In Korea, companies are required to report their donations to the tax authorities. If a company gives goods for free to a customer, then the transaction must be listed in a donations list, which states the receiver of the donation and a description of the transaction. In the case of a goods donation, the company has to calculate and post output VAT. In the case of internal consumption, the base amount of the output VAT is the market value and not the acquisition and production cost of the good or asset sold.

If you give donations, such as giving goods away for free, the debit line should be posted to a G/L account used exclusively for donations. For each of the transaction types, Stipulated Contribution, Fully Deductible Contribution and Non-deductible Contribution, a different G/L account should be created and posted. When posting a donation, the output VAT amount must be posted manually. Since the base amount for the calculation of the VAT is the market value and not the cost of the donated goods, the system does not automatically calculate the output VAT amount.

To enter this type of document, you should proceed as follows:

• Enter the expense line. Enter a tax code for 0% output tax.
• Enter the B/S line item. Enter a tax code that was customized for donation. In the pre-configuration, the tax code B3 is prepared for this type of transaction.The tax code must use the condition type KRNI (see chapter 3.7). Do not activate the automatic calculation of the tax amount. Enter only the net amount, e.g. 200.000 KRW.
• Enter a third line item and post it to the output VAT account. Enter the tax amount manually, e.g. 30.000 KRW. Enter the base amount manually, e.g. 300.000 KRW. Do not activate the checkbox Determine Tax Base.
• Post the document.

In order to execute the above procedure, it is necessary to classify the affected B/S accounts as tax relevant. By activating the checkbox Posting without tax allowed, it is also possible to post on these accounts without tax.

The output VAT account must be opened for manual postings.

If you use MM, SD or FI-AA, you can post the net transaction in these modules and post the tax amount manually in FI.

In the next step, you have to post the tax amount manually in FI.

DR: Donations 30,000

CR: Output VAT 30,000

To produce this type of posting, use B3 (or a tax code customized accordingly) on the expense line of the document and post manually to the output VAT account. Enter the market price of the asset consumed as base value and enter the tax amount manually.

Every time you post a document to the G/L account Donations, enter the payee in the reference 3-field (must be customized so that this fields is open for posting; you can get to the reference 3-field by clicking the button ‘more data’) and a description of the transaction in the text field of the document line item that is posted on the expense account. The data entered in these fields is displayed in the donation list.

To create the official report on donations, execute the report RFUMSV44 and click the radio button for donations.