1. What Is VAT?
Value-added tax (VAT) is a tax imposed on the value added at each stage of a transaction involving goods or services. The rate is 10%, and the final consumer ultimately bears the cost. Businesses pay the difference between output VAT collected from sales and input VAT paid on purchases. Zero-rated (0%) and VAT-exempt items also exist.
2. How to Calculate VAT
Multiply the taxable amount by 10% to calculate VAT. Example: a taxable amount of 1 million won → VAT of 100,000 won → total of 1.1 million won. Reverse calculation: 1.1 million won ÷ 1.1 = a taxable amount of 1 million won and VAT of 100,000 won. VAT payable = output VAT (tax collected) - input VAT (tax paid). If input VAT is higher, you may receive a refund.
Standard Taxpayers and Simplified Taxpayers
In principle, simplified taxation applies to individual business owners whose total consideration for supplies in the previous year was less than 104 million won, provided they are not in an excluded industry or location. Simplified taxpayers use industry-specific value-added rates, and the rules for input VAT deductions and issuing tax invoices differ from those for standard taxpayers. Do not rely on the former 80 million won threshold.
4. Zero-Rated and VAT-Exempt Transactions
Zero-rated (0%): exports, international transportation and services, and similar transactions. Although the tax rate is 0%, input VAT may be deductible and refundable. VAT-exempt: staple agricultural, livestock, and fishery products; medical and educational services; residential leases; and similar items. VAT is not charged, but input VAT cannot be deducted. Zero-rating benefits businesses, while exemption benefits consumers.
5. Filing and Payment
Standard taxpayers: For the first period (January–June), file and pay by July 25. For the second period (July–December), file and pay by January 25 of the following year. Simplified taxpayers file once a year by January 25. Electronic filing through Hometax is convenient. Tax invoices may be required, and failure to issue them can result in penalties.
Check Documentation and Business Relevance Before Claiming Deductions
Even when you have a tax invoice or card receipt, purchases that are unrelated to the business or designated by law as non-deductible cannot be claimed. Match sales data with purchase documentation by tax period, and check the separate requirements for zero-rated transactions, exempt transactions, and businesses with both taxable and exempt activities.