VAT and Sales Tax in South Korea

South Korea operates one of the world's most administratively streamlined consumption-tax systems. The Value Added Tax Act (bugagachise-beob) has applied a single flat rate of 10% to virtually all taxable supplies of goods and services since the tax's introduction in 1977. Unlike the European Union, Japan, or Australia, Korea does not maintain reduced rates for specific categories. The only rate-differentiation mechanism is the simplified-taxpayer regime, which applies 10% to a sector-specific deemed value-added fraction rather than to gross revenue. Consult a qualified tax professional to determine which regime and filing category apply to your specific circumstances.

What supplies are zero-rated versus exempt under Korean VAT?

Korean VAT law draws a sharp operational distinction between zero-rated and exempt supplies. Zero-rated supplies (Article 21, Value Added Tax Act) are technically taxable at 0%: the supplier charges no output VAT but retains the full right to reclaim input VAT on related purchases. Zero-rated categories include exports of goods with Korean Customs documentation, international passenger and freight transportation by ship or aircraft, qualifying services provided to non-resident customers where consumption occurs outside Korea, and sales of goods to foreign vessels or aircraft engaged in international traffic. For Korean exporters in manufacturing, semiconductors, and automotive sectors, zero-rating is commercially significant: input VAT on domestic inputs is fully recoverable against zero output VAT, generating refund positions that are settled quarterly through the NTS Hometax portal [National Tax Service, nts.go.kr]. Exempt supplies (Article 26) carry no output VAT but also block input VAT recovery on purchases attributable to those supplies. Exempt categories include: unprocessed agricultural, livestock, fishery, and forestry products; human medical and veterinary services; licensed educational services; financial and insurance services; residential property rentals; domestic public passenger transportation; books, newspapers, and magazines; and certain cultural performances. Businesses making a mixture of taxable and exempt supplies must apportion input VAT using the partial-exemption calculation method prescribed by the NTS.

What is the simplified-taxpayer regime for small businesses?

The simplified-taxpayer (gan-i-gwa-se-ja, 간이과세자) regime under Article 61 of the Value Added Tax Act allows qualifying small operators to calculate VAT against a sector-specific deemed value-added fraction rather than tracking actual input and output VAT transaction-by-transaction. Threshold (as of July 1, 2024): annual taxable turnover below KRW 104 million for most business types, raised from the prior KRW 80 million ceiling by the National Assembly amendment enacted June 2024 [Asia Economic Daily, asiae.co.kr, June 2024]. Real estate rental businesses and taxable entertainment venues retain the lower threshold of KRW 48 million. Effective rate: a simplified taxpayer remits 10% applied to the deemed value-added rate for their sector, producing effective VAT liability of approximately 1.5% to 4% of gross revenue depending on industry classification assigned by the NTS. VAT payment exemption: simplified taxpayers whose annual taxable supplies fall below KRW 48 million are exempt from the VAT payment obligation for that year, though a nil-return filing obligation still applies. Filing schedule: simplified taxpayers file a single annual return covering January 1 to December 31, due by January 25 of the following year. Key trade-off: simplified taxpayers cannot issue VAT invoices that entitle their business customers to claim input VAT deductions, which can make simplified-regime suppliers commercially uncompetitive in B2B supply chains. Businesses approaching the threshold should seek guidance from a qualified tax professional before the regime-change date.

How do the two semi-annual taxable periods and quarterly returns work?

For general (full-regime) taxpayers, the Korean VAT calendar is structured around two semi-annual taxable periods: the first period runs January 1 to June 30 and the second runs July 1 to December 31. Within each semi-annual period, corporations are required to lodge a quarterly preliminary return covering the first three months of the period (January-March for the first period; July-September for the second). The resulting compliance calendar for corporate taxpayers produces four filing events per year:

[Haeon Tax CPA, haeontax.com]. Individual (sole-proprietor) general taxpayers follow the same semi-annual structure but substitute a simplified interim payment calculation (50% of the prior period's assessed VAT) rather than a full quarterly filing, unless the NTS issues a notice of actual-calculation requirement. All returns and payments are submitted electronically through the NTS Hometax portal (www.hometax.go.kr). Late-filing penalties accrue at 5% of under-declared tax plus a daily interest charge under the National Tax Basic Act.

What is the tax invoice (segyumgyesanseo) and the electronic mandate?

The Korean tax invoice (segeum-gye-san-seo, 세금계산서 -- commonly romanised as segyumgyesanseo) is the statutory document that evidences a VAT-registered supply and entitles the recipient to claim input VAT deduction. Mandatory fields include: the VAT registration numbers of both supplier and recipient, the supply date, the value of the supply, the VAT amount, and a sequential invoice reference. Since 2011, the electronic tax invoice (jeon-ja se-geum-gye-san-seo, 전자세금계산서) issued and transmitted through Hometax or NTS-certified e-invoice software has been the required format for all corporate taxpayers. The mandate has been progressively extended to sole proprietors through a series of annual threshold reductions: 2022 (KRW 200 million), 2023 (KRW 100 million), and July 2024 (KRW 80 million) [Sovos, sovos.com]. Issued e-tax invoices must be transmitted to the NTS within one business day of issuance. The technical standard requires XML format with a digital signature issued by a public certification authority or by the NTS itself. Penalties for non-issuance, late transmission, or format errors range from 0.3% to 1% of the supply price, and NTS cross-checks invoice data against recipient input-tax claims in real time, making the system an effective audit trail. E-invoices must be archived for a minimum of five years.

How does Korea tax foreign digital service providers?

Since July 1, 2015, non-resident businesses supplying electronic services -- including streaming media, software downloads, cloud applications, mobile apps, e-books, and online advertising -- directly to Korean consumers (B2C) have been required to register with the NTS and collect and remit 10% Korean VAT on those supplies. No minimum revenue threshold applies: the obligation triggers from the first B2C sale. Registration is completed through the NTS Hometax portal under the simplified business operator registration category, which does not require a local representative or permanent establishment. Foreign providers under this simplified scheme file quarterly returns (due the 25th of the month following each quarter) and remit only the VAT collected; they cannot reclaim input VAT on their own Korean-source costs. For B2B supplies, where the Korean corporate customer holds a valid VAT registration number, the reverse charge mechanism applies: the Korean buyer self-assesses and remits VAT rather than the foreign supplier collecting it. A 1% penalty on the supply price for the period of non-registration applies to foreign providers that fail to register before their first B2C sale (effective January 1, 2024) [NTS, nts.go.kr/english]. From July 1, 2025, foreign digital-service intermediaries must also submit quarterly transaction statements identifying individual platform sellers, extending the compliance framework to marketplace operators.

For questions about Korean VAT registration status, simplified-vs-full taxpayer elections, input VAT apportionment for mixed-supply businesses, or cross-border digital-services compliance, consult a qualified tax professional with Korean VAT expertise -- for example a licensed Korean Certified Tax Accountant (se-mu-sa, 세무사) registered with the Korean Tax Accountants Association. See also the South Korea country overview for the broader tax and regulatory landscape.