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4. Zero-Rating and Exemptions

a. Zero-Rating

The supply of the following goods and services is zero-rated and the input tax incurred

is refundable. Zero-rating is applicable only to traders who are residents or domestic

corporations. However, in the case of international transportation service by ships or

aircraft, traders who are non-residents or foreign corporations are subject to zero-rating

on a reciprocity basis.

(1) Goods for exportation

(2) Services rendered outside Korea

(3) International transportation service by ships and aircraft

(4) Other goods or services supplied for foreign exchange earning

b. Exemption

(1)   The supply of the following goods or services is subject to exemption and the input

tax incurred thereon is not refundable. However, traders may elect not to be exempted.

(a) Basic life necessities and services

i)  Unprocessed foodstuffs (including but not limited to agricultural products,

livestock products, marine products, and forest products that are used for food)

and agricultural products, livestock products, marine products, and forest

products prescribed by the Presidential Decree that are produced in Korea but

are not used for food

ii) Piped water

iii) Briquette and anthracite coal

iv) Passenger transportation services, except for transportation services by

aircraft, express buses, express train (KTX), chartered buses, taxies, special

automobiles, or special ships

(b) Social welfare services

i) Medical and health services (including services of veterinarians, nurses and

midwives, and pharmaceutical services of compounding medicines and human

blood)

ii) Education services prescribed by the Presidential Decree

(c) Goods or services related to culture

i) Books, newspapers, magazines, official gazettes and communication

ii)  Artistic works, artistic and cultural events for non-profit purposes, and

non-professional sports games

iii)  Admission to libraries, science museums, museums, art galleries, or

botanical gardens

(d) Personal services similar to labor

i)  Other personal services rendered independently without structures,

instruments used continuously, repeatedly for business (including ones rented)

and without employing any worker by actors, singers, radio performers,

composers, writers, designers, professional sportsmen, dancers, waitresses,

salesmen of books or disks, translators, shorthand writers, etc.

ii)  Academic research services

iii)  Technical research services

(e) Other goods or services

i)  Postage stamps (excluding postage stamps for collection), revenue stamps,

certificate stamps, lottery tickets, and public telephone cards

ii) Such goods or services rendered by religious, charitable, scientific, or other

organizations which promote the public interest

iii) Goods or services supplied by the government, local authorities, or

associations of local authorities

iv) Goods or services supplied, without any consideration, to the government,

local authorities, associations of local authorities, or public benefit organizations

v)  Lease of house or the land pertaining to the house of an area, which is not

larger than 5 or 10 times the floor space of the house

vi) Finance and insurance services

(f) Duty-exempt goods

Importation of the following duty-exempt goods under the Customs Law is

exempted from value-added tax.

i) Unprocessed foodstuffs (including agricultural products, livestock products,

marine products, and forest products used for food)

ii) Books, newspapers, and magazines

iii) Goods imported for scientific, educational, or cultural use by a scientific

research institute, an educational institute, or a cultural organization

iv) Goods donated from a foreign country to a religious, charitable, relief, or any

other public benefit organization

v) Goods donated from a foreign country to the national or local authorities or

associations of local authorities

vi) Duty-exempt goods of a small amount which a Korean resident imports

vii) Goods imported upon moving, immigration, or inheritance (subject to no or

simplified tariff)

viii) Personal effects of travelers, or goods arriving by separate post and mailed

goods that are exempted from customs duties or chargeable by the simplified

tariff rates

ix) Samples of commodities or goods for advertisement that are imported and

exempted from customs duties

x) Duty-exempt goods imported, without any consideration, for the purposes of

exhibition, public display, prize show, film festival, or any other similar events

xi) Goods exempt from customs duties under the provisions of treaties,

international law, or practices

xii) Duty exempt or reduced duty goods re-imported after exportation; provided

that, in the case of the reduction of customs duties, exemption of value-added tax

is restricted to the duty-reduced portion

xiii) Duty exempt or reduced goods temporarily imported on the condition of

re-export; provided that, in the case of the reduction of customs duties,

exemption of value-added tax is restricted to the duty-reduced portion

xiv) Duty-free, duty-exempt, or reduced goods, except for the goods as

prescribed in items vi) and viii) through xi), that are specified by the Presidential

Decree, provided that, in the case of the reduction of customs duties, exemption

of value-added tax is restricted to the duty reduced portion

(2) Subsidiary supply to exempt supply

The supply of goods or services that takes place necessarily and incidentally to the

exempted supply of goods or services is deemed to be included in the exempted

supply of goods or services.

(3) Waiver of exemption

In the case where the supply of goods or services eligible for zero-rating is exempt

from value-added tax, the traders may, subject to the Presidential Decree, elect not

to be exempt from value-added tax. A trader who waives the ordinary exemption is

not entitled to the exemption for 3 years after the beginning day of the first assessable

year in which the waiver is intended to be applied.