VAT Calculation for Business Owners: From Basics to Filing
Learn how to calculate VAT, understand the difference between general and simplified taxpayers, and stay on top of filing deadlines.
Value Added Tax (VAT) is one of the most important taxes for any business owner in Korea. Whether you're issuing invoices, filing returns, or pricing your products, understanding VAT is essential. This guide covers everything from basic calculations to filing deadlines.
What is VAT (Value Added Tax)?
VAT is an indirect tax charged on the 'value added' at each stage of production and distribution. In Korea, the standard VAT rate is 10%. When you sell a product for ₩110,000, ₩100,000 is the supply amount (공급가액) and ₩10,000 is the VAT. The business collects VAT from customers and remits it to the tax authority.
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VAT Calculator →How to Calculate VAT
There are two common scenarios for VAT calculation:
- From supply amount to total: ₩100,000 (supply) × 1.1 = ₩110,000 (total). VAT = ₩10,000.
- From total to supply amount: ₩110,000 (total) ÷ 1.1 = ₩100,000 (supply). VAT = ₩10,000.
- For non-standard rates: Supply × (1 + rate/100) = Total.
General vs. Simplified Taxpayers
Korean tax law distinguishes between two types of VAT taxpayers:
- General Taxpayer (일반과세자): Annual revenue over ₩80,000,000. Standard 10% VAT. Full input tax credit available. Must issue tax invoices.
- Simplified Taxpayer (간이과세자): Annual revenue under ₩80,000,000. Reduced VAT based on industry-specific value-added rates (5-40%). Limited input tax credit.
If your annual revenue exceeds ₩80,000,000, you're automatically classified as a general taxpayer. New businesses can choose their classification but may be reclassified based on actual revenue.
VAT Filing Schedule
General taxpayers file VAT returns four times a year:
- 1st Period Preliminary: January 1-25 (for Oct-Dec of previous year)
- 1st Period Confirmed: April 1-25 (for Jan-Mar)
- 2nd Period Preliminary: July 1-25 (for Apr-Jun)
- 2nd Period Confirmed: October 1-25 (for Jul-Sep)
Simplified taxpayers file twice a year: January 25 and July 25. Late filing incurs penalties of 20% of the unpaid tax amount, plus daily interest.
Tax Invoice (세금계산서) Essentials
- Must include: business registration number, date, supply amount, VAT amount, total
- Electronic tax invoices are mandatory for most businesses
- Must be issued by the 10th of the month following the supply date
- Keep records for 5 years for audit purposes
Frequently Asked Questions
Which goods and services are VAT-exempt?
Certain items are VAT-exempt in Korea, including unprocessed food, medical and educational services, public transportation, books, and financial services. Export goods are zero-rated (0% VAT), meaning you can claim input tax credits without charging output VAT.
What is input tax credit (매입세액공제)?
Input tax credit allows businesses to deduct the VAT they paid on business purchases from the VAT they collected from sales. Only general taxpayers can claim full input tax credits. Keep all purchase receipts and tax invoices as documentation.
What happens if I file VAT late?
Late filing penalties include: 20% of unpaid tax as a penalty, plus 0.022% daily interest on the unpaid amount. Repeated late filings may trigger a tax audit. Always file on time, even if you cannot pay the full amount immediately.
Can I get a VAT refund?
Yes, if your input VAT (purchases) exceeds your output VAT (sales), you can receive a refund. This commonly happens for export businesses, businesses making large capital investments, or new businesses with high startup costs.
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Seokjun
Founder of QuickFigure. Building tools that make complex calculations and document tasks simple for everyone.
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