Under relevant Korean VAT Laws, 10% VAT may be exempt in South Korea for certain sales. This post describes zero-rated sales conditions for services provided to foreign clients in the Republic of Korea (ROK).
In order to be VAT exempt (zero-rated sales), all of the following conditions must be met:
- Services provided to non-resident or foreign companies in Korea;
- Foreign currency received (e.g. USD);
- Service being provided is listed under the law (see below Article 33 (2) 1 (a)-(k)); and
- In case service type (b), the relevant foreign country (CLIENT country) shall have the mutual tax exemption policy for Korean tax residents.
In order to review 4) above, we have to first see if the relevant country is listed under Korean VAT Laws. For example, Singapore has an agreement with South Korea, but China does not. Thus, if a Korean company is providing services to Singaporean clients and all of the above conditions are met, that service fee shall be VAT exempt in Korea. Since South Korea does not have a mutual agreement with China, when a Korean company provides services to Chinese clients, there shall be 10% VAT unless Chinese tax authority provides official documents for tax exemption in the ROK.
