💡 What is a service charge?
Have you ever seen a separate line for a "service charge" on a receipt from a restaurant, hotel, or beauty salon, for example, in addition to the sales tax and the actual cost of the service?
It's a concept that differs slightly from the tip that consumers voluntarily give.
Usually, the receipt shows the sales amount, VAT, and service charge separately, like the following:
Sales amount: 100,000 KRW VAT: 10,000 KRW Service charge: 30,000 KRW
Total payment amount: 140,000 KRW |
💡 Is the service charge included in the reported sales?
It depends on whether the service charge is included in the consumer's payment amount.
If the service charge is paid separately to the employee, even if the sales amount and service charge are paid together, the service charge can be excluded from the sales.
If the consumer pays the service charge directly to the employee
| If the service charge is included in the payment amount
|
Service charge is not considered as sales revenue
→ Only the sales price excluding the service charge is reported as sales revenue
| Possibility of considering the service charge as sales revenue
→ The payment amount including the service charge is reported as sales revenue |
You can scroll the table horizontally on mobile 😃
💡 Are there any conditions for excluding service charges when reporting sales?
Yes ⭕ To exclude the service charge from the sales amount, the following conditions must be met:
① It must be an food, accommodation, or personal service business. ② The sales price and service charge must be separately indicated on the tax invoice or receipt. ③ It must be possible to prove that the service charge was paid to the employee. ④ If the service charge exceeds 20% of the taxable amount (excluding VAT), 5% of the service charge must be withheld at the source, and a service charge payment statement must be prepared. *If you are a simplified tax payer, you should use the supply value including VAT as the basis. |
Article 61, Paragraph 4 of the Value-Added Tax Act Enforcement Decree
🙋🏻♀️ If an A restaurant, who is a simplified tax payer, sells food worth KRW 100,000 including VAT and receives KRW 130,000 including a service charge of KRW 30,000, what should they do?
Since the service charge exceeds 20% of the taxable amount of KRW 100,000, you need to ① withhold taxes and ② prepare a ledger for the service charge.
You should withhold KRW 1,500 (income tax) of the service charge of KRW 30,000, which is 5%, and KRW 150 (local income tax) of the remainder of KRW 28,350 after withholding taxes, and pay it to the employee.
However, if you reflect the service charge in the representative's income, you don't need to withhold taxes even if you give the service charge to the employee.
💡 How do I prepare a service charge payment statement?
Please refer to the attached file at the bottom of the screen for the service charge payment statement format.
The employee who receives the service charge must write their own name, resident registration number, address, etc., and sign the payment statement.
You should keep a copy of the employee's ID card along with the payment statement for five years.
If the employee refuses, keep proof of the service charge payment, such as the transfer record.
🚨 Caution
If you do not pay the service charge to the employee but do not report it as sales, it is a tax evasion.
If the sales omission is caught, you will have to pay VAT for the service charge, and you may also be subject to additional taxes for underreporting the amount 😨
💡 What is a service charge?
Have you ever seen a separate line for a "service charge" on a receipt from a restaurant, hotel, or beauty salon, for example, in addition to the sales tax and the actual cost of the service?
It's a concept that differs slightly from the tip that consumers voluntarily give.
Usually, the receipt shows the sales amount, VAT, and service charge separately, like the following:
Sales amount: 100,000 KRW
VAT: 10,000 KRW
Service charge: 30,000 KRW
Total payment amount: 140,000 KRW
💡 Is the service charge included in the reported sales?
It depends on whether the service charge is included in the consumer's payment amount.
If the service charge is paid separately to the employee, even if the sales amount and service charge are paid together, the service charge can be excluded from the sales.
→ Only the sales price excluding the service charge is reported as sales revenue
→ The payment amount including the service charge is reported as sales revenue
You can scroll the table horizontally on mobile 😃
💡 Are there any conditions for excluding service charges when reporting sales?
Yes ⭕ To exclude the service charge from the sales amount, the following conditions must be met:
① It must be an food, accommodation, or personal service business.
② The sales price and service charge must be separately indicated on the tax invoice or receipt.
③ It must be possible to prove that the service charge was paid to the employee.
④ If the service charge exceeds 20% of the taxable amount (excluding VAT), 5% of the service charge must be withheld at the source, and a service charge payment statement must be prepared.
*If you are a simplified tax payer, you should use the supply value including VAT as the basis.
Article 61, Paragraph 4 of the Value-Added Tax Act Enforcement Decree
🙋🏻♀️ If an A restaurant, who is a simplified tax payer, sells food worth KRW 100,000 including VAT and receives KRW 130,000 including a service charge of KRW 30,000, what should they do?
Since the service charge exceeds 20% of the taxable amount of KRW 100,000, you need to ① withhold taxes and ② prepare a ledger for the service charge.
You should withhold KRW 1,500 (income tax) of the service charge of KRW 30,000, which is 5%, and KRW 150 (local income tax) of the remainder of KRW 28,350 after withholding taxes, and pay it to the employee.
However, if you reflect the service charge in the representative's income, you don't need to withhold taxes even if you give the service charge to the employee.
💡 How do I prepare a service charge payment statement?
Please refer to the attached file at the bottom of the screen for the service charge payment statement format.
The employee who receives the service charge must write their own name, resident registration number, address, etc., and sign the payment statement.
You should keep a copy of the employee's ID card along with the payment statement for five years.
If the employee refuses, keep proof of the service charge payment, such as the transfer record.
🚨 Caution
If you do not pay the service charge to the employee but do not report it as sales, it is a tax evasion.
If the sales omission is caught, you will have to pay VAT for the service charge, and you may also be subject to additional taxes for underreporting the amount 😨