The Basics of VAT: What is Output Tax vs. Input Tax?

Part 9 of 20 · Beginner-friendly guide

Understanding Korean VAT: Output Tax vs Input Tax

VAT touches nearly every sale. Learn the 10% rule, how Output–Input works, why tax invoices matter, and when you pay or get a refund.

Contents 1) What VAT is (and who really pays) 2) The 10% standard rate (0% preview) 3) Output vs Input: the core formula 4) Quick numeric example 5) Tax invoice essentials & penalties 6) Filing & payment schedule 7) Common pitfalls & quick checks 8) Summary & next topic 9) Disclaimer

1) What VAT is (and who really pays)

Buy sneakers priced at KRW 100,000 and pay KRW 110,000? The extra KRW 10,000 is VAT. In Korea, VAT applies to the supply of goods/services and the import of goods. The final consumer bears the cost, while business operators collect and remit it.

Key idea: VAT is collected at each step but only on the value added at that step.

2) The 10% standard rate (0% preview)

Most domestic supplies are taxed at a flat 10%. Important exception: 0% (zero-rated) for exports and certain qualifying supplies—details next episode.

3) Output vs Input — the core formula

Term	Plain-English meaning
Output Tax	VAT you collect from customers on your sales.
Input Tax	VAT you pay to suppliers on your business purchases.

Core formula → VAT payable (or refundable) = Output − Input

If Output > Input → pay the difference. If Input > Output → potential refund (subject to rules and documentation).

4) Quick numeric example

Quarter snapshot

• Sales (VATable) value of supply: KRW 50,000,000 → Output VAT = KRW 5,000,000
• Purchases (VATable) value of supply: KRW 20,000,000 → Input VAT = KRW 2,000,000
• Net VAT = 5,000,000 − 2,000,000 = KRW 3,000,000 payable

If you invested in equipment: Input VAT = KRW 6,000,000, Output VAT = KRW 5,000,000 → Refund ≈ KRW 1,000,000 (with proper documentation).

5) Tax invoice essentials & penalties

To claim Input Tax and prove Output Tax, you need a proper tax invoice for each taxable sale/purchase. It should include:

1. Supplier & recipient names + business registration numbers
2. Value of supply and the VAT amount
3. Invoice date (and supply date, if different)

Penalties: Not issuing or late-issuing a required tax invoice can trigger surcharges. Missing input invoices usually means you can’t credit that input VAT.

6) Filing & payment schedule

Most businesses file quarterly—by the 25th day of the month following each quarter-end.

Taxable period	Due date
Jan 1 – Mar 31	Apr 25
Apr 1 – Jun 30	Jul 25
Jul 1 – Sep 30	Oct 25
Oct 1 – Dec 31	Jan 25 (following year)

Special industries (e.g., simplified taxpayers) may differ. We focus on the standard case here.

7) Common pitfalls & quick checks

• Wrong rate: Most domestic supplies use 10%. Export 0% needs strict documentary proof.
• Missing invoices: No proper tax invoice → typically no input credit.
• Non-business spend: VAT on personal/entertainment costs is generally not creditable.
• Timing: Match supply vs. invoice date; late issuance can shift deduction period and cause penalties.

Pro tip: Keep a quarter “VAT box” sheet: Output VAT, Input VAT, net payable/refund, and an invoice checklist.

8) Summary & next topic

• VAT is generally 10% on domestic supplies/imports.
• Businesses remit VAT on their value added: Output − Input.
• Tax invoices are essential for both collecting and crediting VAT.

Next (Part 10): Zero Tax Rate (0%) and Exemptions—who qualifies and what documents you need.

9) Disclaimer

This post is for general information only and not legal/tax advice. Rules can change; outcomes depend on your facts. Consult a qualified professional.

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Korean VAT Output Tax Input Tax Tax Invoice VAT Filing Korean Taxation Series KRTaxPolicy

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