VAT refund

The advantage of overseas sales is definitely the VAT refund (low tax rate applied). As you know, products or services sold domestically include a 10% VAT. However, in Korea, which has been pursuing an export-oriented economic policy for decades, a VAT refund system is in place for transactions recognized as exports to encourage exports. Of course, you can also receive a VAT refund for items sold through online marketplaces or overseas sales shopping malls. The basic conditions for receiving a refund are as follows.

1. Registering a business in Korea (individual business (general), corporate business)
2. Documents proving overseas shipment (parcel receipt: K-Packet shipment data, tracking information proving overseas shipment such as FedEx)
3. Documents proving overseas sales (PayPal deposit history, etc.)

When I started selling on eBay, the CEO of a company that I was an industry senior and acquaintance of mine suffered from tremendous stress whenever the VAT filing period came. This company, which sold games to domestic shopping malls and open markets, had internal issues and laid off its employees, but it was managed by the CEO and two workers, and sales were still over 100 million won per month. The two people were making 100 million won in sales, which was an enviable amount, but they were having major internal concerns. The products they were selling were games, and the game category was a product with low margins, and the sales structure was such that there was almost nothing left after deducting the open market commission. In particular, the CEO's stress reached its peak whenever the VAT and income tax filing period came. As time passed, work became very busy, sales increased, but there was no profit to reinvest, so after a few years, the business had no choice but to close. On the other hand, our company, which received goods from this company, was happy about the VAT filing period because it received a VAT refund. We were able to reinvest the VAT refund and create new opportunities.

​Many people tend to think of VAT refunds as a benefit to the company, but you must keep in mind that VAT refunds are not sales. It is extremely dangerous to make VAT refunds a business model in and of themselves.

FAQs on Business Registration for VAT Refund

We have compiled some frequently asked questions regarding VAT refunds.

Q. Can simplified taxpayers also receive a VAT refund?
A. No. You must be registered as a general business or corporate business to receive a VAT refund.

Q. In order to receive a VAT refund, what items should be included in the business registration certificate regarding the business type and items?
A. When selling online, you generally select the business type (wholesale/retail) and category (e-commerce), so there is no need to separately add trade to the business type for VAT refund.

Q. The supplier of the goods (wholesaler) is registered as a simplified taxpayer. How can I receive a tax invoice in this case?
A. Simplified taxpayers cannot issue tax invoices. To receive a VAT refund, you must receive an invoice from a general or corporate business operator.

Q. I only sell overseas. Do I need to report as a mail order business?
A. No. If you only sell overseas, it is not necessary to report as a mail order business. However, if you report as a mail order business when using the post office EMS, you can receive an additional discount. If you also sell domestically online, you must report as a mail order business.

Additionally, if you sign up as a member of the trade association, you can receive various trade-related services and discounts on international express services such as FedEx and DHL.

Government-provided export company benefits

The government provides a wide range of benefits to exporting companies, including low-interest export loans, marketing support, interpretation support, and market development projects, compared to importing companies, through each ministry.

▲ Small and Medium Business Administration Export Marketing Support Project

▲ Gobiz Korea Export Company Support Project

▲ KOTRA export company related business

In order to be certified as an export company on the site, an export declaration certificate is required. Although an export declaration certificate is not required for VAT refunds, if you make an export declaration, you can participate in low-interest government loans and various export support programs in addition to VAT refunds. Recently, the post office and Unipass system have been linked to automatically make export declarations when processing overseas shipments using K-Packet, which has drastically reduced the time and cost of export declarations. In the next post, we will discuss the specific process for export declarations.

▲ Automation of export declaration using K-Packet

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If you are selling overseas, VAT refund is a benefit you must enjoy. Are you still hesitating to apply for VAT refund because tax reporting or export reporting is too cumbersome? It is a system that can be of great help to business owners in the long run, so please be sure to apply for VAT refund.