South Korea VAT, GST, and Sales Tax Guide

Korea (South)

Seoul GMT +9

Ernst & Young Han Young Taeyoung Bldg. 111, Yeouigongwon-ro Youngdeungpo-gu Seoul 150-777 Korea (South)

Indirect tax contacts

Chang Geun Lee

+82 (2) 3787-0930 +82 (10) 7183-9082 chang-geun.lee@kr.ey.com

Seung Yeop Woo +82 (2) 3787-6508 +82 (10) 2030-1463 seung-yeop.woo@kr.ey.com

Taehyun Park +82 (2) 3787-4471 +82 (10) 5911-8534 taehyun.park@kr.ey.com

“Korea” in this publication refers to South Korea.

A. At a glance

Name of the tax

Value-added tax (VAT)

Local name Boo-ga-ga-chi-se (also known as Boo-ga-se)

Date introduced 1 July 1977

Trading bloc membership Asia-Pacific Economic Cooperation (APEC)

Administered by National Tax Service (NTS) (http://www.nts.go.kr)

VAT rates

Standard

10%

Other Zero-rated (0%) and exempt

VAT number format 000-00-00000 (showing tax office location, legal entity type and serial number)

VAT return periods Quarterly

Thresholds

Registration None

Simplified taxation Individual businesses with prescribed categories and with turnover less than KRW80 million in previous calendar year

Recovery of VAT by non-established businesses Yes

B. Scope of the tax

VAT applies to the following transactions:

• The supply of goods and services by a taxable person

• Reverse-charge services received by an exempt business person in Korea

• The importation of goods, regardless of the status of the importer

C. Who is liable

Any person that independently undertakes the supply of taxable goods or services in the course of business, whether or not for profit, is liable for VAT.

Exemption from registration. The VAT law in Korea does not contain any provision for exemption from registration.

Voluntary registration and small businesses. The VAT law in Korea does not contain any provision for voluntary VAT registration, as there is no registration threshold (i.e., all entities that make taxable supplies are obliged to register for VAT).

Group registration. Group VAT registration is not allowed in Korea.

Non-established businesses. “Non-established business” refers to a business that has no fixed establishment in Korea. A non-established business is not required to register for VAT in Korea unless it provides certain electronic services to Korean customers.

Tax representatives. In certain circumstances, a taxable person must designate a tax administrator to deal with filing tax returns, making tax payments, requesting refunds and handling other necessary matters. Information about the tax administrator must be reported to the competent tax office.

Reverse charge. Reverse charge generally applies where a business receives a supply of taxable services and intangible properties from a nonresident or foreign corporation and uses the ser vices and intangible properties for its tax-exempt business. The recipient of such taxable services and intangible properties must collect the VAT at the time of the payment and pay the amount to the government.

If a business receives a supply of taxable services and intangible properties from a nonresident or foreign corporation, and such supplies are used for both its taxable and tax-exempt activities, VAT on the reverse charge is calculated by reference to the ratio of turnover related to exempt supplies for the year compared to total turnover.

A nonresident or foreign corporation for VAT purposes is one of the following:

• A nonresident or foreign corporation that does not have a place of business in Korea

• A nonresident or foreign corporation with a domestic place of business, provided that the sup ply of services is not rendered through the domestic place of business

Domestic reverse charge. From 1 January 2019, if the following companies supply taxable goods or services and receive payments through credit cards, the credit card company will be subject to domestic reverse-charge obligations:

• General entertainment and drinking establishments

• Dancing and drinking halls

Digital economy. Korea applies VAT on electronic services purchased by Korean customers from abroad. Foreign providers of electronic services must register with the Korean tax authorities through the simplified business registration system.

Electronic services include those services related to gaming, audio or video file, electronic documents, software, or other works, which are manufactured or processed in the form of coding, letters, voices, sounds, images, etc., after optical or electronic processing, services offering online advertising place, cloud computing services, brokerage services of renting or consuming goods or places in Korea, and of selling or buying goods or services in Korea.

The VAT on electronic services will not apply if the electronic services are rendered to a domes tic entity that is registered for VAT purposes in Korea (i.e., in business-to-business (B2B) trans actions).

There are no other specific e-commerce rules for imported goods in Korea.

Online marketplaces and platforms. Where a foreign corporation provides electronic services using an online marketplace or platform, that marketplace or platform company is considered to provide electronic services in Korea, i.e., not the foreign corporation. The platform/marketplace is therefore responsible to account for the VAT on the supplies made.

The foreign corporation providing the electronic services through the online marketplace or platform in Korea doesn’t need to register or account for VAT. However, it would largely depend on facts of the case and should be examined on case-by-case basis.

However, if the online marketplaces and platforms are foreign corporations they would need to register for VAT (as outlined under the Digital economy subsection above) and account for VAT locally.

Registration procedures. Any person that begins a business must register the place of business with the district tax office within 20 days after the date of business commencement. A person can apply for registration via the Hometax website (https://www.hometax.go.kr) or by visiting the tax office. Documents that must be submitted when applying for VAT registration in Korea include:

• Business registration application form

• Copy of business license (if government approval is required for the business)

• Copy of lease contract

• List of shareholders

• Alien registration certificate or a copy of passport (when the representative of the company is not a resident)

• Certificate stating the completion of foreign investment notification

• Copy of foreign currency purchase certificate

• Notice of designation of tax administrator (if there is no employee that handles tax matters in Korea)

The business may be registered before the date of business commencement. The tax office that has jurisdiction over the business location issues a business registration certificate. Where a tax able person operates more than one business place, the taxable person is allowed to register two or more business places as a single business unit for VAT purposes.

Deregistration. A registered business that ceases to operate is required to deregister by returning its business registration certificate to the tax office.

Changes to VAT registration details. When there is a change in VAT registration details, such as in the name of the company, representative, type of business, address of the place of business or status of a sub-business place when the taxable person has registered two or more business places as a single business, the taxable person should submit the application form for revision of business registration details via Hometax (https://www.hometax.go.kr) or by visiting the tax office. Certain changes such as changes in co-representatives or status of a sub-business place are only allowed to be submitted by visiting the tax office.

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero-rate.

The VAT rates are:

• Standard rate: 10%

• Zero-rate: 0%

The standard rate of VAT applies to all supplies of goods or services unless a specific measure provides for the zero rate or an exemption.

Examples of goods and services taxable at 0%

• Exported goods

• Services rendered outside Korea

• International transportation services by ships and aircraft

• Other goods or services supplied for foreign currency

The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.

Examples of exempt supplies of goods and services

• Social welfare services (for example, medical and health services and education services)

• Goods or services related to culture (for example, books, newspapers, magazines, official gazettes and communications, artistic works and admission to libraries)

• Personal services similar to labor (for example, by actors, singers and academic research ser vices)

• Postage stamps

• Basic life necessities and services (for example, unprocessed foodstuffs such as agricultural products, livestock products, marine products, forest products, piped water, briquette and anthracite coal)

• Services supplied by the government

• Finance and insurance services

• Supplies of land

Option to tax for exempt supplies. A business that supplies certain goods and services that are exempt under the Korean law may choose to tax these supplies by filing a report to the tax authorities to waive the VAT exemption.

E. Time of supply

The time when VAT becomes due is called the “time of supply” or “tax point.”

Goods are deemed to be supplied at the following times (also, see the next paragraph):

• A supply of goods that requires the goods to be moved: when the goods are delivered

• A supply of goods that does not require the goods to be moved: when the goods are made available

• For other cases: when the supply of goods is confirmed

The following are examples for the times of supply for specified types of supplies:

• Cash or credit sales: subject to the principle rules of supply of goods, the time of supply is the above bullet points, i.e., when goods are delivered or made available

• Sales made for long-term (the final installment payment should be at least a year after the next day of the delivery date) installment payments: when each portion of the proceeds are received

• Supply of goods under the payment term of percentage of work completed or under terms of partial payments: when each portion of the proceeds are received

• Processing deemed to be a supply of goods: when the processed goods are delivered

• Self-supplies or the supply of goods for personal use or for a gift: when the goods are consumed or used

• Business closure: the date of closure

• Goods supplied through vending machines: when the taxpayer takes money from the machine

• Exports: the date of shipment

• Goods that are considered imported goods and that are supplied by a business in a bonded area to outside the bonded area: the date of the import declaration

Examples for the time of supply for services are as follows:

• General rule: when the services are completely rendered

• Services provided under terms of payment based on the percentage of work completed, partial payment, deferred payment or any other payment terms: when each portion of the payments is to be received

• A deemed rent deposit for a lease or advance or deferred payment of rent for more than two VAT return periods for the leasing of land, buildings or other structures built on the land: when the preliminary tax return or the tax period has been completed

• Other cases: when the services have been completely rendered and the value of the supply is determined

If a business receives partial or full payment of the consideration for a supply of goods or ser vices and issues a tax invoice or receipt for the payment before the general time of supply occurs (as described above), the time of supply is deemed to be the date that the tax invoice or receipt is issued.

Deposits and prepayments. In Korea, there are no provisions in the Korean VAT law relating to deposits. There is only a system for prepayments.

If the supplier has received a prepayment (a partial or full payment), which takes place before the general time of supply rules for goods and services (i.e., when the goods are delivered/services are completed or when the goods become available/facilities or rights are used), then the time of supply is when the prepayment (a partial or full payment) is received.

Tax invoices must be issued when the time of supply for the prepayment takes place. This is to prevent the customer from issuing VAT invoices in advance without making the prepayment and receiving an unfair deduction of input tax. The supplier has to account for VAT in the same VAT return filing period when the prepayment is made and based on the tax invoice issued.

Where a prepayment is refunded to the customer or the supply does not take place, there is gen erally no requirement to account for VAT. If the supplier has already declared the VAT on its VAT return, then the supplier needs to issue an amended tax invoice.

Continuous supplies of services. If a person is supplying goods or services continuously that a single business unit is compatible, such as electricity, the time of supply shall be at the time when each portion of the proceeds are to be received on the contract. If the tax invoice or receipt is issued in advance with prepayments, the time of supply shall be at the time of issuing a tax invoice or receipt.

Goods sent on approval for sale or return. For goods sent on approval for sale or return and other conditional sales and time limit sales, the time of supply shall be when such conditions are fully satisfied or sales become certain after expiration (this is where the supplier has given the cus tomer a certain number of days to use the goods before the sale and this period has now passed).

If the goods are sold on a returnable basis, in general, the supplier will provide the customer with a specific time period to return the goods. The time of supply is when the customer expresses its intention to purchase the goods. Otherwise, the time of supply shall be when the customer fails to return the item after the set period has expired.

Reverse-charge services. For supplies of reverse-charge services, VAT shall be accounted for by the customer, through the reverse-charge mechanism, at the time of payment on the relevant services supplied by a nonresident or foreign business.

Leased assets. Under Korean VAT law, as there is no specific provision in respect to time of supply for leased assets, general time of supply rules will be applied. However, supplies of lease services by enrolled financial leasing companies, according to Specialized Credit Finance

Business Act, are in general exempt from VAT, while there are some exceptions to this rule regarding VAT-exempt supplies of lease services.

Imported goods. The time of importation for goods shall be the time when an import declaration under the Customs Act is accepted.

F. Recovery of VAT by taxable persons

A taxable person may recover input tax, which is VAT charged on goods and services supplied to it for business purposes. The basic rule for VAT recovery in Korea requires a supply of goods or services to be made by a taxable person in the course of business. Any VAT claimed must be supported by a valid VAT tax invoice, customs document or similar documents, such as contracts, remittance certificates, etc.

The time limit for a taxable person to reclaim input tax in Korea is five years. Input tax may be recovered during the corresponding taxable period. If the tax invoice was received and the input tax was not claimed, a taxable person may correct the errors in the return within five years from the due date of the VAT return period.

Nondeductible input tax. Input tax may not be recovered on purchases of goods and services that are not used for business purposes. Input tax incurred on expenses directly related to the business is generally recoverable.

Examples of items for which input tax is nondeductible

• Input tax on expenses not directly related to the business

• Input tax on the purchase and maintenance of small automobiles used for nonprofit purposes

• Input tax on the purchase of goods or services that are used in VAT-exempt business

• Input tax on entertainment expenses or similar expenses outlined in the Presidential Decree governing VAT recovery

• Input tax amount incurred before the date of registration

Examples of items for which input tax is deductible (if related to a taxable business use)

• The VAT amount on goods or services that are used by taxable persons for their own business

• The VAT amount on the importation of goods that are used by taxable persons for their own business or imported by them for such use

However, certain input tax is not recoverable.

Partial exemption. If goods or services purchased by a taxable person are used both for taxable and exempt business, the creditable input tax is calculated based on the ratio of sales (the sale of taxable business supplies, divided by total sales) multiplied by the input tax incurred that relates to both taxable and exempt supplies. In this case, the input tax is partially recovered. In general, the input tax multiplied by the above ratio is recovered.

Approval from the tax authorities is not required to use the partial exemption standard method in Korea. Special methods are not allowed in Korea. Taxable persons must submit a statement of nondeductible input tax to the tax authorities. Taxable persons must submit a statement of nondeductible input tax when they file preliminary (if necessary) and final VAT returns. The input tax amount, the total sales amount and the sales amount of nontaxable business supplies are required to be filed. This is a part of a statement of nondeductible input tax that also includes information on other nondeductible input tax (such as input taxes incurred from entertainment expenses).

Capital goods. Capital goods are items of capital expenditure that are depreciated and used in a business over several years. Input tax is deducted in the VAT-taxable period in which the goods are acquired. The amount of input tax recovered depends on the taxable person’s partial

exemption recovery position in the VAT-taxable period of acquisition. However, the amount of input tax recovered for capital goods must be adjusted over time if the taxable person’s partial exemption recovery percentage changes to a certain extent during the adjustment period.

Refunds. When a taxable person files its VAT return and the input tax exceeds the output tax, the taxable person will receive a VAT refund within 30 days from the final filing due date. The final filing due date is 25 days from each period end. This is generally done automatically through the submission of the periodic VAT return.

The taxable person can apply for an early refund if the company meets any of the following three conditions:

• The taxable person makes zero-rated supplies

• The taxable person newly constructs, acquires, expands or extends any of the business facilities

• The taxable person is in the implementation process of a financial restructuring plan prescribed by Presidential Decree

In this case, the taxable person will receive a VAT refund within 15 days after the deadline for filing an early refund return. The deadline for filing an early refund return is 25 days from each early refund period end. The early refund period is fixed on a monthly or bimonthly basis in the preliminary return period or in the last three months of the taxable period.

Pre-registration costs. Input tax incurred on pre-registration costs in Korea is not recoverable.

Bad debts. If a bad debt arises for reasons stipulated in the corporate tax law, the already paid VAT can be recovered. A taxable person must apply for this by the VAT period reporting deadline. This can be done from 10 years after the originally supplied VAT period. In this case, the relevant documents must be prepared and submitted to the tax authority (e.g., rulings related to bank ruptcy).

Noneconomic activities. Input tax incurred in relation to noneconomic activities is not recover able in Korea.

G. Recovery of VAT by non-established businesses

Korea refunds VAT incurred by businesses that are neither established nor registered for VAT in Korea. A non-established business may reclaim VAT to the same extent as a VAT-registered busi ness, but only if the resident country of the non-established business provides VAT refunds to non-established Korean businesses in that country on a reciprocal basis.

A foreign company that is engaged in business in its home country but does not have a permanent establishment in Korea may reclaim the VAT incurred on the purchase of the following goods and services pursuant to the Tax Incentives Limitation Law:

• Meals and hotel charges

• Advertisements

• Electricity and telecommunications

• Real estate rentals and leases

• Certain goods and services necessary for the maintenance of an office in Korea

A foreign company that seeks to reclaim VAT paid in Korea must submit an application, togeth er with the required documents, to the district National Tax Service (NTS) by 30 June of the year following the calendar year covered by the claim. The district NTS must refund eligible VAT by 31 December of the year in which the application is submitted. The following documents must accompany the claim:

• A certificate that proves the foreign company is a registered business in its home country

• A detailed transaction list

• All original tax invoices

• A power of attorney, if necessary

H. Invoicing

VAT invoices. When a taxable person supplies goods or services, it must issue a tax invoice to the other party to the transaction.

Taxable persons that carry on any of the following activities are exempt from the obligation to prepare and issue tax invoices:

• Self-supplies of goods, personal use of goods, donations for a business purpose, supplies in the course of the closure of a business and self-supplies of services

• Exportation of goods, supplies of services abroad and other specific supplies of goods or services that earn foreign currency and that are subject to the zero rate

The Customs Office is required to prepare and issue import tax invoices for imported goods. The documents must be given to individuals and companies that make imports and must be issued in accordance with the provisions of the Customs law.

Credit notes. If a tax invoice contains an error or if the taxable person needs to make a correction to the submitted tax invoice after it has been issued, the taxable person must prepare and reissue the tax invoice.

In general, when the VAT base is changed due to a customs audit, revised import tax invoices may be issued. In addition, in the 2021 tax reform bill (to be implemented after 2022), an amend ment was proposed to allow the issuance of a revised import tax invoice after the receipt of a customs audit notice if there is no significant negligence. According to the current article, after receipt of the customs audit notice, it is possible to modify the tax invoice only if the amount is very small or it is proved that the company is not responsible. At the time of preparing this chap ter, this change has not yet been confirmed by the National Assembly.

Electronic invoicing. Electronic invoicing is allowed in Korea, but not mandatory. The electronic tax invoice (ETI) is a tax invoice that is electronically transmitted to the information network of the NTS through an accredited certification system that can confirm information, such as a supplier’s identification and the details of tax invoices if changed.

All registered corporate taxable persons and individual taxable persons prescribed by Presidential Decree of VAT law must issue tax invoices under the ETI system and submit a statement of delivery to the NTS by the date specified by Presidential Decree of VAT law, which is currently the day immediately following the issuance date. Such taxable persons that are prescribed by Presidential Decree of VAT law to issue electronic invoices are all registered corporate taxable persons and individual taxable persons in whose case the total value of supply of goods and services for each place of business in the immediately preceding year is at least KRW200 million. This is to ease the burden of individual taxable persons who run a small business.

Simplified VAT invoices. If it is deemed necessary, a taxable person may prepare and issue a tax invoice by aggregating the total receivable transactions to the end of the month. The invoice must be issued by the 10th day of the following month.

Self-billing. If the recipient of goods or services is not issued a tax invoice, the recipient may issue a self-billed tax invoice upon receiving confirmation from a tax officer that the supply of goods or services has actually taken place.

Proof of exports. A detailed statement is required for a supply to be qualified as an export. This document must be prepared by the taxable person.

Foreign currency invoices. If a VAT invoice is issued in a foreign currency, all values that are required on the invoice must be converted intothe domestic currency, which is the Korean won (KRW), using the exchange rate at the time of supply. The exchange rate is contained in the

Foreign Exchange Transaction Regulation, and it is generally the exchange rate announced by Seoul Money Brokerage Service Ltd. (http://www.smbs.biz)

Supplies to nontaxable persons. Under the Korean VAT law, there is no stipulation for supplies to private consumers. However, there is a provision that allows a taxable business to issue a receipt instead of a VAT invoice or exempting an obligation of a VAT invoice if it is considered too difficult to issue a VAT invoice or if it is deemed unnecessary. If a taxable person conforming to one of the following positions outlined below supplies goods or services (except for VAT exempted supplies) at the time of supply, the taxable person must issue a receipt to the customer instead of issuing a tax invoice:

• Simplified taxable person

• A taxable person supplying goods or services to nonbusiness entity

Records. In Korea, a taxable person must keep the books in which transactions are recorded. The books must also contain details of tax invoices or receipts issued or received, name of supplier or recipient, supplied items or receipt items, supply value or supply value receipt, output tax and input tax, supply date or receipt date, etc. Records may be kept in hard copy or in electronic format.

Record retention period. A taxable person must keep the books in which the transactions are recorded for a period of five years after the date of the final return for the tax period in which the transactions occurred.

Taxable persons must record all details of transactions related to their amount of tax payable or amount of tax refundable in their account books and maintain them at their own places of business for five years from the deadline for filing a final return for the taxable period of the relevant transactions. However, businesses that issue tax invoices using the ETI system are not required to maintain relevant records.

Please note that while Korean tax law does not explicitly state the position of the state for if records can be kept overseas, it is generally interpreted that data should be kept at a business site in Korea, based on the regulation that backup files of electronic files must be kept in Korea.

Electronic archiving. A taxable person may archive data electronically by following certain cri teria stipulated in the Framework Act on National Taxes, except for important documents, includ ing contracts. In this case, however, the backup file should be kept physically in Korea, and a label indicating the type of data, fiscal year, person in charge and date should be attached.

I. Returns and payment

Periodic returns. The VAT period is six months on a calendar-year basis (first VAT period: January through June; second VAT period: July through December). VAT returns must be filed on a quar terly basis, including preliminary returns.

A taxable person is required to file preliminary returns for the first and third quarters of the year, which end in March and September, respectively. These preliminary returns must indicate the tax base and the tax amount payable or refundable. The preliminary return must be filed within 25 days following the last day of each preliminary return period.

Taxable persons must file a final return for the quarters ended June and December for the second and fourth quarters of the year. The final return must be filed within 25 days following the end of the tax period.

Periodic payments. A taxable person must pay the tax amount payable for the preliminary return period when the return is filed. A taxable person must also pay the tax amount payable for the

final return period at the time of filing the return. Both payments are due within 25 days follow ing the last day of each preliminary and final return period.

VAT returns must be completed in Korean won (KRW), and VAT liabilities must be paid in Korean won. A taxable person can make payments by making a transfer or using a credit card (an extra credit card fee will be charged). In practice, a taxable person pays taxes by using the virtual account designated by the NTS, which can be found on the tax bill or by going to the bank themselves.

A taxable person must pay the VAT due at each business place at the time of filing the return. However, if a taxable person has more than two business places, it may pay the entire VAT due at its principal place of business with the prior approval from the tax office that has jurisdiction over the principal business place.

Electronic filing. Electronic filing is allowed in Korea, but not mandatory. Where a return is elec tronically submitted through the information network of the NTS, such return shall be treated as filed with the tax office at the time of submission to the information network of the NTS. VAT return filing can also still be submitted in paper form. In this case, the printed NTS form and related documents (contracts, etc.) are submitted to the tax office and the taxable person receives a receipt confirming the submission.

Payments on account. Payments on account are not required in Korea.

Special schemes. Small businesses. There are special rules that apply only to individual busi nesses with revenue less than KRW80 million (the threshold changed from KRW48 million to KRW80 million, from 1 January 2021). However, corporate entities do not have these special provisions. Individual businesses with revenue less than KRW80 million are subject to special rules, including that they are not obliged to issue tax invoices when their sales amount is less than KRW48 million. Previously, individual businesses with revenue between KRW48 million to KRW80 million did not have obligations to issue tax invoices, but this is due to change from 1 July 2021). Such businesses pay VAT every six months instead of quarterly.

Annual returns. Annual returns are not required in Korea.

Supplementary filings. In addition to the usual NTS form, a taxable person is required to keep documentation (contract, etc.) to verify each transaction. In addition, when a taxable person reports any transaction subject to VAT at the zero rate, supporting documents such as a foreign currency deposit, a statement of export results and a local letter of credit must be submitted with it.

Correcting errors in previous returns. Taxable persons can correct errors in previous returns by submitting the revised return either through the Hometax website (https://www.hometax.go.kr/) or in paper to the tax office.

Digital tax administration. As outlined above, under the Electronic invoicing subsection, elec tronic invoicing is mandatory for all registered corporate taxable persons and individual taxable persons prescribed by Presidential Decree of VAT law. We do not have a concept of real-time reporting in Korea. However, considering that electronic invoices are required to be transmitted to the NTS by the next day of the issuance date (an invoice is usually issued on the transaction date), electronic invoicing is almost but not a real-time reporting to be exact.

J. Penalties

Penalties for late registration. If a person fails to register a business within 20 days after business commencement, a penalty tax equal to 1% of the value of supplies made is imposed. If a taxable person provides goods or services without registration or with late registration, the penalty

applies to the value of the supplies made during the period beginning on the business commence ment date ending on the day before the date on which the registration is made. The penalty amount will adjust the amount of tax payable or deductible. The penalty is capped at KRW100 million (KRW50 million for small and medium-sized enterprises [SMEs]). The cap covers every six-month period.

Penalties for late payment and filings. Failure to file a tax return may result in a penalty of 10% to 40% of the underpaid tax amount (overpaid tax refund).

For underpayment and nonpayment of taxes or overestimated refund, a penalty of the underpaid tax amount (or overpaid tax refund) at a rate of 0.025% (0.03% until 11 February 2019) a day may be imposed.

Failure to comply with the requirement to make a proxy payment (reverse charge) may result in a penalty of 3% of the underpaid tax amount plus 0.025% (0.03% until 11 February 2019) of the underpaid tax amount on the number of days the payment is late. However, the penalty is capped at 10%.

Penalties for errors. Failure to issue a correct tax invoice (including ETI) or to submit a correct list of tax invoices issued may result in a penalty of 0.5%, 1%, 2% or 3% of the value of supply. If a tax invoice is issued without the supply of goods or services, a penalty of 3% of the supply value is imposed on both the seller and the buyer. If there is a supply of goods or services and no tax invoice is issued, a penalty of 2% of the value of the supply is imposed. If a corporation (and individual business owners with turnover of over KRW200 million) issues a paper tax invoice instead of an electronic tax invoice, a penalty of 1% of the supply price is imposed. If a list of electronic tax invoices is not submitted by the day following the date of issue, a penalty of 0.3% or 0.5% will be charged.

Penalties for fraud. If the reason for reporting fewer tax bases is related to fraud, the penalty increases significantly. If not related to fraud, 10% or 20% of the tax amount will apply, but if it is related to fraud, it will increase to 40% of the tax amount. In particular, if it relates to international transactions, a penalty of 60% of the tax amount applies.

Personal liability for company officers. Company directors will not be held personally liable for errors and omissions in VAT declarations and reporting according to relevant tax laws. However, if company directors are also shareholders of the company and the company fails to pay taxes, they are responsible for paying taxes if certain conditions are met.

Statute of limitations. The statute of limitations in Korea is 5 to 10 years. In general, the tax authorities may amend and impose tax on the filed returns of the taxable person within 5 to 10 years from the date that national tax can be imposed. However, the statute of limitation is extended for certain international transactions, as outlined below:

• The general statute of limitation is five years, but in certain international transactions, this can extend to seven years

• The statute of limitations for non-filing is 7 years, but in certain international transactions, this can extend to 10 years

• The statute of limitations for tax evasion from tax fraud is 10 years, but in certain international transactions, this can extend to 15 years

The term “international transactions” refers to a) transactions, in which one party is foreign company (nonresident) or b) foreign assets or services provided abroad, even if both parties are residents.