Effective Strategies to Significantly Reduce Value Added Tax (VAT)
I met a restaurant owner who drive a Diesel SUV tuned the rear seat as a cargo.
He used to fill her up at the SK station near his restaurant(Normal tax payer, Sole-proprietor), and it's around a million won since he need to travel around to look into a rural area to find a good veggies all year long.
He used to pay it by a credit card but through his individual bank account.
All of his fuel charge included 10% VAT, and practically he can take it back, but he need to pay it by a credit card linked to his business bank account.
Whether you're an individual or corporate business generating revenue through the sale of products or services, you're subject to VAT payment. The only exemption to this rule is for tax-exempt businesses.
Businesses subject to VAT are categorized as either general tax payers(일반사업자) or simplified tax payers(간이사업자), with the annual total sales determining the method of tax calculation.
There's also a difference in the number of declarations required between individual and corporate businesses. Corporate businesses must go through a total of 2 preliminary and final 2 declarations in two tax periods, divided into six months each. On the other hand, individual businesses only need to declare twice a year if they're general taxpayers, and once a year if they're simplified taxpayers.
Both individual and corporate businesses are obligated to pay VAT. However, there might be ways to expedite refunds or reduce payment costs. Let's explore these methods!
### FAQ's and Answers:
1. **What is the difference between individual and corporate businesses regarding VAT?
Individual and corporate businesses differ in terms of the frequency of VAT declarations. Corporate businesses must declare four times over two tax periods within six months each. In contrast, individual businesses declare twice a year if they're general taxpayers and once a year if they're simplified taxpayers.
But if it's necessary, individual business can also file during the preliminary period to reduce the VAT preliminary bill or take some VAT refund.
2. **Can consumers get VAT refunds?
No, the refund system does not apply to ordinary consumers who aren't business operators.
3. **What are some effective ways to reduce VAT?
Effective strategies include maximizing input tax deductions, purchasing or renting business vehicles, taking advantage of deductions for maintenance costs and fuel taxes, making use of deductible public utility bills, and utilizing mobile communication fees for business purposes.
4. **What is input tax deduction?
Input tax deduction refers to excluding the VAT paid on business-related expenses from the total VAT payable.
5. **Can VAT be deducted from vehicle-related costs?
Yes, if you purchase or rent vehicles for business use, you can receive VAT deductions. Maintenance costs and fuel taxes for trucking purposes are also deductible.
Keywords: Value Added Tax, Reduce VAT, Tax Deduction, Business Vehicles, Utility Bills
All businesses selling products or services and generating revenue are subject to VAT payment, regardless of whether they're individual or corporate entities. The only exception to this rule applies to tax-exempt businesses.
Individual businesses subject to VAT are further categorized into general taxpayers and simplified taxpayers, with their annual total sales determining the method of tax calculation.
One notable difference between individual and corporate businesses lies in the frequency of VAT declarations. Corporate businesses must go through four preliminary and final declarations within two six-month tax periods each year. In contrast, individual businesses under general taxation only need to declare twice a year, while those under simplified taxation declare once a year.
Both individual and corporate businesses have an obligation to pay VAT. However, wouldn't it be beneficial if there were ways to expedite refunds or reduce payment costs? Let's delve into this topic!
The first thing to note is that the VAT refund system does not apply to non-business consumers. For example, even if a kindergarten student purchases a snack from a supermarket, they bear the indirect cost of VAT but do not have any direct reporting duties for this tax.
The principle of VAT is that the business temporarily holds the VAT collected from consumers and then declares and pays it to the state. A VAT refund is possible when purchases exceed sales, and the opposite case requires payment.
As mentioned earlier, businesses must declare VAT two to four times a year, depending on their type. Accurate record-keeping during this time can lead to a refund decision. However, the challenge lies in what preparations are necessary to get the relevant content recognized.
When a business conducts cash transactions, tax invoices serve as the primary evidence. When receiving cash receipts, make sure they're for 'expenditure proof'. If you trade with a card, remember to keep the card statement. While quotations, transaction details, simple receipts, and contracts may seem like suitable evidence, they're useless for VAT refunds, so be careful.
VAT evidence is essential! Here are some examples:
- Home tax inquiry available - electronic tax calculation, credit card sales, corporate card, cash receipt
- Online inquiry available - foreign currency sales (low rate applied)
- Others - paper tax invoice
Once you've prepared all the materials, you can utilize them without omission when declaring VAT in the first and second half of the year. Both electronic and manual declarations are possible. In the case of general refunds, you will receive them within 30 days after the final declaration deadline, and for early refunds, you will receive them within 15 days after the early refund declaration deadline.
To pay less VAT, it's advantageous to receive as many input tax deductions as possible. Input tax deduction means excluding the VAT paid on business-related expenses from the total VAT payable.
One well-known method related to this is 'purchasing business vehicles'. Even compact cars or vehicles with nine or more seats can receive VAT deductions, offering significant benefits to businesses.
You don't necessarily have to purchase; you can also rent and still get deductions. Plus, maintenance costs and fuel taxes are deductible, so it's essential information if you didn't know already.
Please note that when selling business vehicles, 1/10 of the supply price is charged as VAT!
If you're a food business operator, consider special input tax deductions. When selling goods processed or manufactured from raw materials such as agricultural, marine, livestock, and forest products supplied with VAT exemption, you can deduct a certain percentage calculated as input tax.
In this case, if the tax base exceeds 200 million, you can deduct 8/108 of the corresponding input tax, or 9/109 if it's 200 million or less.
We also recommend setting various public utility bills necessary for business operations in the name of the business owner. You can also receive input tax deduction benefits.
Furthermore, mobile communication fees used for business purposes also include VAT, so you can apply for deduction benefits when used for business purposes.
Remember, tax-exempt businesses are also exempt from VAT payment for business expenses. If you're a business operator, it's essential to know these methods to reduce VAT and maximize your benefits.