Value-Added Tax Law on the Supply Timing
Generally, for the supply timing, the moment of delivery is considered for goods, and the completion of the service is considered for services.
However, in special cases, the South Korean tax law provides exceptions and different regulations.
The supply timing determines the date of issuing tax invoices, VAT reporting, and the relevant tax period. Therefore, if the supply timing of goods and services is judged incorrectly, it can lead to significant disadvantages, such as the imposition of additional taxes and the disallowance of input tax credits.
A. General Supply Timing
ⓐ Goods:
- When the movement of goods is necessary: the time of delivery.
- When the movement of goods is not necessary: when the goods become available for use.
- In other cases: when the supply is confirmed.
ⓑ Services:
- When the provision of the service is completed, or when goods, facilities, or rights are used.
ⓒ Special Provisions on Supply Timing
- If a part or the full price is received before the supply timing, and a tax invoice or receipt (for consumer-facing businesses) is issued for the received price: the time of issuance of the tax invoice or receipt.
- If the supply timing of goods or services occurs after the business closure date, but the goods or services were supplied before the business closure: the business closure date.
B. Supply Timing by Type of Transaction
ⓐ Long-Term Installment Sales
- The supply timing is when each portion of the payment is due, regardless of whether the payment has actually been made.
- Down payment of 5,000,000 KRW on January 16, 2025.
- Interim payment of 10,000,000 KRW on December 18, 2025.
- Final payment of 5,000,000 KRW on June 12, 2026.
- For example, if the contract specifies the following payment dates:
- The requirements for long-term installment sales are as follows:
- The price is to be paid in two or more installments (i.e., the contract specifies not just a down payment, but also interim or final payments).
- The period from the day after the goods are delivered or the service is completed to the final installment date is one year or more.
ⓑ Conditional Sales (Return Conditions, Agreement Conditions, etc.)
- Return Condition: After delivering the goods, if the other party does not return the goods within a pre-announced period, it is considered a sale. The supply timing is when the period expires.
- Example: Sales of trial products, sample products.
- Agreement Condition: The supply timing is when the buyer agrees to purchase the goods after receiving them.
- Example: After delivery to a company, the buyer shows the intent to purchase after inspecting the product.
ⓒ Progress-Based Payments, Interim Payments
- Progress-Based Payments (Completion-Based Payments): If the completion period is long, payments are made based on the progress or completion ratio.
- For example, in construction projects, if the contract specifies that payment will be made after the completion date, then the supply timing would be after the completion date, not during the progress phase.
- Interim Payments: If a contract specifies the price is to be paid in installments and the period from the contract date to the delivery or completion date exceeds 6 months, then this will fall under interim payments.Note: Prepaid amounts such as deposits or advance payments are not considered down payments unless they are specified in the contract.
- Example: Contracts divided into down payments, interim payments, and final payments over more than 6 months.
ⓓ Supply Timing for Special Cases of Goods and Services (Self-Supply, Personal Supply, Business Gifts)
- For self-supply, personal supply, or business gifts, the supply timing is when the goods are used or consumed.
ⓔ Direct Store Supplies
- For direct store supplies, the supply timing is when the goods are delivered to the store.
ⓕ Supply Timing for Remaining Goods After Business Closure
- For goods or services supplied before business closure but with supply timing after the closure, the supply timing is the business closure date.
- If the business is closed before starting the business, the supply timing is considered the day it was decided to not start the business.
ⓖ Exported Goods
- The supply timing for exported goods is the shipment date (bill of lading date).
- For distant-sea fishing, the supply timing is when the supply contract for the goods is confirmed.
- For processing or foreign imports, the supply timing is when the goods are delivered in the foreign country.
ⓗ Imported Goods from Bonded Areas
- For goods supplied from a bonded area to the domestic market, the supply timing is the date the import declaration is accepted.
ⓘ Prepaid or Postpaid Rental Income from Real Estate
- If 1,200,000 KRW is prepaid or postpaid for rental, the monthly recognized income would be 1,200,000 KRW / 12 months = 100,000 KRW.For the 1st settled period (June 30, 2025): 1,200,000 / 12 months * 3 months = 300,000 KRW.
- For the 1st quarter (March 31, 2025): 1,200,000 / 12 months * 3 months = 300,000 KRW.
ⓙ Rental Income Based on Business Performance
- If rental income is determined based on semi-annual or quarterly business performance, the supply timing is the last day of the respective semi-annual or quarterly period.
ⓚ Supply Timing for Prepaid Long-Term Service Fees Paid by Credit Card
- If a business receives a one-time payment for long-term services and issues a credit card receipt (or similar), the supply timing is when the receipt is issued.
- Example: If a health club receives a payment for a one-year membership, the supply timing is when the payment is made by credit card, even though the service period is spread across multiple tax periods.
C. Special Supply Timing Provisions (Early Issuance of Tax Invoices, VAT Law Article 17, Section 3)
- If the full or partial price of goods or services is received before the supply timing, and a tax invoice or receipt is issued for the received price, the supply timing is the moment of issuing the tax invoice or receipt.
- If a tax invoice is issued before the supply timing, and payment is received within 7 days from the issuance, the supply timing is the date of issuing the tax invoice.
D. Legal Early Issuance of Tax Invoices (VAT Law Article 17, Section 4)
- For long-term installment sales or long-term service provision, or in cases where goods that cannot be subdivided (e.g., continuous supply of electricity) are sold.
- If goods or services are supplied based on shipping documents, the supply timing is within 90 days from the date of issuance of the shipping documents (bill of lading).