Tipping, VAT and Tax

VAT and Taxes

Tipping and VAT

Tipping is not a normal in Korea, and you are not expected or required to leave a tip in everyday circumstances (e.g.: resturants, taxis etc)

A 10% service charge (or value added tax) is usually added to your bill at all tourist hotels and some major restaurants (except family restaurants such as Outback, T.G.I.F., VIPS). VAT is also included on shopping retail items.

Korea’s Tax Policy

In Korea, the tax policy is VAT, which means the price of goods includes taxes. Thus consumers do not have to pay tax separately. In USA, the price of goods doesn’t include taxes. Therefore consumers have to pay tax separately. However if someone goes to American restaurant (like Outback or TGIF), people have to pay tax even in Korea.

When someone wants to import something, they should pay VAT as well as customs. The customs are decided by following the formula = The price of goods + customs 10%  When someone wants to export something, they shouldn’t pay VAT or tax.

VAT rates:

(1) The current rate: The rate of value-added tax is 10%

(2) Application of the tax rate: Where the tax rate is applicable on the VAT exclusive price, the 10% rate is applied. However, in the case of application on the VAT inclusive price of the retailers, the tax rate becomes 10/110/ Where VAT is not separately collected at the time of the trasaction, the tax rate of 10/110 is applicable on the VAT inclusive price.

Income and Corporate Tax:

South Korea has a high income tax rate but a moderate corporate tax rate. The top income tax rate is 38.5 percent (a 35 percent income tax rate plus a 10 percent resident surcharge), and the top corporate tax rate is 27.5 percent (a 25 percent income tax rate plus a 10 percent resident surcharge).

Inheritance tax:

A person or a company that acquires property through inheritance or bequest is liable to the inheritance tax. An inheritor that is a for-profit company is exempt from the tax.

Gift tax:

A resident donee is obligated to pay gift tax. Non-resident donees are obligated to pay gift tax on any property acquired in Korea. When the donee is a for-profit company, it is exempt from the gift tax. Rates for gift tax are the same as for inheritance tax. A tax return must be filed within 6 months after the commencement of the inheritance or gift, together with detailed statements about the amount to be deducted. The government determines the taxable value based on the tax return filed.

Other important taxes:

Tax Administration:

The Office of Tax and Customs at the Ministry of Strategy and Finance (http://english.mosf.go.kr/) is responsible for planning tax policies and drafting tax laws, while the National Tax Service (http://www.nts.go.kr/eng/) carries out the administration enforcement, which includes tax assessment and collection. Korea Customs Service (http://english.customs.go.kr) controls cutoms, customs taxes and duties.