Value-Added Tax in Korea (부가가치세)
VAT is the tax business owners most often get wrong, because the money never really belonged to them. You add 10% to what you charge, hold it, and remit it — minus the VAT you paid on your own purchases. The practical consequence is that VAT collected is not working capital, and businesses that spend it are the ones caught short at filing time.
Who this affects
- Anyone with a Korean business registration selling goods or services
- General taxpayers (일반과세자) and simplified taxpayers (간이과세자), on different cycles
- Businesses issuing or receiving 세금계산서
- Exporters and some service providers, who may apply a zero rate or an exemption
The rate is 10% and it is statutory
Unlike bracket thresholds and deduction ceilings, which move, Korea's standard VAT rate has been stable for decades. What varies is whether a given supply is standard-rated, zero-rated or exempt — and zero-rated is not the same as exempt.
Input VAT is only deductible with proper evidence
You subtract the VAT you paid on business purchases, but only where you hold a valid 세금계산서 or an accepted equivalent. A supplier who never issued one usually means input VAT you cannot claim, which is why chasing invoices is not administrative busywork.
General and simplified taxpayers file differently
General taxpayers file semi-annual periods with interim prepayments; simplified taxpayers file on an annual cycle with a different computation. Which status applies depends on your revenue scale, and it can change as the business grows.
Zero-rated is better than exempt for the seller
Zero-rating charges 0% but preserves the right to reclaim input VAT. Exemption removes the output tax and the input claim with it. Exporters generally want zero-rating, and mislabelling the two changes real money.
Common questions
I had no sales this period. Do I still file?
Yes. A nil return is still a return, and not filing triggers penalties even where no tax was due.
Can I use the VAT I collected as cash flow?
Legally the obligation stands whatever you do with the cash, and this is the single most common way small businesses end up unable to pay. Treating collected VAT as money already spoken for is the practical safeguard.
My customer is overseas. Do I charge Korean VAT?
Often it is zero-rated rather than simply outside the system, but this depends on the nature of the supply and the evidence you keep. It is worth confirming, because the zero rate must be substantiated.
Official sources
General information, not tax advice. Rules and thresholds change, and how they apply depends on your circumstances — confirm with a licensed professional before acting.