Want to Save the VAT? Drive a Right Car

If you run a business in Korea, then you already know that the 25th of April marks the due date for your Q1 VAT payment. What many of you may not realize is that you can get a VAT rebate on all of your vehicle expenses - the purchase price, maintenance, fuel(Diesel or LPG only), etc. - but there’s a big secret on how to get that rebate. You have to buy the right kind of car.

Now you can of course purchase any car you want for getting around town and it will still be a business expense. A car that is going to be used by you and your company is still an expense, and the government doesn’t dictate the kind of car that your company chooses. The big difference here is that you can kiss that 10% Value Added Tax goodbye if you happen to purchase the wrong car. Choose a car that is obviously directly used for your company to transport more than just yourself and your family members and the government will happily allow you to write off the entire 10% VAT you just handed over to the car company as well. So you may want to spend a little more time deciding on the kind of car you’re going to get for your company and your biz.

First off, you should know that a nice 4-door sedan is probably out of the window. That’s pretty much for you, the wife and the kids - and the government knows it. Consider something bigger, like a nice mini-van or SUV. You’re still not there yet though. Want a Hyundai Starrex or a Ssangyong Korando? Make sure you get the Hyundai Starrex 9-seater version. If you go for the 7-seater, you’re entitled to zero back on the 25th. You have to be doing some serious people transport to get that VAT back buddy. And your Korando had better only be a 3-seater, ‘cause you’d better be schlepping around some serious cargo. Get that 4-seater and they’re on to you. You’re just taking the family camping with that thing.

So far any luxurious car expenses including Porche lease fee was allowed for the tax-deductible expenses but from the 2016FY, there is a limitation up to about 9mil.won per year and you need to verify where to drive and what for.

For more information on which car gets you 10% back and other tax tips, feel free to email me at jz@joezoh.com.