VAT Refund Guide for Foreign Businesses in Korea: Eligibility, Requirements, and Procedure

Even if a non-resident or foreign corporation does not have a business place in Korea, they can still apply for a VAT refund for the Value-Added Tax (VAT) paid in Korea when purchasing or receiving goods or services. The VAT law taxes based on the principle of business place unit, making it difficult to apply VAT if there is no business place in Korea. However, a system has been established to refund VAT if certain goods or services are supplied and certain requirements are met. In this column, we will introduce the VAT refund regulations for foreign businesses.

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(1) Scope of Goods and Services Eligible for Refund

The scope of goods or services that can be refunded includes food and accommodation services, advertising services, power communication services, and real estate rental services. However, the refund is possible only for those goods or services that are deductible for input tax under the VAT law.

(2) Refund Requirements

To receive a refund when goods or services are supplied, all of the following requirements must be met:

1. Requirement of exceeding KRW 300,000 in refund amount

The VAT to be refunded related to the goods or services eligible for refund must exceed KRW 300,000 in the total amount of the foreign businesses' one fiscal year.

2. Reciprocity requirement

In order for a foreign business to receive a refund for the VAT on goods or services purchased or provided for business in Korea, it must be applied only when the same refund is made to our country’s businesses in the foreign country. Here, ‘the same refund’ means that the foreign country refunds our country’s VAT or similar taxes as its own taxes, or there is no VAT or similar taxes in that foreign country. In the case of Hong Kong, where there is no VAT, the reciprocity requirement is established.

(3) Refund Procedure

Foreign businesses wishing to receive a VAT refund must apply to the National Tax Service by June 30 of the following year for the VAT on goods or services supplied from January 1 to December 31 of each year, attaching additional documents to the ‘Foreign Business Transaction Details and VAT Refund Application’. Only tax invoices and credit card sales slips that can separately distinguish the VAT amount are eligible for refund.

The tax office that received the application requests the foreign businesses' transaction details from the head of the tax office in charge of the business that supplied the goods or services, decides on the national tax refund for the national tax refund notification target, and refunds the national tax refund to the foreign business or its agent.

(4) Scope of Agents

You can also apply through an agent. The agent for refund can be a tax accountant, certified public accountant, or other person who specializes in VAT refund work, and in this case, the foreign business must attach a power of attorney defined in the VAT law for foreign businesses to the refund application form.

So far, we have looked at the VAT refund procedure for goods or services supplied by non-residents or foreign corporations without a domestic business place. It is important and natural to pay taxes when the tax requirements are met. However, we believe that it is also a reasonable taxpayer to exercise their rights legitimately when they have the right to get back the taxes they paid.