Register a business in Korea and the first tax you meet is VAT (value-added tax) — the 10% you collect from customers and remit to the government.
1. What you pay. Annual turnover decides it. Below ₩48 million you are a simplified taxpayer exempt from payment (you file, but owe nothing). Between ₩48 million and ₩104 million you are simplified at a reduced rate. At ₩104 million and above you are a general taxpayer — 10%, with full input credit.
2. Where the risk is. Some sectors and situations are barred from simplified status regardless of turnover. And failing to collect input documentation (tax invoices, a registered business card) raises your bill directly — VAT is output tax minus input tax.
3. What to do. General taxpayers file by 25 July and 25 January. And note that ₩104 million is not a figure in the Act — the law sets only “from ₩80 million up to 130% of that” and leaves the amount to the Enforcement Decree, so the line can move without new legislation.
The 3 August 2026 bill trims the VAT credit on card sales. The preferential rate falls from 1.3% to 1.2% (2027–2029) with the sunset extended three years, and the preferential cap drops from ₩10 million to ₩5 million a year (from 2027) — the same as the standard cap. The preferential cap itself then sunsets. Still a government bill — everything below is current law. See our guide to the 2026 tax reform bill.
Here are the confusing parts, cleared up for 2026.
What VAT is
VAT isn't your earnings — it's tax you collect from customers on the government's behalf. You remit the difference between VAT collected on sales and VAT you paid on purchases.
| Term | Meaning |
|---|---|
| Output VAT | Collected on sales (supply × 10%) |
| Input VAT | Paid on purchases (tax invoices, cards) |
| Payable | Output − Input |
So the better you document purchases, the less you remit.
General vs simplified
The key fork, split by annual revenue.
| Item | General | Simplified |
|---|---|---|
| Threshold | ≥ 104M won | < 104M won |
| Rate | 10% | Sector value-added rate × 10% (lower) |
| Input credit | Full | Limited |
| Tax invoices | Yes | Limited (required above 48M) |
| Filings/year | 2 | 1 (next January) |
Simplified is lighter but limits input credits/refunds, so businesses with big startup purchases may prefer general.
Payment exemption — under 48M won
Simplified taxpayers under 48M won in revenue are exempt from paying VAT (still file). This differs from a “tax-exempt business” (no VAT at all by sector).
| Annual revenue | VAT burden |
|---|---|
| Under 48M | Simplified + payment exempt (file only) |
| 48M – 104M | Simplified (reduced rate) |
| 104M+ | General (10%, full input credit) |
Filing periods
- General — H1 (Jan–Jun) by Jul 25, H2 (Jul–Dec) by Jan 25.
- Simplified — once a year, by Jan 25.
- How — Hometax e-filing, largely pre-filled.
A worked case: opening a small cafe
A one-person cafe turning over about 60 million won a year: ① it is a simplified taxpayer (under 104 million), ② turnover is above 48 million so it is not exempt from paying, but the reduced rate applies, ③ if the fit-out and equipment in the first months mean large input VAT, registering as a general taxpayer to claim the refund may be worth more, ④ which way it falls depends on how big the up-front spend is — so work it out before you register.
Choosing general vs simplified
| Situation | Better choice |
|---|---|
| Big startup fit-out/equipment | General (input refund) |
| Small purchases and sales | Simplified (reduced rate) |
| Clients need tax invoices | General |
| Revenue under 48M | Simplified (payment exempt) |
Note: a simplified taxpayer whose revenue exceeds 104M won is auto-converted to general the next year (and back if it falls).
A checklist for a first-time owner
- ☐ Decide simplified or general from your expected turnover (consider general if early purchases are large)
- ☐ Keep proof of purchases with tax invoices and a business card
- ☐ The VAT you collect is not your money — set it aside
- ☐ Mark the filing months (January and July) on the calendar
- ☐ Do not confuse it with the May income tax return (global income tax is a separate filing)
Where general and simplified get confused
Is simplified always better?
No — it limits input credits/refunds. With big startup purchases, general can refund more.
Is VAT the same as income tax filing?
No. VAT is Jan/Jul; income tax is May. Business owners file both.
Under 48M — skip filing?
Payment is exempt, but you still file.
Can I spend the VAT I collected?
No — it's held on the government's behalf. Set it aside.
Exempt from paying is not exempt from filing
The 48 million won threshold removes the payment, not the paperwork. A simplified taxpayer under that line still files by 25 January, and still files in a year with no sales at all. Skipping it is what turns a zero-won bill into a penalty. There is a second reason to file properly even when nothing is due: recording your purchase invoices now preserves the deduction if your turnover later pushes you into general taxpayer status. A quiet first year filed correctly is worth real money in the second.
“104 million won” is not a number in the Act
Follow the line that divides simplified from general taxpayers back to its source and the figure is not in VAT Act art. 61. The Act sets a range and leaves the amount to the Decree — which means it can change.
The figure 104 million won does not appear. Art. 61(1) reads: “an individual business operator whose total supply value for the preceding year falls below the amount prescribed by Presidential Decree within the range from 80 million won to 130 per cent of 80 million won.”
The Act sets only a band and delegates the figure. Work out the top of that band and: 80 million x 1.3 = 104 million won (our arithmetic). The number we have been quoting is the ceiling the statute permits.
| Item | Amount | Where it lives |
|---|---|---|
| Bottom of the statutory band | 80M won | VAT Act art. 61(1) |
| Top of the band (130%) | 104M won | our arithmetic |
| The figure actually applied | 104M won | Decree art. 109(1) — “104 million won” |
The Decree was opened this time. Art. 109(1) states “104 million won” — the amount the executive picked sits exactly at the ceiling the Act allows. The figure this article had long left unconfirmed is now closed.
Why it still matters — the threshold can be lowered to 80 million won by amending the Decree alone, without touching the Act. It happens to sit at the ceiling today, with 24 million won of room to fall. That is the structural reason not to trust a figure in an older notice.
Put the statutory range and the Decree's figure on one axis and you can see where the number stands.
Small turnover does not always mean simplified
The same provision's proviso states that “the following business operators shall not be regarded as simplified taxpayers” and lists four.
- Operators holding another place of business to which simplified treatment does not apply (subpara. 1)
- Operators prescribed by Presidential Decree considering sector, scale and region (subpara. 2) — Decree art. 109(2) lists thirteen (table below)
- Operators in real-estate leasing or a taxable entertainment venue whose preceding-year supply value in that line reaches 48 million won (subpara. 3)
- Operators with two or more places of business whose combined preceding-year supply value reaches the threshold (subpara. 4)
The thirteen in Decree art. 109(2)
Opened this time and copied across. However small the turnover, these lines of business cannot use simplified treatment.
| Subpara. | Business | Proviso |
|---|---|---|
| 1 | Mining | — |
| 2 | Manufacturing | excludes those supplying mainly direct to final consumers, as prescribed by Ministry rule |
| 3 | Wholesale and commodity brokerage | includes wholesale run alongside retail; excludes collection and sale of recyclables |
| 4 | Real-estate dealing | — |
| 5 | Taxable entertainment venues | as prescribed by Ministry rule |
| 6 | Real-estate leasing | as prescribed by Ministry rule |
| 7 | Licensed professional services | lawyers, patent and judicial scriveners, accountants, tax agents, appraisers, architects, labour attorneys, doctors, pharmacists, vets and the like |
| 8 | A business acquired from a general taxpayer | excluded if, after acquisition, supply value stays below 104m won and none of subparas. 1–7 or 9–14 applies |
| 9 | Whatever meets criteria set by the Commissioner of the NTS | weighing the location of the premises and the sector and scale |
| 10 | Business run by a double-entry bookkeeper on the two-years-prior test | applying Income Tax Decree art. 208(5) |
| 11 | — | deleted 17 Feb 2021 |
| 12 | Electricity, gas, steam and water supply | — |
| 13 | Construction | excludes those supplying mainly direct to final consumers, as prescribed by Ministry rule |
| 14 | Professional, scientific and technical services; facilities management, business support and rental services | excludes those supplying mainly direct to final consumers, as prescribed by Ministry rule |
The corner bakery is not caught because of the proviso to subpara. 2 — a maker that sells mainly direct to final consumers drops out. What exactly falls inside is left to a Ministry rule, and the criteria under subpara. 9 are an NTS notice, so they are not in the Decree either. If your line of business sits near the edge, ask the district tax office before you register.
That 48 million won is a different 48 million from the payment exemption above. For real-estate leasing and entertainment venues the same figure is the line at which simplified status is unavailable at all — exclusion, not exemption from paying.
New businesses are annualised — art. 61(2): “the supply value from the commencement date to the end of that taxable period, converted to a 12-month equivalent,” and “any fraction of less than one month shall be counted as one month.”
Group the thirteen by where each proviso sends you and most of them do not end in the Decree.
Sources and where to check
- Seoul Labor Rights Center — the VAT payment exemption. Turnover under 48 million won exempts you from paying, but not from filing; new businesses are judged on a 12-month equivalent.
- Seoul Labor Rights Center — filing as a simplified taxpayer. You file by 25 January even with no sales; penalties are 20% for not filing and 10% for under-reporting.
- Seoul Metropolitan Government — VAT filing notice. Confirms that general taxpayers file in July on January–June trading.
- Korean Law Information Center — statute — VAT Act art. 61 (scope of simplified taxation) (in force 2 Jan 2026, Act no. 21065). Source for the “80 million won to 130 per cent thereof, as prescribed by Presidential Decree” delegation, the four exclusions (other place of business, Decree-designated operators, real-estate leasing and entertainment venues at 48 million won, combined multi-site turnover), and the 12-month annualisation with fractions counted as a full month. The long-unconfirmed 104 million won is now explained: it is absent from the Act and equals 130% of 80 million.
- Korean Law Information Center — the Decree — VAT Enforcement Decree art. 109 (scope of simplified taxation) (in force 27 Feb 2026, Presidential Decree no. 36133; checked August 2026). Paragraph (1) fixes the Act's “amount prescribed by Presidential Decree” at “104 million won”, and paragraph (2) lists thirteen excluded lines of business — mining, manufacturing, wholesale, real-estate dealing, entertainment venues, real-estate leasing, licensed professional services, acquired businesses, whatever meets NTS criteria, two-years-prior double-entry bookkeepers, utilities, construction, and professional and technical services (subpara. 11 was deleted in 2021; the paragraph was last amended 30 Dec 2025). This is the Decree the article twice said it had not opened.
Written as of July 2026. The 48 million won exemption, the simplified filing deadline and the penalty rates come from the pages above. The long-unconfirmed 104 million won line was checked against VAT Act art. 61 this time — the Act contains no such figure, only a band of “80 million to 130 per cent thereof,” with the actual amount set by Decree. 104 million is the top of that band (80 million x 1.3). The Decree was opened this time — art. 109(1) gives 104 million won. Because that amount lives in a Decree it can change at any time, so check once more on Hometax before you register. Sector value-added rates were also revised in 2021, so older notices carry different figures. This is not tax advice. See also comprehensive income tax and the tax calendar. If you also file comprehensive income tax, the income tax calculator estimates that side. For the VAT itself there is the VAT calculator, which shows both regimes side by side and works out how large purchases must be before the general regime is cheaper.
