necessary expenses

2.3.  Input Tax related to the Entertainment expenses

It's quite difficult to judge whether it related the business or and therefore all of the entertainment expenses are regarded as the non-deductible input tax. It's especially policy-oriented clause.

2.4.  An input tax amount on the purchase, hire and maintenance of automobiles which are not directly related to business

An input tax amount on the purchase, hire and maintenance of automobiles (excluding those directly used for operating a transportation business, an automobile sales business, or any other business within the types of business of the Individual Consumption Tax Act

2.5.   Tax Exemption related business and investment related input tax

In case of the company is operated the Tax Exemption business which supply the goods and Service without the VAT, they can't refund the input VAT.

2.6.  Input Tax before the filing of the company registration

Company can't claim input tax amount before the filing of the company registration however recently tax code is revised. If individual receive the Tax Invoice with his/her personal ID No.

within the previous taxable period, it's possible to refund the input tax amount.