Global Tax Alert (News from Indirect Tax) | 11 August 2015

South Korea applies VAT on electronic services provided by foreign service providers

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Executive summary

Effective as of 1 July 2015, the Republic of Korea's (Korea) revised Value Added Tax Law (VATL) requires a foreign service provider to register for and charge VAT on the supply of electronic services to customers in Korea. This Alert summarizes the key features and implications of this new law.

Detailed discussion

Definition of electronic service

Electronic service means the supply of: (1) game, audio, video files, electronic documents or software, or similar items that are processed by optical or electronic means and produced or modified in the form of codes, letters, audio, and video, and any similar items; and (2) the upgrade of such electronic service.

Registration requirement

The registration requirement applies to a foreign service provider who provides electronic services directly to its Korean customers without or through a permanent establishment (PE) in Korea. The registration is made with the Korean National Tax Service (NTS) in a simplified way through the NTS website1 within 20 days from the date of business commencement.2


A registered foreign service provider must file VAT returns and pay VAT on a quarterly basis. The due date of filing is on or before the 25th day, following a quarter-end month. The foreign service provider is not required to issue a VAT invoice.

However, if the electronic services to Korean customers are provided through an open market (e.g., open market app stores) or an intermediary agent for payment, the foreign service provider is no longer treated as a supplier of the services, since it is shifted to the open market or intermediary. Accordingly, the foreign service provider is not subject to the VAT requirements.


While this VAT regime seems to have been introduced for open market business operated for business to consumer services but would exclude a case where a nonresident or foreign corporation provides electronic services to businesses of a Korean entrepreneur.

Since no detailed guideline on the scope of covered services is yet issued, the term “software” may be interpreted very broadly. As a result, most information technology (IT) services could be covered by the new VAT regime for electronic services, which may significantly affect foreign IT businesses that provide electronic services to Korean customers.

Because the foreign service provider subject to the VAT regime is not required to issue a VAT invoice, it is unclear how Korean customers would be able claim the input VAT charged by the service provider.

Further clarification for the above issues is expected in the form of subordinate law by the Ministry of Strategy and Finance (MOSF). Foreign IT companies or group IT service providers may be significantly affected by this new VAT regime; accordingly, they may consider providing comments to the MOSF or seeking for a tax ruling if subsequent provisions issued by the MOSF are still unclear.



2. If the first day of business commencement is prior to 1 July 2015, the registration must be completed by 20 July 2015.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Han Young, Seoul
  • Kyung Tae Ko
    +82 2 3770 0921
  • Jeong Hun You
    +82 2 3770 0972
  • Jae Won Lee
    +82 2 3770 4601
  • Jin Hyun Seok
    +82 2 3770 0932
Ernst & Young LLP, Asia Pacific Business Group, New York
  • Chris Finnerty
    +1 212 773 7479
  • Kaz Parsch
    +1 212 773 7201
  • Bee-Khun Yap
    +1 212 773 1816
Ernst & Young LLP, Asia Pacific Business Group, Houston
  • Trang Martin
    +1 713 751 5775
Ernst & Young LLP, International Tax, New York
  • Hae-Young Kim
    +1 202 773 9026

EYG no. CM5662