A detailed understanding of and compliance with South Korea's complex invoicing regulations, such as those requiring electronic invoice issuance and real-time clearing systems, is essential for businesses operating within the country's dynamic invoicing market.
If you don't, you risk penalties and a diminished chance of success in the competitive market.
In this post, we will provide valuable insights into South Korea's e-invoicing landscape, including topics like sending compliant e-invoices, particular specifications for format and payment information, transmission networks, digital signatures, archiving rules, and penalties for non-compliance.
What are the e-invoicing rules in South Korea?
The e-tax revolution includes the reporting of electronic invoices in several jurisdictions, including South Korea. But before the 2010 implementation of the e-invoicing legislation, the country had a well-developed concept of e-invoice reporting.
Taxpayers were previously required to mail paper invoices to NTS. This process has been significantly expedited and made easier by the advent of e-invoices, which has also improved the efficiency of tax audits and fraud detection.
The e-invoicing rules became effective in January 2010. Following its launch, a number of adjustments were made, extending the concept's applicability to more taxpayers.
However, it was first declared mandatory for all Korean corporate taxpayers in 2011.
In 2012, the duty was expanded to include all companies with annual revenues of more than 1 billion KRW. In both 2014 and 2019, the income level at which e-invoicing would be required was gradually lowered.
According to the VAT Act, the threshold was further lowered in July 2022, when it became necessary for individual business owners whose total taxable supply value for the previous year was 200 million KRW (about $160,000) or higher to issue electronic invoices.
Here are some general guidelines to keep in mind:
- From July 2023, any taxpayer whose yearly revenue exceeds KRW 100 million will be required to submit electronic invoices for clearance.
- Cross-border transactions are not included in Korea's e-invoice framework; only local transactions are.
- Suppliers will need a tax registration certificate from their clients.
- When the products or services are supplied or rendered, e-invoices should be filed to e-Tax. However, if payment is made earlier, the e-invoice should be generated.
- The following details should be on electronic invoices:
- Tax identification number and supplier address
- Cost of the good or service, including VAT
- Information about the customer
- Description of the goods (optional)
- Date of supply, if applicable
- To safeguard the integrity of documents and transactions, suppliers must first append a secure digital signature using Public Key Infrastructure (PKI), a South Korean public authentication system.
- The provider should then upload their invoices in XML format to the e-Tax portal
- The deadline for submitting an electronic invoice is the tenth of the month after the date of supply.
The final version of the 2022 Tax Revision Bill (passed in December 2022) states that beginning July 1, 2023, buyers may produce VAT invoices for the delivery of goods and/or services in order to later deduct input VAT if suppliers are unable to do so.
The aforementioned only applies to products and services that are subject to VAT.
The same option is not afforded to exempt supplies in terms of VAT; therefore, a buyer is not permitted to create a VAT invoice for them.
Consequently, a district tax office must confirm the purchaser-issued invoices.
Who needs to comply with the e-invoicing regulations in South Korea?
The South Korean e-invoicing system is only applicable to domestic transactions. The scope of this policy does not apply to cross-border transactions.
However, regardless of whether you are a small business or a multinational corporation, understanding and adhering to regulations related to the electronic issuance of invoices is crucial.
How to send compliant e-invoices in South Korea?
To administer the e-invoicing process, you must follow the following subsequent actions:
Obtain a business-related electronic certificate
The tax invoice cannot be issued or submitted without the e-certificate. The tax office can issue a security card, and the NTS portal can issue an electronic tax invoice through Hometax.
Registration for membership preparation
The National Tax Service's Hometax, or an electronic (tax) invoice issuing site run by a system operator (ASP), requires taxpayers to register as members.
Issuance of the electronic invoice
At the end of the period allotted by the VAT Act, an electronic (tax) invoice created in accordance with the standard (which calls for an electronic signature) is issued and sent to the purchaser's email.
It is unusually possible to issue a summary monthly (tax) invoice up until the tenth of the month following the month being reported.
Transmit to the National Tax Service
The day after the date of issuance, if an electronic (tax) invoice is issued, it is sent to the National Tax Service. There is no separate transmission process for Hometax issuances because they are forwarded automatically after issuance to the buyer and the National Tax Service.
Create e-invoice lists
Taxpayers can create electronic (tax) invoice lists and summary tables on a monthly and quarterly basis. This option is available even when an electronic (tax) invoice is generated from a website other than Hometax.
Declaration of VAT
Only the total of the electronic (tax) invoice is written when creating the sum table of sales/purchase (tax) invoices. It is not required to enter the information for every consumer.
Characteristics of the electronic invoice in South Korea
Here are the features of the electronic invoice in South Korea:
Alternative methods of invoice issuance
Businesses that are registered for VAT must send their invoices in one of the following ways to the tax authorities via the National Tax Service (NTS):
- Using the free portal offered by the tax office to upload invoices. eSero's free service is accessible via www.esero.go.kr.
- Using a certified external Application Service Provider (ASP) at one's own cost.
- With a digital certificate, businesses can create their own e-invoices via their accounting system.
- Using the AVRS telephone network.
- It is also possible to issue VAT invoices offline by going to the nearby tax office.
XML e-invoice format
National Tax Service (NTS) must receive electronic invoice data in XML format. This uniform format guarantees business compatibility and consistency.
In South Korea, digital signatures are essential for confirming the legitimacy and accuracy of e-invoices. Before submitting an electronic invoice, you must sign it using a digital signature.
Issued e-invoices in South Korea must be kept in the proper electronic format (XML) and be digitally signed for a period of five years. This archiving policy guarantees accurate record-keeping and adherence to legal standards.
What should businesses do to comply with e-invoice regulations in South Korea?
For continued compliance, it is crucial to stay updated about new specifications and changes to already-existing rules.
Businesses can automate compliance checks, streamline the invoicing process, and guarantee conformity to regulatory requirements by deploying an e-invoicing solution.
This enhances efficiency, streamlines processes, and lowers errors.
Combining these approaches will help businesses successfully traverse South Korea's complicated e-invoicing laws and assure smooth compliance.
What are the penalties for Non-issuance, Non-transmission, or Delayed E-Invoices in South Korea?
In South Korea, there are contractual penalties for both parties (supplier and buyer) if e-invoices are not issued, transmitted, or transmitted late.
Both parties are required to pay a fine equivalent to 2% of the delivery value if the supplier fails to provide a tax invoice or provides one in a different format (such as a paper tax invoice).
Additionally, a penalty of 1% of the delivery value will be applied if the provider fails to submit an issued eVAT invoice to the National Tax Service (NTS) by the tenth of the following month at the latest.
Businesses need to abide by the rules of e-invoicing to avoid these fines and guarantee efficient invoicing procedures.
Takeaway: Simplify compliance with Storecove's e-invoicing solution
All taxpayers doing business in South Korea must adhere to the electronic tax invoice system. However, maintaining compliance might be challenging given the South Korean e-invoicing model's complex landscape and varying systems based on various industries.
Do you need help with setting up your e-invoicing process? We are here to help.
Streamline your e-invoicing operations and ensure compliance with ease by leveraging our expertise and comprehensive solutions.
Schedule a demo with our e-invoicing experts today, and they'll get in touch with you to provide guidance tailored to your specific requirements.
More information about E-Invoicing in South Korea?
Call us on +31 (0) 20 261 17 91 or send an e-mail to: firstname.lastname@example.org