In July 2024, the Korean government introduced important changes to its Value Added Tax (VAT) system.
These reforms are aimed at simplifying the taxation process for businesses, broadening the scope of simplified taxation, mandating the use of electronic tax invoices, and adding new rules for specific industries.
In this blog, we will break down these changes in easy-to-understand terms and provide insights on how businesses can navigate the new VAT landscape effectively.
1. Expansion of the Scope of Simplified Taxation
One of the significant changes in the renewed VAT policy is the expansion of the scope for simplified taxation. Previously, businesses with an annual turnover of less than 80 million won could opt for simplified taxation. This threshold has now been increased to 104 million won.
What is Simplified Taxation?
Simplified taxation is a system designed to ease the tax burden on small businesses. Instead of following the standard VAT reporting process, businesses under simplified taxation pay a lower percentage of VAT on their sales. This system reduces administrative costs and simplifies the tax filing process.
What Has Changed?
Before the update, businesses like beauty salons operating in metropolitan areas, even with low sales, were excluded from simplified taxation if they had a business area larger than 40m². Now, regardless of business size or location, any business with annual sales under 104 million won can apply for simplified taxation.
This change benefits small businesses by reducing their tax liability and administrative overhead, making it easier for them to comply with VAT regulations. Whether you're running a local café, beauty salon, or small retail store, this new threshold could help you simplify your tax responsibilities.
2. Mandatory Electronic Tax Invoice Issuance for More Businesses
Another crucial update is the expansion of the requirement to issue electronic tax invoices. Previously, only businesses with annual sales of 100 million won or more were required to issue electronic tax invoices. Under the new law, this threshold has been lowered to 80 million won.
What is an Electronic Tax Invoice?
An electronic tax invoice is a digital document that records transactions between a buyer and a seller, making it easier for the government to monitor VAT payments. This system reduces the risk of tax evasion and errors in tax reporting.
Who Needs to Issue Electronic Invoices?
With the revised threshold, any business with sales of 80 million won or more in the previous year is now required to issue electronic tax invoices, regardless of whether they fall under the general or simplified taxation system. Businesses can check their status for electronic tax invoice issuance through the My Home Tax portal.
This change means that a broader range of small and medium-sized businesses will need to adopt electronic invoicing practices. While this might require some adjustments, the electronic system simplifies record-keeping and ensures smoother tax compliance in the long run.