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Navigating Electronic Tax Invoices: Compliance and VAT Law in Business Transactions in Korea

  • Expansion of Mandatory Electronic Tax Invoicing in South Korea: Lower Thresholds for Compliance

    Korea continues to advance its electronic tax invoicing (e-Tax) system, broadening the scope of mandatory compliance to include a wider range of businesses. Effective July 1, 2024, the threshold for mandatory e-Tax invoicing will be lowered, impacting numerous small and medium-sized enterprises.

    Key Changes:

    • Reduced Threshold: Businesses with annual sales equal to or exceeding ₩80 million (approximately $60,000) in the previous year are now required to issue electronic tax invoices. This adjustment lowers the threshold from the previous ₩100 million, thereby encompassing a broader spectrum of businesses.


    • Mandatory Compliance: The e-Tax system mandates that qualifying businesses issue electronic invoices for all taxable transactions and report these to the National Tax Service (NTS) promptly, typically within one day of issuance.


    Compliance Requirements:

    1. Digital Certification: Businesses must obtain a certified digital signature to authenticate electronic invoices. This can be acquired through the National Tax Service (NTS) or authorized certification authorities.


    2. Invoice Issuance: Electronic tax invoices should be issued at the time of supply of goods or services. In certain cases, issuance can occur up to the 10th day of the following month.


    3. Timely Transmission: Issued e-Tax invoices must be transmitted to the NTS immediately after issuance. Monthly summaries can be submitted by the 10th of the following month.


    4. Record Keeping: Businesses are required to retain electronic invoices for a minimum of five years, ensuring they are stored in the proper electronic format and are digitally signed.


    Penalties for Non-Compliance:

    • Non-Issuance or Incorrect Format: Failure to issue an electronic tax invoice, or issuing it in an incorrect format, may result in a penalty of 2% of the transaction value for both the supplier and the buyer.


    • Delayed Transmission: Not transmitting the issued e-Tax invoice to the NTS by the stipulated deadline can incur a penalty of 1% of the transaction value.


    Implications for Businesses:

    This regulatory change signifies the South Korean government's commitment to enhancing tax transparency and compliance through digital means. Businesses falling within the new threshold must adapt their invoicing processes to meet e-Tax requirements, which may involve integrating electronic invoicing systems or utilizing services provided by the NTS or certified Application Service Providers (ASPs).


  • Recommendations:

    • Assess Eligibility: Businesses should review their annual sales to determine if they meet or exceed the ₩80 million threshold, thereby falling under the mandatory e-Tax invoicing requirements.

    • Implement Necessary Systems: For those affected, it is crucial to establish or upgrade electronic invoicing systems to ensure compliance. This may involve training staff, acquiring digital certificates, and possibly consulting with tax professionals to navigate the transition effectively.

    • Stay Informed: Regularly consult official communications from the National Tax Service and seek professional advice to remain updated on any further changes to tax regulations.

    By proactively addressing these requirements, businesses can ensure seamless compliance with South Korea's evolving tax landscape, thereby avoiding potential penalties and contributing to a more transparent economic environment.

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