Complete VAT Guide: Calculation and Filing Methods
2025-01-07
1. What is VAT?
Value Added Tax (VAT) is a tax imposed on added value at each transaction stage of goods and services. Rate is 10%, ultimately borne by consumers. Business owners pay the difference between output tax and input tax. Zero-rate (0%) and exemption items also exist.
2. VAT Calculation Method
VAT = Supply value ร 10%. Example: Supply 1M KRW โ VAT 100K KRW โ Total 1.1M KRW. Reverse: Total 1.1M รท 1.1 = Supply 1M, VAT 100K. Tax payable = Output tax (collected) - Input tax (paid). If input tax is larger, receive refund.
3. General vs Simplified Taxpayer
General taxpayer: Annual sales โฅ80M KRW. 10% rate, file twice yearly (Jan/Jul). Simplified taxpayer: Annual sales <80M KRW. Industry-specific value-added rate (0.5-30%), file once yearly (Jan). Simplified has lower tax burden but limited input tax deduction. Consider converting to general if planning growth.
4. Zero-rate and Exemption
Zero-rate (0%): Exports, international transport/services. 0% rate but input tax deductible (refund possible). Exemption: Basic agricultural products, medical/education services, housing rental. VAT exempt but no input tax deduction. Zero-rate benefits businesses, exemption benefits consumers.
5. Filing and Payment
General taxpayer: Period 1 (Jan-Jun) โ File/pay by Jul 25. Period 2 (Jul-Dec) โ File/pay by Jan 25 next year. Simplified taxpayer: File once yearly by Jan 25. E-filing (Hometax) is convenient. Must issue tax invoices, penalties apply for non-issuance.
6. VAT Reduction Tips
โ Maximize input tax deduction: Get tax invoices/card receipts for business expenses. โก Simplify proof with credit cards. โข Consider simplified taxpayer conversion (sales <80M). โฃ Check zero-rate eligible industries. โค Apply for early refund of provisional tax. โฅ Input tax deduction when purchasing business assets.