Michaela Merz

South Korea – VAT on electronic service provided by foreign service providers – changes as of 1 July 2015

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234936_web_R_K_by_Jasper J. Carton_pixelio.deKorea joins the group of countries which require non-established companies to register and account for on their B2C sales of electronic service into South Korea. The VAT law has recently been amended to apply VAT to the supplies of electronic services (e.g. applications, games, music, films, electronic documents, software, etc.) purchased from non-resident service providers (i.e. offshore app developers or through offshore open markets app stores). If a non-resident or foreign corporation that has no business place in Korea provides local recipients electronic services, as defined in the presidential enforcement decree, that are activated through mobile device, computer, etc., then the relevant electronic services shall be considered as being provided in Korea. Accordingly, the foreign provider is subject to the simplified VAT registration process and VAT return filing through the website of National Tax Service (“NTS”) as well as for VAT payment on these services.
If a non-resident or foreign corporation provides Korean customers with electronic services through a third party (i.e. open market, intermediary for the electronic services, etc.) that is a non-resident or foreign corporation having no business place in the country, the third party is deemed to provide such electronic services in Korea and obliged to aforementioned VAT requirements.
The timing of supply of electronic service is the earlier of i) the time that a purchaser receives the electronic service from the supplier; and ii) the time that a purchaser completes the payment for the purchase. Some good news that the service providers concerned, will not be required to issue VAT invoices.
Please note that the law would be applied to both business-to-business and business-to-customer transactions. This requirement may not be entirely clear form the legislation, however PwC Korea had further conversations with the Ministry of Strategy and Finance (“MOSF”) and was advised informally that the new rules would cover both B2B and B2C electronic services, provided that they meet the criteria stated in the presidential enforcement decree.

To find out more how these changes may affect your business, please contact your local PwC representative:

Changho Jo / Samil PricewaterhouseCoopers
+82 2-3781-3264


Bildquelle: Jasper J. Carton / pixelio.de

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