Zero-rated Sales in Korea

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.




Article 33 (Scope of Goods or Services Supplied for Acquisition of Foreign Currencies

(2) “Which is prescribed by Presidential Decree” in Article 24 (1) 3 of the Act means the supply of any of the following: <Amended by Presidential Decree No. 26071, Feb. 3, 2015; Presidential Decree No. 26983, Feb. 17, 2016; Presidential Decree No. 27838, Feb. 7, 2017; Presidential Decree No. 30397, Feb. 11, 2020>

1.  Any of the following goods or business services that are supplied in the territory of Korea to a nonresident (excluding an individual having his or her residence in the Republic of Korea, an employee of a diplomatic office, etc. provided for in Article 24 (1) 1 of the Act, and a service person or civilian employee of United Nations Armed Forces or United States Armed Forces permanently stationed in the Republic of Korea; hereafter the same shall apply in this paragraph) or foreign corporation having no domestic place of business, the price of which is paid in Korean won at a foreign exchange bank or in a manner prescribed by Ordinance of the Ministry of Economy and Finance: Provided, That the professional activities referred to in item (b) and the services referred to in items (h) and (i) shall be limited to where the relevant foreign country grants the identical tax exemption as provided for herein to Korean residents or corporations (referring to where the relevant foreign country has no provisions governing taxes equivalent to the value-added tax or other similar taxes of the Republic of Korea or exempts Korean residents or corporations from those taxes; hereafter the same shall apply in this paragraph):

(a)  Goods delivered to a domestic entrepreneur designated by a nonresident or foreign corporation for the entrepreneur’s taxable business;

(b)  Professional, scientific, and technical activities (excluding veterinary activities, activities of head offices for manufacturing, and activities of head offices for other industries);

(c)  Leasing of intangible property rights among business support and leasing services;

(d)  Communications services;

(e)  Repair of containers; storage and warehousing within bonded areas; and the shipping agency services, marine transportation brokerage business, and vessel management services under the Marine Transportation Act;

(f)  News agency activities, video and audio records production and distribution services (excluding operating a theater or a video-viewing establishment), software development, computer programming, system integration and management, data processing, hosting, portals and other Internet information media service activities, and other information service activities, which all belong to the category of information and communications services;

(g)  Brokerage of commodities;

(h)  Business facilities management and business support service activities (excluding landscape care and maintenance service activities, activities of travel agencies and tour operators, and other tourist assistance activities);

(i)  Investment advisory services under Article 6 (1) 4 of the Financial Investment Services and Capital Markets Act;

(j)  Educational services (limited to educational support activities);

(k)  Human health activities (limited to cases of supplying clinical trial services);

(l)  Goods or services similar to those provided for in items (a) through (j), which are prescribed by Ordinance of the Ministry of Economy and Finance;

Here is the list of countries with the date of amendment (as of August 1, 1998):

25-0-1 【상호면세국의 범위】 Examples of countries having mutual agreement for VAT exemption

  1. Greece (Amended on August 1, 1998)
  2. South Africa (Amended on August 1, 1998)
  3. Netherlands (Amended on August 1, 1998)
  4. Norway (Amended on August 1, 1998)
  5. New Zealand (Amended on August 1, 1998)
  6. Denmark (Amended on August 1, 1998)
  7. Lebanon (Amended on August 1, 1998)
  8. Liberia (Amended on August 1, 1998)
  9. Malaysia (Amended on August 1, 1998)
  10. United States (Amended on August 1, 1998)
  11. Venezuela (Amended on August 1, 1998)
  12. Belgium (Amended on August 1, 1998)
  13. Saudi Arabia (Amended on August 1, 1998)
  14. Germany (Amended on August 1, 1998)
  15. Sweden (Amended on August 1, 1998)
  16. Switzerland (Amended on August 1, 1998)
  17. Singapore (Amended on August 1, 1998)
  18. United Kingdom (Amended on August 1, 1998)
  19. Iran (Amended on August 1, 1998)
  20. Italy (Amended on August 1, 1998)
  21. India (Amended on August 1, 1998)
  22. Indonesia (Amended on August 1, 1998)
  23. Japan (Amended on August 1, 1998)
  24. Taiwan (Amended on August 1, 1998)
  25. Chile (Amended on August 1, 1998)
  26. Canada (Amended on August 1, 1998)
  27. Thailand (Amended on August 1, 1998)
  28. Panama (Amended on August 1, 1998)
  29. Pakistan (Amended on August 1, 1998)
  30. Finland (Amended on August 1, 1998)
  31. Australia (Amended on August 1, 1998)
  32. Hong Kong (Amended on August 1, 1998)
  33. France (Amended on August 1, 1998)

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