[Global IDT Insights] South Korea Tax Refunds and Sri Lanka VAT Changes

Editorial Team – [2026] 186 taxmann.com 632 (Article)

Global IDT Insights provides a weekly snippet of tax news specifically related to Indirect Taxes from around the globe.

1. South Korea Announces Domestic Tax Refund for Cruise Tourists

The Korean Customs Services has announced that, effective from 06-04-2026, cruise tourists visiting Korea are eligible to receive Value-added tax (VAT) refunds and individual consumption tax refunds for the goods purchased from downtown duty-free shops.

The domestic tax refund system applicable to cruise tourists is discussed below:

(a) Domestic Tax Refund System – The domestic tax refund system is described as a system that refunds domestic taxes included in the purchase amount through customs confirmation of export when a foreigner purchases goods from downtown duty-free shop and departs the country.

(b) Issues Faced by Cruise Tourists – Although the domestic tax refund system already existed in Korea, but it was based on immigration screening data by the Ministry of Justice regarding foreign tourists. Since cruise tourists undergo separate entry procedures different from those of applicable to regular tourists, they faced difficulties in using refund systems during their short stays in the country.

To solve this issue, measures have been enabled for cruise tourists to use immediate refunds and city refunds by linking their own port entry report data and passenger manifests with the refund system.

(c) Overview of Domestic Tax Refund System – The domestic tax refund system in South Korea allows foreign tourists to obtain refunds of domestic taxes included in the purchase price of goods bought from designated duty-free shops, subject to prescribed refund procedures and purchase limits.

Immediate refunds are available directly at designated duty-free shops at the time of purchase. Under this method, goods are purchased at prices excluding tax. The facility is available where the value of a single purchase is less than KRW 1 million and the total purchase amount does not exceed KRW 5 million.

Under the city-centre refund system, tourists may first purchase the goods and subsequently claim a refund at designated refund counters located in city centres. In such cases, the buyer is required to secure an amount equivalent to the refundable tax in advance. This facility is available for purchases of up to KRW 6 million per transaction.

Refunds may also be claimed at refund counters located inside airports or seaports at the time of departure after purchase of goods. No purchase limit has been prescribed for this refund method.

(d) Designated Duty-Free Shops – By the end of 2025, approximately 23,000 sales outlets, including department stores and cosmetic shops, had been designated as duty-free shops.

(e) Verification of Eligibility for Domestic Tax Refunds – Tax refund operators can verify eligibility for domestic tax refunds through data from the Korean customs service.

With the implementation of this measure, cruise tourists will be able to receive domestic tax refunds more conveniently. This is because the waiting time for customs export verification is shortened.

Source – Korea Customs Service Press Release

2. Sri Lanka Withdraws Zero-Rated VAT Treatment on Fabric Imports

Sri Lanka has revised the VAT treatment applicable to fabric imports and supplies with effect from 01-04-2026. The changes follow the rescission of the earlier notifications under which fabric imports were subject to VAT at the zero rate, and also remove the CESS levy previously imposed on specified fabric imports.

The revised treatment of fabric imports has been discussed below:

(a) Fabric Imports – Importation of fabric is liable to VAT at 18% w.e.f. from 01-04-2026.

(b) Local Supply of Fabric – The local supply of fabric is also liable to VAT at 18% from the same date.

(c) CESS-Related Exemption – Supplies of fabric imported prior to 01-04-2026 and subject to CESS levy at importation remain exempt from VAT, subject to maintenance of proper and separate records and documentation.

Source – Official Notice