The National Tax Service of South Korea provides valuable information through their official blog on how taxpayers can strategically save on their Value-Added Tax (VAT). This guide, part two of a series, focuses on points related to sales.
Transfer of Business without VAT imposition
One critical VAT saving point relates to the transfer of a business. When a business is sold together with all the rights and obligations related to that business, VAT is not imposed.
Let’s take the case of Kim Jae-san, a retiree who decided to invest in a commercial property to generate rental income. He purchased a commercial building worth 1 billion won with an additional VAT of 100 million won. Realizing that he has to fully pay the purchase price before getting the VAT refund caused him financial trouble. However, because Kim continued the rental business and followed the legal procedures such as drafting a transfer contract while maintaining the same tenant, the transaction was considered a “business transfer” and was not subject to VAT. Therefore, Kim was able to mitigate his financial burden.
It’s important to note that in such cases, the seller is required to fill out a business transfer report and submit it when filing for VAT closure confirmation.
Caution with Service Charges in Entertainment and Food Businesses(유흥음식점업)
Businesses that operate in the entertainment and food business such as nightclub, karaoke bar, or so often deal with service charges or tips given to employees. If these tips are paid directly by the customers to the employees, the business only needs to report the food service as revenue.
However, problems arise when the total payment, including the service charge, is made through credit card. In such scenarios, the business owner might unintentionally pay VAT for the service charge given to the employee. Therefore, businesses must remember to correctly record the service fee separately for tax purposes.
The NTS continues to inform the public and business owners on more intricate details related to VAT. It believes that being informed can lead to significant savings and being compliant.
Disclaimer : This content is a translation of material originally published in Korean by the National Tax Service of the Republic of Korea. While efforts have been made to ensure accuracy, this translation is provided for informational purposes only and does not carry legal weight. In the event of any discrepancy, the original Korean version shall prevail. Users should consult the official Korean documents for precise interpretation. This translation does not constitute legal advice. The translators and publishers shall not be held liable for any loss arising from reliance on this translation.