An individual tax-exempt business (개인 면세사업자) operates exclusively in VAT-exempt sectors defined by law (for example, certain medical, educational, or cultural services, and some unprocessed staple goods). For exempt supplies there is no VAT charged or filed, but other obligations still apply.
What individual tax-exempt business type can do
It may provide goods or services only within VAT-exempt categories. Some operators offer both exempt and taxable activities; in such cases, treatment follows the nature of each supply, so contracts and billing should be structured carefully to avoid misclassification.
What to be aware of when contracting
- Expect no VAT on invoices for exempt supplies; align pricing and documentation accordingly.
- Verify that the actual service is truly exempt; mixed supplies require clear scope and separate invoicing where needed.
- In regulated fields (e.g., healthcare, education), confirm the relevant licenses/registrations cover the contemplated services.
Licenses and permits
Many exempt sectors are heavily regulated. Clinic operation, private institute registration, or other sectoral approvals are prerequisites to offering those services. The tax-exempt label does not replace activity-specific licensing.
Accounting and income-tax requirements
Although there is no VAT filing for exempt supplies, operators must keep proper books, submit required status reports where applicable, and file Comprehensive Income Tax on business income. Penalties may apply for inadequate record-keeping.