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Business Eligible for Tax Incentives |
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The act stipulates that a foreign-invested company must perform the following in order to be eligible for tax breaks:
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Business Eligible for Tax Incentives
The act stipulates that a foreign-invested company must perform the following in order to be eligible for tax breaks:
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High-tech business or industry support service business |
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Locate in a Foreign Investment Zone |
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Settle in an area designated for foreign investment such as Free Trade Zone or Customs Free Zone |
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An industry is considered to be a high-tech business or industry support service business that can contribute to competitiveness of South Korean industries in the world market, when it meets the following conditions:
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That it represents an industry that can generate huge economic and technological benefits |
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Uses a technology introduced to South Korea within the last three years; and |
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The process or service requiring the technology must be undertaken in South Korea. |
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Each enterprise must undergo a screening procedure conducted by the Ministry of Finance and Economy (MOFE) before being designated as such. To date, the ministry has designated 111 businesses as industry supporting, and 467 as high technology. Currently, those 578 businesses have been entitled to 10-year tax exemptions without consideration of their investment size and location.
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A company moving into a Foreign Investment Zone (FIZ) is also entitled to tax breaks. A mayor or a governor of a province may designate an area as an FIZ at the request of a foreign investor following approval by MOFE. To qualify for designation as an FIZ, a foreign investor must commit to making investment of at least $30 million in the area. As of 2004, eligibility rule for FIZ designation will be relaxed.
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A foreign-invested company, settled in a Free Trade Zone or Customs Free Zone, is also entitled to tax benefits if the company is a manufacturer investing at least $10 million or engages in the logistics business and invests at least $5 million. South Korea has designated Free Trade Zones (FTZs) at Masan, Iksan, Gunsan and Daebul and Customs Free Zones at Busan Port, Gwangyang Port, Incheon Port and the Incheon International Airport.
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Tax Exemption & Durations
For a schedule of tax exemptions and their durations, please refer to table below.
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Only a foreign investor or a foreign-invested company can file an application for tax exemption. The deadlines associated with filing the application are as follows:
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Where a company is newly incorporated, the application should be filed on or before the end of the tax year within which the corporation has commenced its business operation; or |
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Where a capital increase is made, within two years from the date of reporting such to the South Korean authority. |
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The application should be filed with MOFE. Alternatively, an applicant may elect to submit the application for tax exemption, along with a notification of foreign investment, to a foreign exchange bank or to Invest Korea
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Once the application is filed, its eligibility will be determined within twenty days from the filing date. MOFE, upon receipt of the application, will consult with other ministries with particular responsibilities in the relevant business field such as the Ministry of Information and Technology and the Ministry of Commerce, Industry and Energ y. This period of consultation can extend only to a maximum of ten days. An applicant may facilitate and shorten the screening procedure by explaining in advance the technology at issue to the relevant South Korean ministry responsible for its assessment for tax-exemption purposes.
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When a foreign investor bases his or her investment decision upon the business he or she intends to invest in is tax-exemption eligible, the foreign investor will wish to verify such eligibility in advance. The South Korean government therefore allows investors to submit a verification request to MOFE, prior to filing an application for foreign investment. Upon receipt thereof, the ministry will notify the investor of its assessment within twenty days.
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