# Tax exemption on payments

This guide is intended for businesses who sell tax-free products and services as stipulated in [**Article 26 of the VAT Act (Supply of Tax-Free Goods or Services)**](https://txsi.hometax.go.kr/docs/customer/comment/comment_jomun_main_internet.jsp?node_id=null\&lawid=001571\&jomunkey=0026005\&lawnm=%EB%B6%80%EA%B0%80%EA%B0%80%EC%B9%98%EC%84%B8%EB%B2%95\&jomun_nm=%EC%A0%9C26%EC%A1%B0%E3%80%90%EC%9E%AC%ED%99%94%20%EB%98%90%EB%8A%94%20%EC%9A%A9%EC%97%AD%EC%9D%98%20%EA%B3%B5%EA%B8%89%EC%97%90%20%EB%8C%80%ED%95%9C%20%EB%A9%B4%EC%84%B8%E3%80%91\&public_ilja=20161220\&public_no=14387).

If you are a general business that does not sell the goods or services specified in this article, you may skip this guide. A 10% VAT is automatically applied through the PG or credit card company for such businesses.

### Getting Tax-free Merchant ID through PG Contract <a href="#pg" id="pg"></a>

If you are a **tax-free business**, you can submit a business registration card to prove your tax-exempt status when signing a PG contract. You will receive a merchant ID that allows you to set the following tax-free related properties when requesting a payment using `IMP.`<mark style="color:red;">**`request_pay`**</mark>.

* **`amount`**: total payment amount
* **`tax_free`**: tax free amount

Some PGs use a single merchant ID, without getting a separate tax-free merchant ID, for both taxable and tax-free amounts. They set the `tax_free` property to indicate the tax-free portion of the order.

{% hint style="info" %}
**Merchant ID**

The name of the merchant ID issued after applying for and signing a PG contract varies by PG. For example, the merchant ID for KG INICIS is `Merchant ID (MID)`, Kakao Pay is `Member Code (CID)`, and Naver Pay is `Partner ID`.
{% endhint %}

#### Three types of merchant IDs can be issued according to your business's tax-exempt status.

> **Tax-free merchant ID**
>
> A tax-free merchant ID is issued to **businesses that only sell tax-free products and services**. If you make a transaction with a tax-free merchant ID, **all payments are tax exempted** regardless of the `tax-free` setting.

> **Taxable merchant ID**
>
> A taxable merchant ID is issued to **businesses that only sell taxable products and services**. If you make a transaction with a taxable merchant ID, **all payments are taxed** regardless of the `tax-free` setting.

> **Combination merchant ID**
>
> A combination merchant ID is issued to **businesses that sell both taxable and tax-free products and services**. You must use a combination merchant ID to set the tax-free amount for only the tax-free items.
>
> To pay for both taxable and tax-free items, specify the **total payment amount** for all items in the `amount` property, and the **total tax-free amount** for only tax-free items in the `tax_free` property.

{% hint style="warning" %}
**`tax_free` is required**

For transactions using combination merchant ID, you must set **both the `amount` and `tax_free` properties**. If the `tax_free` value is missing, an error may occur when you attempt to open the payment page for some PGs.

Note that KG Inicis **processes all payments as tax-free**; if you change to a combination merchant ID while using a taxable merchant ID, all previous taxed payments are converted to tax-free payments.
{% endhint %}

### Applying tax\_free setting <a href="#taxfree" id="taxfree"></a>

The scenarios in this section show how to set the `amount` and `tax_free` properties when purchasing tax-free and/or taxable items.&#x20;

Assume that a flower business (tax-free business) sells tax-free plant seedlings and taxable vases as follows:

* Plant seedlings: **tax-free**, 11,000 won each
* Vase: **subject to VAT**, 22,000 won each

### <mark style="color:blue;">CASE 01.</mark>  Purchasing only tax-free items

For a purchase of one seedling, set the total payment amount to 11,000 won, and the total tax-free amount to 11,000 won as follows:

{% code title="JavaScript" %}

```javascript
  IMP.request_pay({
    amount: 11000,   // total payment amount
    tax_free: 11000,  // total tax-free amount
    ...
  }, function (rsp) {
    ...
  });

```

{% endcode %}

In this case, the total amount of 11,000 won is tax-free, and the final payment is calculated as follows (terminology may vary by PG):

* Total tax-free amount: 11,000 won
* VAT: 0 won

### <mark style="color:blue;">CASE 02.</mark> Purchasing only taxable items

For a purchase of one vase, set the total payment amount to 22,000 won, and the total tax-free amount to 0 won as follows:

{% code title="JavaScript" %}

```javascript
  IMP.request_pay({
    amount: 22000,   // total payment amount
    tax_free: 0,  // total tax-free amount
    ...
  }, function (rsp) {
    ...
  });

```

{% endcode %}

In this case, a 10% VAT is applied to the total amount of 22,000 won, and the final payment is calculated as follows:

* Total item price: 20,000 won
* VAT: 2,000 won

### <mark style="color:blue;">CASE 03.</mark> Purchasing both tax-free and taxable items

For a purchase of 3 seedlings and 1 vase, set the total payment amount to 55,000 (33,000 + 22,000) won, and the total tax-free amount to 33,000 won (for seedlings) as follows:

{% code title="JavaScript" %}

```javascript
  IMP.request_pay({
    amount: 55000,   // total payment amount
    tax_free: 33000,  // total tax-free amount
    ...
  }, function (rsp) {
    ...
  });
```

{% endcode %}

In this case, a 10% VAT is applied to the total taxable amount of 22,000 won, and the final payment is calculated as follows:

* Total item price: 20,000 won
* Total tax-free amount: 33,000 won
* VAT: 2,000 won