VAT was introduced into South Korea in 1977 to consolidate the 8 indirect taxes previously in place, and streamline the Korean tax system. It is similar to the European Union’s VAT system, requiring re-calculation and payments to the tax authorities at each transaction point in the onward sales chain.
VAT in Korea is administered by the National Tax Service.
For foreign companies making taxable supplies in South Korea, there may be a statutory obligation to register for VAT. Once registered, non-resident traders must comply with local filing rules, (see below).
Typical situations requiring a Korean VAT registration include:
A foreign company may register for VAT without the requirement to form a local company; however they must appoint a Korean Fiscal Representative.
The representative and company are jointly liable for the reporting and payment of VAT to the Korean authorities. In addition, the agent is responsible for all communications between the company and the Tax authorities.
Although it is possible for a company to register for VAT in South Korea without the requirement to form a local company, it is possible for the Authorities to determine, following the VAT registration, that the corporation concerned has a PE in Korea. There are currently no clear guidelines on this.