Regulatory updates - South Korea

The final version of the 2022 Tax Revision Bill (approved in December of 2022) stipulates that as of 1 July 2023, if suppliers cannot issue invoices in specific scenarios, purchasers may issue VAT invoices for the supply of goods and/or services to deduct input VAT later.

The above applies exclusively to goods and services that hold VAT liability. Exempt supplies regarding VAT do not bear the same opportunity; therefore, a purchaser may not issue a VAT invoice for them. Subsequently, the purchaser-issued invoices require confirmation from a district tax office.

The tax revision bill can be read here.

As we’ve mentioned in the previous update, the South Korean government has been operating an electronic tax invoice system for over a decade. The scope of taxpayers required to adhere to the tax invoice scheme continues to expand under a static set of guidelines and requirements. These changes are as well pertinent to amendments to the VAT act.

With the lowering of the threshold, entities new to the scheme and obligation must now comply with requirements, such as issuing invoices in a predefined XML format with a digital signature.

Furthermore, the documents will be mandatory to retain for 5 years.

Non-compliance with the above regulations may result in penalties (known as penalty tax) of up to 2% of the transaction amount.

The government of South Korea introduced the electronic tax invoice system in 2010 to decrease business costs, increase data transparency, and improve work efficiency. E-invoicing became mandatory for corporate business entities the following year, and individual entrepreneurs with certain thresholds have been included in the scope since 2012.

Now, the scope is extending to more taxpayers. According to the VAT Act amendment, the threshold of the e-invoicing obligation will be reduced from KRW 300 million (ca EUR 220 000) to KRW 200 million (ca EUR 147 000) from 1 July 2022. VAT payers who are obliged to issue e-invoices but still issue paper invoices will be fined by penalty tax. The penalty tax will also be imposed for e-invoice issuance and transmission delays, varying between 0,3% and 2%.

Taxpayers can use Hometax or their ERP systems to issue electronic VAT invoices. Invoices issued in the Hometax will automatically be transmitted to the National Tax Service (NTS). In the case of using ERP systems, businesses will need to report their invoices to the NTS by the next day after the invoice is issued.