VAT payment and input tax credit for goods imported at a 0% tariff
Customs duties are governed by the Customs Act, and VAT by the Value-Added Tax Act; they are separate taxes. When an FTA preferential tariff rate or a duty-free basic rate applies, only the customs duty becomes 0%.
The input tax credit is claimed by the business named as the taxpayer on the import declaration, with the import tax invoice issued by the head of customs.
Legal basis and calculation of VAT on imported goods
The Value-Added Tax Act sets "the import of goods" as a taxable transaction (Article 4, subparagraph 2) and "a person who imports goods" as the taxpayer (Article 3 (1) 2). The same applies when an individual who is not a business imports goods.
The tax base is "the sum of the customs value of the goods and the customs duties, individual consumption tax, liquor tax, education tax, special tax for rural development, and traffic, energy and environment tax" (Article 29 (2)), and the tax rate is 10% (Article 30).
| Goods with a customs value of KRW 10 million | Customs duties | VAT | Total |
|---|---|---|---|
| Tariff rate 8% | KRW 800,000 | KRW 1,080,000 | KRW 1,880,000 |
| FTA preferential tariff rate 0% | KRW 0 | KRW 1,000,000 | KRW 1,000,000 |
When the tariff rate becomes 0%, the customs duty disappears and the VAT tax base also falls by the amount of the duty. Even so, 10% of the customs value is still paid as VAT.
The customs value includes freight and insurance up to the port of import (Customs value for imports).
Scope of imported goods exempt from VAT
Article 27 of the Value-Added Tax Act sets out the imported goods exempt from VAT. Some are defined by type of goods, such as unprocessed foodstuffs, books and newspapers, and some are defined as goods exempt from customs duties, such as low-value goods and travelers' personal effects.
Among goods that are duty-free or receive a duty reduction, only the goods prescribed by the Enforcement Decree are exempt from VAT (Article 27, subparagraph 15). The goods that Article 56, subparagraph 22 of the Enforcement Decree exempts because their preferential tariff rate is free are "internal combustion engines for railways, diesel locomotives, and corneas for transplant."
Therefore, goods not listed in Article 27 or Article 56 of the Enforcement Decree, such as household goods or machine parts, are subject to VAT even when the FTA preferential tariff rate is 0%.
The preferential tariff rate applies only when an importer holding documents evidencing origin applies for it (Applying the FTA preferential tariff rate).
How a business claims the input tax credit for import VAT
When the head of customs collects VAT on imported goods, the head of customs "shall issue" an import tax invoice "to the person who imports" them (Article 35 (1)). Because the import tax invoice is issued to the taxpayer on the import declaration, name the company that will claim the input tax credit as the taxpayer before declaring.
VAT on "goods imported that a business has used or intends to use for its business" is input tax deducted from output tax (Article 38 (1) 2). The input tax credit is claimed for "the taxable period that includes the time of import of the goods" (Article 38 (3)).
If the customs duty is amended after import or the head of customs corrects the tax amount, the head of customs issues an amended import tax invoice (Article 35 (2)). The input tax credit is also reported to match that amendment.
Source: Value-Added Tax Act, Article 3 (Taxpayers), Article 4 (Taxable transactions), Article 27 (Exemption for imports of goods), Article 29 (Tax base), Article 30 (Tax rate), Article 35 (Import tax invoices), Article 38 (Deductible input tax), Enforcement Decree of the Value-Added Tax Act, Article 56 (Scope of other goods that are duty-free or receive a duty reduction). Based on the laws in force as of October 31, 2026.