Tax Base and Assessment

i) Unprocessed foodstuffs (including agricultural products, livestock products, marine products, and forest products used for food) ii) Books, newspapers, and magazines

iii) Goods imported for scientific, educational, or cultural use by a scientific research institute, an educational institute, or a cultural organization

iv) Goods donated from a foreign country to a religious, charitable, relief, or any other public benefit organization

(2) Waiver of exemption

In the case where the supply of goods or services eligible for zero-rating is exempt from value-added tax, the traders may, subject to the Presidential Decree, elect not to be exempt from value-added tax. A trader who waives the ordinary exemption is not entitled to the exemption for 3 years after the beginning day of the first assessable year in which the waiver is intended to be applied.

5. Tax Base and Assessment

i) In the case of conversion before the time of supply, the converted amount

ii) In the case of conversion after the time of supply, an amount calculated based on the basic rate or cross rate of customers at the time of supply

(2) Special cases

(a) In the case of sales in installments or sales on deferred payment plans, the tax base is each part of the consideration receivable under the contract.

(c) In the case of credit sales, the tax base is the total amount of supplied goods.

(d) In the case of supply of goods or services on the condition of payment based on work completed, or interim payments, or in the case of continuous supply of goods or services, each part of the consideration receivable under the contract becomes the tax base.

(3) Tax base for self-supply

In the case of ordinary self-supply, the open market price of the goods is the tax base. However, in the case of self-supply of depreciable goods, the market price is one of the following.

(a) Buildings or construction structures

Tax base = Acquisition price x (1-5/100 x Number of taxable periods elapsed following acquisition)

(b) Other depreciable goods

Tax base = Acquisition price x (1-25/100 x Number of taxable periods elapsed following acquisition)

(c) Calculation of the number of taxable periods elapsed following acquisition

i) If the goods are acquired (or if exempt from the value-added tax during a taxable period), the acquisition (or exemption) shall be deemed to have occurred on the commencement date of the taxable period.

ii) The number of taxable periods elapsed applicable to the tax base is limited to 20 for buildings and construction structures, and four for other depreciable goods.

(4) Amounts included and not included in the tax base

(a) The following amounts are excluded from the tax base:

i) Amount of sales allowance ii) Value of returned goods

iii) Value of goods broken, lost or damaged before they are delivered iv) National or public subsidies excluding subsidies directly linked to

the price of supply,

v) Interest on late payment of consideration for the supply of goods or service as prescribed by the Presidential Decree, and

vi) Discount on value of supply of goods or services after the supply thereof as prescribed by the Presidential Decree

(b) The amounts of discount, bad debt, bounty or other similar amounts in relation to the value of supply after the supply of goods or services, is included in the tax base.

(5) Tax base for the importation of goods

The tax base for the importation of goods is an aggregate of the price on which customs duties are chargeable, the customs duties, the individual consumption tax, the liquor tax, the education tax, the special tax for rural development, and the transportation·energy·environment tax thereon. The price on which the customs duties are chargeable is the normal arrival price (CIF price).

b. Tax Rates (1) The current rate

The rate of value-added tax is 10%.

(2) Application of the tax rate

Where the tax rate is applicable on the VAT exclusive price, the 10% rate is applied. However, in the case of application on the VAT inclusive price of

the retailers, the tax rate becomes 10/110. Where VAT is not separately collected at the time of the transaction, the tax rate of 10/110 is applicable on the VAT inclusive price.

c. Collection at Transaction

The value-added tax will be collected where a trader supplies goods or services. It is computed by multiplying the tax base to the tax rate.

d. Amount Payable

(1) Computation of tax amount

The amount of value-added tax is computed by deducting the input tax amount under the following items from the output tax amount chargeable on the goods or services supplied by the taxpayer. The input tax which exceeds the output tax is refundable.

(b) The tax on the supply of goods or services that a trader has used or intends to use for his business

(c) The tax on the importation of goods that a trader has used or intends to use for his business

(2) Input taxes not deductible

The input taxes are not deducted from the output tax where:

(a) A trader has not received a tax invoice, has not submitted to the government an aggregate summary of the tax invoices of every individual supplier, has not recorded the whole or in part the necessary items to be recorded, or where the contents of the tax invoices are proved to be different from the facts (However, where a trader submits the tax invoice received with a revised return on the tax base under the Framework Law on National Taxes, or where a person whose tax base and tax amount payable or refundable are corrected by the head of a tax office submits to the government the tax invoice and sales slips of credit card and is certified by the head of the tax office, the input tax amount shall be deducted from the output tax amount).

(b) The input tax amount of expenses are not directly related to the business.

(c) The input tax amount on the purchase, maintenance and leasing of small automobiles except for those used in transportation business.

(d) The input tax amount on the supply of goods or services is exempted (including the input tax amount in relation to investment).

(e) The amount of entertainment expenses or similar expenses are provided in the Presidential Decree.

(f) The input tax is levied before the taxable period to which supply belongs.

* However, if the registration is done within 20 days after the end of the taxable period, the input taxes are deducted.

(3) Deemed input tax deduction

Where goods or services manufactured or processed using as raw materials agricultural, livestock and fishery products, which are exempted from value-added tax, are supplied, the amount that is computed by multiplying the supply prices of agricultural and other products by the following ratios can be deducted from output tax amount:

(a) Restaurant business:

i) Self-employer: 8/108(For a tax base of 200 milllion won or less, 9/109 by the end of 2019)

ii) Corporation: 6/106

iii) Manager of taxable entertainment spot: 4/104

(b) Small- and medium-sized manufacturing business (including individual businesses): 4/104

(c) Other businesses: 2/102 (4) Bad debts tax deduction

In the case where a taxable trader has supplied taxable goods or services on credit but could not collect the account receivables for the supply because the receiver of the supply has dishonored a bill, has become bankrupt, etc.

and the trader has treated the account receivables as bad debts, the VAT on the goods or services should be arranged as follows (the scope of account receivables treated to be bad debts is the same as that under the Income Tax Law and the Corporation Tax Law).

(a) The supplier may deduct the uncollected VAT from the output tax amount for the VAT period on which the day of the determination of bad debts falls:

- Deductible VAT = Bad Debts X 10/110

(b) The government shall collect the VAT amount already deducted from the supplier's output VAT from the person who received the supply.

e. Tax Invoice and Bookkeeping (1) Tax Invoice

(a) Contents of invoice

When a registered trader supplies goods or services, he or she shall issue an invoice to the other party. The contents of the invoice shall contain:

i) The registration number and the name of the individual or corporation trader

ii) The registration number of the other party to the supply iii) The value of the supply and value-added tax thereon iv) The date, month and year of issuance of the tax invoice v) Other particulars as prescribed by the Presidential Decree (b) Receipts

A trader who carries on businesses such as retail outlets, ordinary restaurants, hotels, passenger transport, etc. may issue a tax invoice in which the name of the other party to the supply and the amount of value- added tax are not recorded separately ("receipts").

(c) E-tax invoice

A corporate trader and an individual trader prescribed by the Presidential Decree shall issue e-tax invoice from Jan 1, 2011 and Jan 1, 2012 respectively.

(2) Bookkeeping

(a) A trader is required to maintain accounting records of all transactions at each business place.

(b) Mixed transactions

Where a trader supplies exempt goods or services together with taxable goods or services, he or she should separately enter the transaction information into the books.

(c) Keeping record

A trader should keep the books in which the transactions are recorded and the tax invoices or receipts issued or received for a period of five years from the date of the final return for the taxable period in which the transactions are filed.

(d) Tax invoices for transactions through a consignee or agent

In the case of consignment sales or sales through an agent, the consignee or agent shall issue the tax invoice. Where the goods are delivered directly by the consignor or the principal the tax invoice shall be issued. In the case of consignment purchases or purchases through an agent, the supplier shall issue the tax invoice to the consignor or principal, in both cases, the registration number of the consignee or agent shall be recorded additionally in the invoices.

(e) Monthly issue of tax invoice

Where deemed necessary, the trader may prepare and issue a tax invoice by aggregating the total receivables of transactions of all parties to the end of the month.

(f) Adjustment of tax invoice

Where there is an error or needs to make corrections in the submitted tax invoice after the issuance of the tax invoice, the trader shall re-prepare and re-issue the tax invoice.

(g) Exemption from obligations to issue tax invoice

Persons carrying on one of the following businesses are exempt from the obligation to prepare and issue tax invoices:

i) Self-supply of goods, personal use of goods, donation for a business purpose, supply at the time of closing down of a business, and self-supply of services

ii) Export of goods, supply of services abroad, and other specific supplies of goods or services earning foreign currency that are subject to zero-rating

(h) Prevention of double issuance of tax invoice and credit card receipts When a retailer issued credit card receipts, additional issuance of a tax invoice is not allowed.

(i) Tax invoice at the time of importation

When importing goods, customs collectors are required to prepare and issue tax invoices in accordance with the provisions of the Customs Law.

(3) Cash Register (a) Installation

Traders who carry on retail businesses, ordinary restaurants, hotels, and other similar businesses shall install a cash register and issue tax invoices on which the consideration for the supply is recorded.

(b) Deemed bookkeeping and taxation on the basis of cash receipts

In the case where a trader issues tax invoices and keeps tapes of audit, he or she is deemed to have performed his obligation of bookkeeping and issuance of receipts. In relation to a taxpayer that has installed a cash register, value-added tax may be chargeable based on cash receipts.