Korean Simplified VAT Eligibility Checker

VAT-registered businesses in Korea fall into two groups: standard taxpayers and simplified taxpayers. A standard taxpayer pays output VAT minus input VAT, issues and receives tax invoices, and files quarterly or half-yearly. A simplified taxpayer pays sales times a low industry-specific rate and files once a year, a far lighter load. The trade-off is that input VAT cannot be recovered and customers who want tax invoices may be put off.

Enter your line of business, last year's sales and whether you have another business, and the calculator tells you whether the simplified regime applies, why not if it does not, and how much room you have before the threshold. A simplified taxpayer above a certain level of sales must still issue tax invoices, and it tells you whether that duty arises too.

People about to register a business and deciding which regime to register under. In the first year the test uses expected sales, but a business in an excluded industry must register as a standard taxpayer from the start, so the industry check comes first. Existing simplified taxpayers need to check each year whether sales crossed the line; if they did, they switch to the standard regime from July of the following year and the National Tax Service sends a notice.

Anyone buying a shop unit to let should run it as well. The rental threshold is under half the general one, so becoming a standard taxpayer on a modest rent is common. And anyone opening a second location should check first, because whether the existing business is a standard taxpayer decides whether the new one can be simplified.

부가가치세법 제61조제1항 defines the simplified taxpayer: a sole proprietor whose supply value in the previous year, meaning total sales including VAT, is below the threshold set by 시행령 제109조제1항, ₩104,000,000. The same paragraph lowers the threshold to ₩48,000,000 for real estate rental and taxable entertainment venues, and excludes from the outset anyone who has another business outside the simplified regime and anyone in an industry listed in 시행령 제109조제2항. The excluded industries include mining, manufacturing, wholesale, real estate dealing and professions such as lawyers and tax accountants.

The order of the test matters. First, is the industry excluded? If so, sales are irrelevant. Second, is there another business on the standard regime? If so, the new one cannot be simplified either. Third, compare last year's sales with the threshold for the industry; at or above it, you are a standard taxpayer. Only after clearing all three steps are you a simplified taxpayer, and if sales are then ₩48,000,000 or more, the proviso to 부가가치세법 제36조제1항 requires you to issue tax invoices despite being simplified.

Say you run a neighbourhood clothes shop, last year's sales including VAT were ₩50,000,000 and you have no other business. Retail is not excluded, there is no other business, and ₩50,000,000 is below the ₩104,000,000 threshold, so you are a simplified taxpayer with ₩54,000,000 of room to spare. But ₩50,000,000 is at or above ₩48,000,000, so the duty to issue tax invoices arises. If a customer asks for one you must provide it, and your filing grows accordingly.

If the same ₩50,000,000 were rent from a shop unit, the result flips. The threshold for real estate rental is ₩48,000,000, which you exceed by ₩2,000,000, so you are a standard taxpayer. Same sales, different industry, opposite outcome: that is the heart of the test. Conversely, a tax accountancy with only ₩20,000,000 of sales is a standard taxpayer from the start because the profession is excluded.

The most common is judging by sales alone. The industry exclusion comes first, and rental has its own threshold. The second is entering sales net of VAT. The threshold is compared with the VAT-inclusive total, so entering the net figure can wrongly put you under the line.

The third is assuming the simplified regime is always better. In a year of heavy purchases, such as fitting out premises or buying equipment, a standard taxpayer's input VAT refund can be worth more, and if most customers are businesses that want tax invoices, being simplified gets in the way. The fourth is trying to test a first-year business on last year's sales. The first year is judged on expected sales, but an excluded industry is standard regardless. This tool decides only whether the simplified regime applies; it does not compute the tax itself.