Part 10 of 20 · Beginner-friendly guide

Zero Tax Rate in Korea: The Secret to Boosting Exports

Korea’s VAT has a powerful exception: the 0% rate. Learn why exports are zero-rated, how refunds arise, and what documents prove eligibility.

Contents 1) What is the zero tax rate? 2) Destination principle (why 0% exists) 3) The exporter’s superpower: VAT refunds 4) Where 0% applies (typical cases) 5) Evidence & documentation checklist 6) Quick numeric example 7) Common pitfalls & quick checks 8) Summary & next topic 9) Disclaimer

1) What is the zero tax rate?

Instead of the general 10% VAT, certain transactions are taxed at 0% (zero rate). Most importantly, this applies to exports of goods and specific overseas services/navigation. Selling the same item domestically → 10%; selling to an overseas customer → 0%.

2) Destination principle (why 0% exists)

VAT should be paid where the good/service is consumed, not where it was produced. So:

• Export from Korea → consumed abroad → Korea applies 0%.
• Import into Korea → consumed in Korea → VAT is imposed at customs.

Effect: Zero-rating keeps Korean exports price-competitive; the destination country taxes consumption at its border/sales stage.

3) The exporter’s superpower: VAT refunds

Recall Episode 9: VAT payable = Output − Input. With zero-rated exports:

• Output tax = 0 (rate is 0%).
• Input tax = VAT paid on Korean purchases (usually 10%).

Result: Refund of input VAT, lowering costs and boosting cash flow for exporters.

4) Where 0% applies (typical cases)

• Export of goods: Direct exports, certain intermediary trade, bonded export supplies, etc.
• Overseas supply of services: e.g., Korean engineering firm consulting on a foreign infrastructure project.
• Overseas navigation: Services by ships/aircraft engaged in international routes.

Eligibility is rule-based; ensure the transaction meets statutory categories.

5) Evidence & documentation checklist

To claim 0% and refunds, keep robust evidence. Typical items include:

• Export record statements (customs/export declarations, shipping docs, airway bills, bills of lading)
• Foreign currency receipts (bank advice, FX receipt confirmations)
• Contracts & invoices stating buyer is overseas and the place of use/performance (for services)
• Navigation logs for vessels/aircraft on international routes

Tip: Missing documents → zero rate may be denied → input VAT not refunded. Archive digitally by period and customer.

6) Quick numeric example

Exporter quarter snapshot

• Export sales (value of supply): KRW 80,000,000 → Output VAT = 0
• Korean purchases (VATable): KRW 44,000,000 → Input VAT = KRW 4,000,000
• VAT result = 0 − 4,000,000 = KRW 4,000,000 refund (subject to documentation)

Cash-flow tip: Align refund claims with quarterly filing; ensure export docs are matched to invoices.

7) Common pitfalls & quick checks

• Docs first: Zero rate is evidence-driven. Keep customs, FX, and contract proof.
• Service location: Confirm where the service is used/performed; not all cross-border services qualify for 0%.
• Mixed supplies: Split invoices by 0% vs 10% lines; avoid lump-sum ambiguity.
• Timing: Match export date, invoice date, and FX receipt to the same period to prevent refund delays.

Pro tip: Build a “zero-rate pack” per deal: contract, export declaration, bill of lading/airway bill, FX receipt, and customer VAT ID (if relevant).

8) Summary & next topic

• Zero rate applies key VAT principle: tax where consumed.
• Exports at 0% create input VAT refunds—a real cost advantage.
• Winning the refund is about eligibility + documentation.

Next (Episode 11): Tax Exemptions—how they differ from 0% and why they target essentials (e.g., education, certain foods).

9) Disclaimer

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

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Zero-rated VAT Export VAT Refund Destination Principle Korean VAT International Trade KRTaxPolicy Korean Taxation Series

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