Foreign Digital Services VAT in South Korea: Key Regulations Explained

South Korea began experimenting with the computerization of government functions as early as the late 1960s, demonstrating an early recognition of the importance of technology in public administration. As a result, the country is recognized as one of the leading examples of successful digital government transformation. Over time, Korea consistently prioritized digital innovation, allowing it to build a highly advanced digital government system, including tax administration.

With 98% of the population using the internet and smartphones, South Korea has one of the most developed markets for online services, from content streaming to finance. Thus, it is unsurprising that South Korea was among the first Asian countries to introduce a dedicated VAT regime for foreign digital service providers.

Overview of South Korea’s VAT Framework

South Korea introduced the VAT rules and requirements for foreign digital service providers in July 2015, and the government has progressively expanded and refined the system to address the rapid growth of cross-border digital services and online marketplaces. The initial legislation included a wide range of digitally delivered products and services that can either be downloaded and stored on devices such as computers or mobile phones, or accessed and used in real time through the internet.

These services included games, music, video files, software, electronic documents, and other digital works that are created or processed electronically using code, text, sound, voice, or images. Essentially, the 2015 rules focused on many forms of digital content and online services commonly provided by foreign tech and media companies. A standard 10% VAT rate applies to e-services provided by foreign taxable persons.

In 2019, South Korea updated its rules to expand and clarify the scope of taxable electronic services in response to the growing digital economy. In addition to broadening the scope of digital goods and services subject to VAT, digital platforms became responsible for VAT obligations in Korea. More specifically, if e-services are supplied through an intermediary, such as an open-market operator or a digital platform that facilitates online transactions, then the intermediary itself, not the individual foreign seller, is treated as the supplier of the e-services.

Another significant change occurred in July 2025, when additional reporting obligations were imposed on non-residents and foreign corporations acting as sales agents or intermediaries for online marketplaces, payment gateways, and similar services. The government obliged these entities to submit monthly transaction statements to the tax authorities every quarter, further enhancing oversight of cross-border digital transactions.

When Foreign Businesses Must Register for VAT

One of the most notable features of the Korean VAT regime is the absence of a minimum revenue threshold for registration. Consequently, foreign digital service providers are required to register for VAT from the first supply of e-services to local consumers. This means that even relatively small foreign digital service providers may be required to register once they begin supplying taxable digital services in Korea. Another notable feature of the system is that it only covers B2C transactions, whereas for B2B transactions, a reverse charge mechanism applies.

Simplified VAT Registration System

Foreign taxable persons may register for VAT through a simplified VAT registration regime, which allows them to comply with Korean VAT obligations without establishing a permanent establishment or local subsidiary in the country. The VAT registration can be completed independently or by appointing a tax agent. In addition to applying for a simplified VAT registration, tax agents can also file VAT returns, pay due VAT, or request VAT refunds on behalf of foreign suppliers.

Importantly, since January 1, 2024, a penalty of 1%  of the total value of e-services supplied during the period before registration is imposed on those who fail to comply with the simplified VAT registration requirement.

Role of Digital Platforms and Marketplaces

Digital platforms and online marketplaces are increasingly important for South Korea's digital economy. Therefore, the registration requirement also extends to them. In particular, if a digital platform facilitates transactions between foreign suppliers and Korean consumers, the platform itself may become responsible for collecting and remitting VAT. 

VAT Return and Payment Obligations

Once registered for VAT, foreign taxable persons must file VAT returns through the National Tax Service (NTS) HomeTax portal using their Tax Registration Number. VAT returns must be filed by the 25th of the month every quarter. Since VAT must be paid in local currency (KRW), the due amount is paid by depositing it into a foreign exchange bank account. Notably, the foreign suppliers, or their tax agents, will be informed about their VAT account through email.

In cases where a taxable person fails to pay due VAT by the due date, the NTS issues a payment notice. Additionally, the taxable person may pay a 3% penalty on the unpaid tax. If, however, the foreign digital service providers do not pay the due VAT upon the reception of the notice, a 0.75% penalty of the unpaid tax is imposed on a monthly basis.

Tips for Foreign Businesses

One of the most important compliance steps is to have a reliable system to determine the location of customers to correctly identify whether services are being supplied to recipients in Korea. Since Korean VAT liability depends on the place of the supply rules, and the focus is on customers' location rather than where the services are provided from, determining their exact location is essential. 

Beyond identifying customer location, foreign suppliers must also establish procedures for identifying Korean consumers and distinguishing B2C transactions from B2B supplies. This is vital because VAT obligations differ depending on whether the buyer is VAT-registered in Korea. Once the consumer's location is confirmed, foreign digital services providers must assess whether their services fall within the scope of Korea’s e-services rules. This is critical since the VAT registration obligation applies to the very first supply of e-services. 

Another critical compliance task includes setting up proper data management for storing sales records to align with quarterly VAT filing and payment obligations. In addition to storing transaction statements for at least five years, taxable persons must ensure that they are capable of producing prescribed reports within 60 days if requested.

Source: PwC, VATabout, OECD, BDO, South Korea National Tax Service