Trying to Save on Taxes, But Paying More?
A Complete Guide to the Transition from Simplified to General VAT Taxation

"My revenue increased slightly, but now I'm paying twice the tax?" In 2025, many small business owners are facing confusion as they shift from simplified VAT taxation to general taxation. The regime chosen to reduce taxes can become a hidden risk. Let's explore why this happens and what critical criteria are involved.

Who Qualifies as a Simplified Taxpayer?

Simplified VAT taxpayers are individual business owners whose annual revenue (including VAT) falls below a designated threshold. As of 2025, businesses earning up to 80 million KRW per year qualify, and those under 48 million KRW may even be exempt from VAT. This system was created to ease the tax burden on small-scale entrepreneurs. However, misinterpreting it as merely "paying less tax" leads to serious mistakes. For example, simplified taxpayers cannot issue tax invoices, which can harm trust or block B2B deals altogether. [Source]

Under What Conditions Is the Transition Mandatory?

The most common trigger is revenue. If annual supply exceeds 80 million KRW, the taxpayer is automatically switched to general taxation from the next period. Certain business types—like real estate leasing, professional services (lawyers, tax consultants), and e-commerce—may voluntarily transition early due to the frequent need to issue tax invoices. Importantly, even temporary revenue spikes can trigger this change, and artificial splitting of sales (e.g., using multiple accounts) may result in tax audits. [Source]

How Much More Tax Will You Pay After Transition?

Simplified taxpayers calculate VAT based on industry-specific rates, resulting in lower payments. For instance, for a 40,000 KRW meal, a simplified taxpayer might pay only about 1,200 KRW in VAT, whereas a general taxpayer pays 4,000 KRW and must issue an invoice. However, general taxpayers can deduct input VAT on purchases, which benefits capital-intensive businesses. The real distinction is not lower taxes, but a simpler structure. [Source]

How Should You Respond to a Transition Notice?

The tax authority sends out transition notices each December to businesses that exceed the simplified criteria. Starting January 1, those businesses are automatically reclassified as general taxpayers and must file quarterly. Ignoring this notice or filing late may result in penalties. Therefore, it's critical to update your accounting systems and digitally organize all transactions. [Source]

When Is Voluntary Transition Advantageous?

Because simplified taxpayers cannot issue tax invoices, they are often disadvantaged in B2B or corporate client relationships. A freelance designer under simplified taxation may be excluded by a corporate client needing a tax invoice. Additionally, if the business has high deductible expenses (e.g., advertising, salaries), voluntary transition enables VAT refunds. Freelancers in IT and video production increasingly choose general taxation. [Source]

What Tax Risks Arise After Transition?

The biggest change is the frequency of tax filing. While simplified taxpayers file annually, general taxpayers must file quarterly. Failure to issue tax invoices leads to fines. Bookkeeping becomes mandatory, and income tax filings must be based on official ledgers. Without preparation, administrative risk becomes greater than tax burden. [Source]

Which Tax-Saving Tactics Should Be Avoided?

Some attempt to stay under the simplified threshold by splitting revenue or using multiple accounts. But such methods are easily detected by the tax office’s AI-based analysis. Simplified taxpayers, lacking invoices, are especially vulnerable to detection via missing receipts or mismatched deposits, and can be hit with both VAT and income tax audits. True tax strategy means working within the system—not around it. [Source]

What Should You Do Now?

Understanding your tax structure is crucial, regardless of category. Staying simplified for convenience or switching to general without strategy both pose risks. Analyze your business model, revenue, client type, and cost structure holistically. Then, consult an expert to develop a tailored tax strategy. True savings come not from hiding revenue, but from designing smart structures. [Source]

The tax system is not just about collecting money—it's a reflection of trust between people and society. The traditional desire to pay less and keep things simple still leads many to favor simplified taxation. But today’s environment is digitized, analyzed by AI, and tracks transactions in real time. Human instincts want to hide, but the system is built to record. Risk arises when these two realities clash. What we need is not evasion, but structural adaptation. In this era, “easy choice” must yield to “strategic fit.”

What This Means for Us:
Taxes aren't just about reduction—they’re about understanding. Simplified means "convenience," while general means "responsibility." The more you understand, the more you win. What's needed now is not evasion, but structural insight.

Keywords for this article: "simplified VAT, general VAT, tax transition criteria, value-added tax, supply amount, tax invoice, voluntary transition, revenue threshold, taxpayer classification, VAT filing"