Handling Purchase Confirmations when a supplier refuses zero-rated VAT application
No translation in your language yet — showing the English version
We are a distribution company with our headquarters located abroad and a branch office in Korea. We have been commissioned by an overseas client to handle OEM production, specifically requesting the production and delivery of Korean-made products. We enter into contracts with production factories through our Korean branch; the Korean branch receives the down payment from the overseas client and proceeds with the contract between the Korean branch and the Korean production factory.
My understanding is that the standard transaction involves receiving a zero-rated tax invoice and our company issuing a Purchase Confirmation so that both parties can prove export performance and receive VAT benefits. However, the production factory in question has an internal policy of not applying the zero-rated rate to domestic transactions due to internal circumstances and past precedents.
The Purchase Confirmation system is designed for both parties to receive benefits through indirect or direct export forms for legitimate goods exports. In this situation, what measures should I take, and is the information I have regarding this process correct and valid?
Answer 1
- 0✓1. The benefits of issuing a Purchase Confirmation are that the supplier is recognized for indirect export performance, and the buyer benefits from not having to go through the process of receiving a zero-rated tax invoice, paying input VAT, and then claiming a refund. Generally, a problem arises where the supplier is unable to receive recognition for indirect export performance because the buyer fails to issue the Purchase Confirmation; therefore, for companies subject to the Subcontracting Act, there is a mandatory obligation to issue a Purchase Confirmation. In other cases, issuing a Purchase Confirmation is optional and is a matter to be negotiated between the parties. 2. If a general tax invoice is issued because the transaction is considered a domestic transaction under the Value Added Tax Act, the recipient can fully deduct the 10% input tax if they are a general taxable business entity.Machine translated
Write an answer
0
Comments 0