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VAT was introduced into South Korea in 1977 to consolidate the 8 indirect taxes previously in place, and streamline the Korean tax system. It is similar to the European Union’s VAT system, requiring re-calculation and payments to the tax authorities at each transaction point in the onward sales chain.
VAT in Korea is administered by the National Tax Service. The Korean VAT rate is currently 10%.
Click here if you would like free guidance on Korean VAT compliance.
Requirement to register for korean vat
For foreign companies making taxable supplies in South Korea, there may be a statutory obligation to register for VAT. Once registered, non-resident traders must comply with local filing rules, (see below).
Typical situations requiring a Korean VAT registration include:
- Where goods are delivered within Korea;
- If the foreign trader imports, installs or assembles goods in Korea;
- Export of goods from Korea;
- Supply of services where the place of supply is Korea
korea Fiscal representative
A foreign company may register for VAT without the requirement to form a local company; however they must appoint a Korean Fiscal Representative. The representative and company are jointly liable for the reporting and payment of VAT to the Korean authorities. In addition, the agent is responsible for all communications between the company and the Tax authorities.
korea permanent establishment
Although it is possible for a company to register for VAT in South Korea without the requirement to form a local company, it is possible for the Authorities to determine, following the VAT registration, that the corporation concerned has a PE in Korea. There are currently no clear guidelines on this.
To learn more about the requirement to form a permanent establishment in South Korea, contact us
korea vat compliance
There are detailed rules controlling the recording and processing of Korean transactions. These include guidelines on:
- Korean invoice requirements;
- Foreign currency reporting and translation;
- Credit notes and corrections; and
- What accounting records must be maintained.
korea vat returns
Periodic VAT returns must be submitted by all companies with a Korean VAT number, detailing all taxable supplies (sales) and inputs (costs). There are two return periods each year in South Korea, ie. 1st January – 30th June, and 1st July – 31st December. However, preliminary returns are also required at the end of the first and third calendar quarters.
The return deadline in Korea is 25 days from the period end, and any associated VAT liability must also be paid by this deadline. In the case of a tax credit (where the VAT incurred by the company exceeds the VAT charged on its sales in the reporting period), approved credits will be paid over to the company within 30 days of the return deadline.
korea vat recovery
If a foreign company is not making taxable supplies in Korea, but is incurring Korean VAT on local goods or services, then the VAT may, in certain circumstances, by recovered through a VAT reclaim. However, this regulation applies only where the tax refundable exceeds KRW 300,000 (approx. €200,000) and where a similar taxation system like VAT does not exist in the foreigner's nation, or a reciprocity agreement is in place with the foreign taxpayer’s country of residence.
How TMF can help in korea
TMF can help ensure non-resident companies are fully compliant for Korean VAT, and are able to keep any cash flow impact to a minimum..
VAT services that TMF can provide include:
- Full Fiscal Representation service;
- Registering companies with the tax authorities;
- Up-to-date guidance on VAT compliance regulations, including invoicing formats and exchange rate conversion rules;
- VAT filings and settlements;
- Organising repayments of VAT credits; and
- Liaising with the Singaporean tax authorities and answering any queries or investigations.
To learn more about TMF Co-ordination, including company formation, contact us:
enquiries@tmf-vat.com
+44 (0)870 067 8881
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