ASIA: South Korea Proposes Amendments to VAT Act for 2025 Budget

The South Korean National Assembly accepted Bill No. 2204961, a proposal to amend the Value-Added Tax (VAT) Act as part of the 2025 budget package. The bill includes measures to encourage digital compliance, prevent tax evasion, and extend support for small businesses.

Extending VAT deduction for e-invoices

One of the key changes in the bill is the extension of the VAT deduction period for electronic invoices. The current deadline of December 31, 2024, would be pushed to December 31, 2027. This extension applies to individual business owners whose total annual supply of goods and services was below 300 million KRW (about USD 217,463) in the previous year. The change aims to support small businesses by incentivizing digital invoicing and easing compliance burdens.

Higher surcharge for false business representation

To curb fraudulent practices, the bill proposes to increase the surcharge rate for businesses operating under false pretenses. For general taxpayers, the rate would increase from 1% to 2% of the total supply price, while for individual taxpayers, it would rise from 0.5% to 1%. This adjustment reflects a stronger stance on tax evasion, encouraging businesses to operate transparently.

Imposing VAT on non-supplied invoiced items

Another important measure would impose VAT on businesses that issue tax invoices without supplying goods or services in the taxable period. This addition addresses cases where invoices are issued without actual transactions, a tactic used to evade taxes. By enforcing VAT in these situations, the bill seeks to close existing loopholes.

Implementation date

If passed, the amended VAT Act would take effect on January 1, 2025, aligning with the new fiscal year and allowing businesses and tax authorities to prepare for the changes.