VAT Claims in KOREA

Can a non-resident or foreign corporation without a work-place of business in Korea get a refund for the value-added tax paid in Korea if they purchase or receive goods or services in Korea?

It is true that it is difficult to apply VAT if there is no work-place of business in Korea, as the VAT Act imposes taxation based on the principle of taxation per work-place of business. However, if certain goods or services are supplied and certain conditions are met, a system is in place to obtain a refund of VAT.

In this blog, I would like to introduce the VAT refund regulations for foreign entities.

(1) Scope of goods and services subject to refund

The scope of goods or services eligible for refund includes food and lodging services, advertising services, power communication services, and real estate rental services. However, a refund is possible only for items for which input tax is deducted under the Value Added Tax Act.

(2) Refund requirements

In order to receive a refund when goods or services are supplied, all of the following conditions must be met.

1) Requirements for refund amount exceeding KRW 300,000 per a return

The total amount of VAT to be refunded in relation to goods or services subject to refund for one calendar year of the foreign business operator must exceed 300,000 won.

2) Reciprocity Requirements

In order for a foreign business operator to receive a refund of value-added tax on goods or services purchased or provided for business in Korea, it is applicable only when the same refund is made to a Korean business operator in the foreign country concerned. Here, ‘in case of equal refund’ refers to the case where value-added tax or similar taxes in Korea are refunded as taxes in the relevant foreign country, and cases where there is no Korean value-added tax or similar taxes in the foreign country. As there is no VAT in Hong Kong, the reciprocity requirement holds.

(3) Refund procedure

A foreign business operator who wants to receive a VAT refund must submit the value-added tax for goods or services supplied from January 1st to December 31st of each year to the National Tax Service by June 30th of the following year in the 'foreign businessperson's transaction statement and application for value-added tax refund' with additional documents.

Eligible evidence for a refund at the time of application is only a tax invoice and a credit card sales slip in which value-added tax can be separately distinguished.

Upon receipt of the application, the tax authority requests the head of the tax office having jurisdiction over the business that supplied the goods or services to inquire into the transaction of the foreign business entity, and then makes a decision on the national tax refund for the person subject to notification of the national tax refund. The national tax refund will be refunded to the foreign business operator or its agent.

(4) Scope of agent

The application can be made through an agent, and tax accountants, certified public accountants, and other experts in value-added tax refunds can be designated as agents for refunds. In this case, the foreign business operator must attach a power of attorney stipulated in the Value Added Tax Act for Foreign Business Operators to the refund application.

So far, we have looked at the VAT refund procedure for goods or services supplied by non-residents or foreign corporations without domestic business establishments. It is important and natural to pay taxes if you meet the tax requirements. However, as much as fulfilling the tax obligation, I believe that exercising the right to receive a refund of the tax paid by oneself is also a reasonable taxpayer's right.

Any questions, please send me an email to jz@taxjz.com