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Understanding VAT Reporting and Payment for Simplified Taxable Sole-Proprietors(간이과세자) in Korea


In Korea, understanding the obligations regarding Value-Added Tax (VAT) for simplified taxable sole-proprietor is crucial for compliance and financial planning. This article delves into the specifics of VAT reporting and payment for businesses classified as simplified taxable Sole-proprietors, a category generally applicable to businesses with annual sales below KRW 80 million.


VAT Reporting and Payment for Simplified Taxable Sole-proprietors

Who are Simplified Taxable Sole-proprietors?

Simplified taxable Sole-proprietors in Korea are businesses with annual sales under KRW 80 million. They are subject to lower VAT rates ranging from 1.5% to 4%. This favorable tax treatment aims to lessen the financial burden on smaller businesses.


VAT Exemption and Reporting Obligations

While simplified taxable sole-proprietors enjoy VAT exemptions under certain conditions, this does not equate to an exemption from VAT reporting.

Specifically:

  • New businesses and those with annual sales under KRW 48 million are exempt from VAT payment. However, they are still required to file annual VAT returns every January for the previous year.

  • Businesses with annual sales between KRW 48 million and KRW 80 million are obligated to issue tax invoices and must file VAT returns twice a year, in January and July.

Key Points to Note

  • VAT Refunds: Simplified taxable sole-proprietors cannot receive VAT refunds, even if their input VAT (VAT on purchases) exceeds their output VAT (VAT on sales). This is because their VAT liability is calculated to be zero under the exemption rules.

  • Tax Invoice Issuance: For businesses on the cusp of the KRW 48 million threshold, understanding the requirements for tax invoice issuance is vital.

Practical Implications for Business Owners

For business owners, staying compliant with VAT regulations is crucial. Regularly assessing your business’s sales figures and understanding your VAT obligations will help avoid penalties and ensure smooth operations. Additionally, strategic financial planning can help in optimizing tax liabilities and cash flows, considering the non-refundable nature of VAT for simplified taxable persons.


For more details, please feel free to reach out at jz@taxjz.com or If you would like a free consultation with an English-speaking Consultant/Accountant in Korea, please schedule a call at: Schedule a Call with Jz

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