Can a cooking or baking academy get a refund on the VAT in its ingredient costs, like a restaurant does?
No, you cannot. The deemed input tax credit applies only to a business that uses VAT-exempt agricultural/marine products as raw materials to supply goods or services that are themselves VAT-taxable. A cooking or baking academy is not selling food — it is providing an educational service — so like other academies it is a VAT-exempt business and is excluded from this credit. That said, the VAT credit is the only thing you lose: the ingredient/material costs used in practical classes are still fully recognized as necessary expenses when calculating comprehensive income tax or corporate tax, so it is important to understand these as two separate issues.
The most commonly misunderstood point — materials costs and the deemed input tax credit
Even with heavy ingredient use like a restaurant, an academy cannot claim this credit
Cooking/baking academies do not qualify for the deemed input tax credit
The deemed input tax credit applies only when you purchase VAT-exempt agricultural/marine products and supply goods or services that are "VAT-taxable." A cooking/baking academy is not selling food — it is providing an educational service — so like other academies it is a VAT-exempt business, and VAT-exempt businesses are excluded from this credit.
But it is fully recognized as a comprehensive income tax expense
You only lose the ability to get a refund on the VAT input tax — ingredient/material costs used in practical classes are fully reflected as necessary expenses when calculating comprehensive income tax or corporate tax. Understanding that "VAT refund" and "income tax expense treatment" are two separate matters is where tax savings start.
Practical vs. lecture-based: different expense structures
Key expense categories
Must-read for essay/transfer/civil service/driving academies
Only driving schools have a different tax structure — sort by category to save on taxes
Since taxable/exempt status splits by academy type, sorting each item correctly matters
Long-term fixed assets — practical equipment
Practical equipment: ovens, beauty tools, practice stations
Other: practical-exam-prep equipment
Anything over 1,000,000 KRW per unit is classified as a depreciable asset and must be expensed gradually over its useful life.
Consumables — practical materials costs
Practical material costs such as ingredients and beauty materials are recognized in full as necessary expenses at the time of purchase. Note that since the academy business is VAT-exempt, the deemed input tax credit is not available.
Personal service costs — certified instructors
A certified instructor working on a per-contract basis is subject to 3.3% withholding as business income; one working regularly is reported as employment income.
Practical-exam prep — facility rental costs
Rental costs for external facilities used to prepare for practical exams can be treated as necessary expenses as long as business relevance is established, so keep the contract and receipts on hand.
| Category | Examples | Tax treatment |
|---|---|---|
| Long-term fixed assets | Ovens, beauty tools, practice stations | Depreciated if over 1,000,000 KRW |
| Consumables | Ingredients, beauty materials | Expensed in full immediately (no deemed input tax credit) |
| Personal services | Certified instructors | 3.3% withholding or employment income |
| Practical-exam prep | External facility rental costs | Necessary expense if business relevance is established |