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OPERATION GUIDELINE FOR THE CASH GRANT SYSTEM

Ministry of Knowledge Economy Public Notice No. 2010-299

The Operation Guideline for Cash Grant is publicly announced as follows based on deliberation and resolution in accordance with
Article 14-2 and Article 27 of the Foreign Investment Promotion Act and Article 20-2 and Article 20-3 of its Enforcement Decree:
May 3, 2010

The Minister of Knowledge Economy

OPERATION GUIDELINE FOR THE CASH GRANT SYSTEM

Chapter 1 General Provisions

Article 1 (Purpose) The purpose of this guideline is to prescribe matters necessary for inducing foreign investments to contribute to the development of national economy in accordance with Article 14-2 of the Foreign Investment Promotion Act (hereinafter referred to as “Act”) and Article 20-2 and Article 20-3 of its Enforcement Decree (hereinafter referred to as “Enforcement Decree”).

Article 2 (Application Scope) (1) Cash grant with respect to a foreign capital-invested company shall be prescribed by this Guideline except as otherwise prescribed by the Act and its Enforcement Decree and its Enforcement Rule (hereinafter referred to as “Enforcement Rule,” collectively referred to hereinafter as “Law and Regulations”).

(2) Necessary matters with respect to a cash grant to a foreign capital-invested company shall be governed by the resolution of the Foreign Investment Commission (hereinafter referred to as “Investment Commission”) under Article 27 of the Act, except as otherwise prescribed by the Law and Regulations and this Guideline.

Article 3 (Ratio of Foreign Investment Subject to Cash Support) The cash support for a foreign investment (hereinafter referred to as

“Cash grant”) under Article 14-2 of the Act shall be limited to cases wherein the ratio of foreign investment is no less than 30/100.

Chapter 2 Application for and Payment, etc., of Cash Grant

Article 4 (Application for Cash Grant) (1) A foreigner wishing to receive a cash grant (hereinafter referred to as “applicant”) shall submit to the Minister of Knowledge Economy a written application for cash grant as well as attachments (hereinafter referred to as “application”) in accordance with Article 20-3 (1) of the Enforcement Decree.

(2) A project manager shall submit a written opinion regarding cash grant to the applicant. (3) A written application for cash grant shall include the following:
1. General matters on the applicant;
2. General matters concerning the foreign capital-invested company (in case of established company);
3. Matters concerning the investment project [title of investment project, total amount of investment, amount of foreign investment and (expected) date of report, address of intended area for investment];
4. Matters related to cash grant (grounds, project or product, and amount of cash grant applied for); and
5. Attachments:
(a) Five copies each of written investment plan and summary;
(b) Five copies of the applicant’s financial statements (in case of increased investment, financial statements of the foreign capital-invested company shall be included);
(c) Five photocopies of certificate of completion of funding for investment by funding source; and
(d) Photocopy of report on foreign investment (in case report has been made). (4) A written investment plan shall include the following:
1. Main management achievements and financial standing of the applicant (shall include the status of the parent company and overseas affiliated companies; separately submit the relevant materials available such as annual reports, etc.);
2. Total amount of investment and amount of foreign capital investment;
3. Location plan (shall include area, scale, acquisition method and costs, etc.);
4. Annual investment plans for the next five years (by fixed asset item such as land, building, facility, etc.);
5. Annual fund-raising plans for investment fund and working fund for the next five years (shall classify into insourcing, outsourcing, cash grant, etc.);
6. Details of project plan (shall include the contents of the project, products, details and level of technology, production process, front and rear industries, concrete business relations with the parent company and overseas affiliated companies, etc.);
7. Supply and demand status and prospects in domestic/overseas markets (shall include the status and prospects of rival companies expected in domestic/overseas markets);
8. Prospect of project feasibility for the next ten years (shall suggest concrete ROI data such as rate on return on investment and net present value, etc., and grounds for calculation thereof and include details of business risk and financial risk, etc., and management plan thereof);
9. Estimated financial statements for the next five years (shall submit various cost factors constituting the cost of sales, concrete estimation of sales, and separate grounds data thereof);
10. Annual new employment plan and summary table for the next five years (shall include the number of personnel in the field of natural
sciences and engineering by academic ability and wage level, comparison of average wage level with that of the same industry divided into regular/temporary employment and local residents/foreigner);
11. Research & development plan for the next five years (shall include research & development expenses, whether to establish an affiliated research & development institute, scope of Research & development personnel by academic ability, scope of research & development investment, joint research & development with domestic enterprises and research institutes, etc.);
12. Reason for selecting ROK (Republic Of Korea) as an object country of investment (shall include merits and demerits compared to an alternative country);
13. Effects of contributions to the regional and national economy for the next five years (shall include production, export and domestic sales, scope of direct/indirect employment, tax payment, front and rear connective effect regarding procurement sources for raw & subsidiary materials and sales contracts, whether to perform the function of Asian regional headquarters, etc.);
14. Other necessary matters
(5) The written application filed by an applicant shall be protected as a business secret and not disclosed without the applicant’s consent except as necessary for the examination of cash grant.
(6) Any document submitted shall not be returned, and the cost of preparation of a written application shall be borne by the applicant.

Article 5 (Negotiations) (1) An applicant may enter into negotiations on cash grant after submitting an application. Note, however, that an applicant may have consultations on cash grant even before submitting an application. In this case, the applicant shall request for consultations in writing or verbally to the Minister of Knowledge Economy.

(2) In accepting an application or receiving a request for consultations, the Minister of Knowledge Economy shall appoint a public official to be in charge of consultation or negotiation (hereinafter referred to as “consultation, etc.” and “person in charge of negotiation,” respectively) and immediately notify the applicant accordingly.
(3) Upon acceptance of an application, the Minister of Knowledge Economy shall notify the head of the relevant local government
accordingly and request for the appointment of a person in charge of negotiations.
(4) In addition, the Minister of Knowledge Economy, to support the applicant, shall request for the appointment of a project manager under Article 21-2 (1) of the Enforcement Decree to the president of the Korea Trade-Investment Promotion Agency.

Article 6 (Evaluation of Application) (1) With respect to an application, evaluation shall be made in accordance with attached table No. 1 on items such as whether the foreign investment requires high technology, effect of technology transfer, size of job creation, whether the foreign investment overlaps with any domestic investment, appropriateness of the located area, effects on regional and national economy and survivability of investment, etc.

(2) For the financial and industrial evaluation of the application, an evaluation team consisting of public officials of the relevant
authorities and civil experts, etc., shall be established and operated.
(3) The evaluation team shall submit a report of the evaluation result to the Minister of Knowledge Economy.
(4) The person in charge of negotiations shall prepare a recommendation of cash grant, which includes the following matters, in accordance with the report of evaluation result:
1. Opinions on the need for cash grant;
2. Amount of payment; and
3. Method of payment
(5) A report of evaluation result and a recommendation of cash grant shall not be disclosed to the outside.
(6) Personnel who participated in the evaluation of an application and the preparation of a recommendation of cash grant shall refrain from leaking any contents acquired in the evaluation process and submit a memorandum of confidentiality guarantee.

Article 7 (Determination of Cash Grant) (1) The Minister of Knowledge Economy shall submit to the Commission -- through consultations with the Minister of Strategy and Finance and the head of the relevant local government -- the recommendation of cash grant under Article 6.

(2) Cash grant shall be determined following deliberation and resolution of the Commission and performed after a contract for cash grant is concluded. In case the amount of cash grant except that for location support is less than KRW 1,000,000,000, however, a contract for cash grant may be concluded following deliberation and resolution by the Foreign Investment Working Committee (hereinafter referred to as “Working Committee”) under Article 27 (3) of the Act.
(3) Cash grant shall be determined within sixty days of the date of receipt of the application under Article 4 (1) except in case of any special reason to the contrary; the period may be extended within the scope of thirty days.
(4) The applicant shall assume responsibility for any action of his/her own as made before a contract for cash grant is concluded.

Article 8 (Calculation Method of Limits to Cash Grant) (1) Limits to cash grant shall be calculated according to the method prescribed by attached table No. 2.

(2) The person in charge of negotiations may negotiate on the inducement of foreign investment with the foreigner within the scope of
limits to cash grant (hereinafter referred to as “limits to cash grant”) as calculated pursuant to paragraph (1). In case it is difficult to proceed with the negotiations within the limits to cash grant, an immediate report shall be made to the Commission.
(3) Limits to cash grant shall be calculated by totaling cash grants by the State and local governments (hereinafter referred to as
“governments”). In case rented land has been provided, land purchase expenses shall be included in the limits to cash grant.
(4) In case rented land has been provided, the difference between the sale price and the land preparation cost under Article 14 of the Financial
Fund Support Criteria shall not be supported.
(5) A grant according to the State’s Financial Fund Support Criteria for the inducement of foreign investments by local governments (hereinafter referred to as “Financial Fund Support Criteria”) and a cash grant shall not be allowed in duplicate for the same item, and the amount of total support shall not exceed the limits to cash grant prescribed by attached table No. 2 regarding the amount of foreign investment to be induced through the relevant support.

Article 9 (Payment Method of Cash Grant) (1) The amount of cash grant may be paid at one time within one year of the date of determination of grant or in not more than ten installment payments within the period of five years from the date of determination of grant.

(2) For payments in installments, a contract for cash grant shall specify an Investment Expenditure Plan that includes the details of the cash-granted assets and an expenditure schedule of cash grant, the time limits for the acquisition of fixed assets such as land, building, and machinery, etc. (hereinafter referred to as “Investment Expenditure Plan”), and a time limit for the commencement of project or production.
(3) In the case of payments in installments, after evaluating the performance of the Investment Expenditure Plan or actual execution result of the cash grant paid in installments, payments shall be made within the scope of cash grant agreed upon in the contract for cash grant in accordance with each of the following (note, however, that the amount and timing for the cash grant paid in installments may be adjusted):
1. Purchase costs for land under Subparagraph 1, Article 20-2 (1) of the Enforcement Decree (hereinafter referred to as “land purchase costs”) shall
be paid in tranches as intermediate payment and final balance; the rents under the same Subparagraph (hereinafter referred to as “rents”)
shall be paid according to the lease contract concluded between the applicant and the proprietor of the rented land or its entrusted manager.
2. Education training subsidy and employment subsidy under Subparagraph 5, Article 20-2 (1) of the Enforcement Decree (hereinafter
referred to as “education training subsidy” and “employment subsidy,” respectively) shall be paid at one time at the beginning of the following year after its expenditure in accordance with each of the criteria of the following Items for five years from the registration of a foreign capital-invested company under Article 21 of the Act:
(a) Education training subsidy: In case of employing twenty or more (in the case of research & development field, ten or more) local residents and conducting education training for them, to be paid KRW 1,000,000 or less per trainee within the scope of six months;
(b) Employment subsidy: In case of newly employing twenty or more (in the case of research & development field, ten or more) local residents, to be paid KRW 1,000,000 or less per trainee within the scope of six months. When employing technology personnel (bachelor’s degree or higher) in the field of natural sciences and engineering as an intern, however, to be paid KRW 500,000 or less per trainee within the scope of twelve months.
3. Building costs, purchase costs of capital goods, research equipment and materials, and installation costs of infrastructure such as electricity and communications facilities (hereinafter referred to as “building costs,” “purchase costs of facility & equipment,” and “installation costs of infrastructure,” respectively) under Subparagraphs 2 ~ 4, Article 20-2 (1) of the Enforcement Decree shall be paid based on the evaluation of performance results of the Investment Expenditure Plan.

Article 10 (Allotment Ratio of Financial Fund ) The allotment ratio of financial fund for cash grant between the State and local governments shall be as follows:

1. Purchase costs or rental payments of land: 40: 60 in the Seoul Metropolitan Area and 75:25 in the Non-Seoul Metropolitan Area
2. Employment subsidy and education training subsidy: 50:50 (note, however, that employment subsidy for intern employees in the technology course shall be subsidized in full by the State)
3. Building costs, purchase costs of capital goods, research equipment and materials, installation costs of infrastructure, and research & development costs: 40:60 in the Seoul Metropolitan Area and 75:25 in the Non-Seoul Metropolitan Area (note, however, that these ratios may be altered as per the resolution of the Commission)

Article 11 (Acquisition and Lease, Etc., of Land) In case rented land has been supported, the government shall acquire and lease, etc., the land in accordance with Articles 8 ~ 13 of the Financial Fund Support Criteria.

Article 12 (Conclusion of Contract) (1) The Minister of Knowledge Economy shall conclude a contract reflecting the matters prescribed by

Articles 9 ~ 11, 15, 16, and 18 on a contract for cash grant.
(2) The contract period of a cash grant (hereinafter referred to as “contract period ) shall expire on the date when ten years has passed from the date when the subsidy under Subparagraphs 1 and 3, Article 9 (3) is finally paid.
(3) The contract shall be interpreted in accordance with the Laws and Regulations of ROK, and the relevant parties hereto shall be subject to the courts and jurisdiction of ROK.

Chapter 3 Prior Examination, Etc., of Cash Grant

Article 13 (Negotiation Agenda for Prior Examination of Cash Grant) (1) The president of the Korea Trade-Investment Promotion Agency -- if necessary to induce actively a specific foreign investment expected to have a big effect on the national economy -- may make a recommendation to the Minister of Knowledge Economy that he/she should prepare in advance a negotiation agenda for the prior examination of cash grant (hereinafter referred to as “negotiation agenda”) and submit it to the Commission.

(2) The negotiation agenda under paragraph (1) shall include the following matters:
1. Matters concerning the foreign investor (main management achievements, financial standing, status of the parent company and overseas affiliated companies, level of technology, etc.);
2. Matters concerning the investment project (details of the project plan, product items, expected total amount of investment and amount of foreign capital investment, located area of investment expected, prospects of supply and demand, medium and long-term project prospect such as profitability, status and prospects of expected rival companies in domestic/overseas markets, expected procurement sources for raw
& subsidiary materials and sales contracts, etc.);
3. Matters concerning the economic effects of the investment project (contents and level of related technology, expected ripple effect on front and rear industries, expected direct/indirect employment effect, expected production, export and domestic sales, etc.);
4. Grounds for cash grant required (shall include comparison with an alternative country for investment);
5. Minimum requirements for cash grant (technology to be introduced, amount of minimum foreign investment, quantity of minimum employment, etc.) and amount of minimum cash grant (or its minimum ratio compared to the amount of foreign investment within a certain scope);
6. Items that may be dealt with flexibly in the negotiations with a foreign investor (amount of foreign investment, number of employment, expected location where the foreign investment is to be made, etc.) and variable amount of cash grant by item;
7. Upper limit to the amount of total cash grant (or its maximum ratio compared to the amount of foreign investment within a certain scope);
8. Expected use and method of cash grant;
9. Development and plan for inducement of investment and other matters necessary for deliberation on cash grant-related matters such as the opinion of the project manager
(3) The president of the Korea Trade-Investment Promotion Agency shall consider the opinions of the relevant experts in evaluating the technological, industrial, and economic effects, etc., in preparing a negotiation agenda for cash grant and may consult with the relevant government agencies and local governments, etc., if necessary.
(4) The Minister of Knowledge Economy may have the president of the Korea Trade-Investment Promotion Agency complement the negotiation
agenda for cash grant, if necessary.
(5) Negotiation agenda shall not be disclosed to the outside; personnel who participated in the preparation of the negotiation agenda grant shall refrain from leaking any and all contents acquired in the preparation process and submit a memorandum of confidentiality guarantee.

Article 14 (Consultation on Negotiation Agenda and Determination of Cash Grant) (1) The Minister of Knowledge Economy shall submit to the Commission a negotiation agenda through consultations with the Minister of Strategy and Finance (in case the relevant local government is determined, shall include consultations with such local government).

(2) The Commission shall deliberate on and resolve the following matters regarding the negotiation agenda:
1. Whether to approve cash grant to the foreign investment;
2. Minimum requirements for cash grant and amount of minimum cash grant (or its minimum ratio compared to the amount of foreign investment within a certain scope);
3. Items that may be dealt with flexibly in the negotiations with a foreign investor and variable amount of cash grant by item;
4. Upper limit of the amount of total cash grant (or its maximum ratio compared to the amount of foreign investment within a certain scope);
5. Other important matters necessary for negotiations.
(3) In case the amount of cash grant except location support is less than KRW 1,000,000,000, the Foreign Investment Working Committee may deliberate on and resolve the negotiation agenda.

Article 15 (Procedures for and Time Limit of Negotiations) (1) Where a negotiation agenda is approved, the president of the Korea

Trade-Investment Promotion Agency shall proceed with negotiations with the foreign investor within the scope of cash grant.
(2) The president of the Korea Trade-Investment Promotion Agency shall complete negotiations and have the application for cash grant made within one year of the date of approval of the negotiation agenda, and shall request for an extension of the period to the Minister of Knowledge Economy in case the application is not filed within the same period.
(3) Where there is a request under Paragraph 2, the Minister of Knowledge Economy -- if the main facts such as the present standing of
domestic development and introduction of the relevant technologies are deemed relevant and proper -- may extend the time period within the scope of one year.
(4) The president of the Korea Trade-Investment Promotion Agency -- if it is difficult to proceed with the negotiations within the scope of negotiation agenda -- shall report its contents to the Working Committee immediately.

Article 16 (Measures, Etc., According to Negotiations) (1) Where negotiations have been concluded, a foreign investor shall make an application for cash grant in accordance with the negotiated contents.

(2) Provisions under Article 4 shall apply mutatis mutandis to the application under Paragraph 1. Among attachments, however, Article 4 (2)
and Subparagraphs 7 ~ 9 and 12, Paragraph (4) shall be exceptions.
(3) The Minister of Knowledge Economy shall conclude a contract if the contents of the application conform to the negotiations agenda through consultations with the Minister of Strategy and Finance and the head of the relevant local government and report its contents to the Working Committee.

Chapter 4 Follow-up Management, Etc.

Article 17 (Follow-up Management, Etc., of Cash Grant) (1) The Minister of Knowledge Economy shall confirm whether the cash grant is being used properly by annually checking whether the applicant performs the Investment Expenditure Plan during the contract period under Article 12. (2) Cash grant to cover purchase costs or rental payments of land, education training subsidy, and employment subsidy shall be

managed and followed up in accordance with Article 19 of the Financial Fund Support Criteria. Note, however, that Paragraph (4)
of the same Article shall not apply to technology interns in the fields of natural sciences and engineering.
(3) Cash grant to cover building costs, purchase costs of facility & equipment, and installation costs of infrastructure shall be adjusted in case the actual amount of foreign investment is less than the amount of foreign investment specified in a contract for cash grant (based on USD) by reducing the amount of cash grant in the corresponding ratio.

Article 18 (Cancellation, Withdrawal, and Reduction of Cash Grant, etc.) (1) If an applicant falls under any of the following Subparagraphs, the Minister of Knowledge Economy may cancel or withdraw the contract for cash grant, reduce the amount of cash grant, or recover in full or in part the cash grant already paid through deliberation and resolution of the Working Committee:

1. Makes an application for cash grant in misleading or other wrongful means;
2. Fails to perform the obligations in the contract for cash grant (shall include follow-up management, etc., of cash grant under Article 17);
3. Unable to continue the project concerned any longer due to bankruptcy or closure of business.
(2) In the case of recovery under Paragraph (1), the amount to be reverted by the applicant shall be the largest among the following
Subparagraphs:
1. In the event that the project concerned can no longer be continued before the Investment Expenditure Plan is implemented, the entire amount of the paid cash grant;
2. In the event that the project concerned can no longer be continued after the Investment Expenditure Plan is implemented, an amount calculated by adding 1/60 (up to 60/60) of the paid cash grant per each month that falls short of the project period stipulated in the contract for cash grant (if the Investment Plan consists of multiple stages, however, the project period may be divided by stage);
3. In the event that the agreed upon obligation of minimum employment fails to be fulfilled, an amount calculated by multiplying each unemployed personnel by the penalty dictated in the contract for cash grant.
(3) If an applicant requests for an extension of contract period instead of reverting the cash grant in the case of Subparagraph 3, Paragraph (2), the Minister of Knowledge Economy shall grant an extension of the contract period except in case of any special reason to the contrary.
(4) If the Minister of Knowledge Economy cancels or withdraws the contract for cash grant, reduces the amount of cash grant, or recovers the
cash grant already paid in accordance with Paragraph (1), he/she shall -- by setting a certain period -- urge the applicant to perform the contract or give the applicant the opportunity to explain himself/herself.
(5) If the Minister of Knowledge Economy recovers in full or in part the cash grant in accordance with Paragraphs (1) and (2), he/she may additionally collect interest and incidental expenses in accordance with the contract for cash grant.
(6) The obligation of reverting the cash grant under Paragraph (4) shall be borne by an applicant (including overseas parent company) or the
corresponding foreign capital-invested company respectively or jointly.

Article 19 (Duties of the Applicant) (1) An applicant shall manage directly or indirectly the corresponding foreign capital-invested company and faithfully perform the obligations in the contract for cash grant and the Investment Expenditure Plan.

(2) For all assets (including assets under construction) such as building, facility and equipment, etc., to be recovered and replaced in a satisfactory level, the conclusion of a damage insurance contract or measures corresponding thereto shall be taken.
(3) Contracts for acquiring an asset to be supported by cash grant shall be concluded through open bidding or certified appraisal or acquisition of two or more estimation that ensures efficient use of cash grant.
(4) With respect to an asset supported by cash grant, to use it for a purposes other than the project concerned, transfer, exchange, or lease or offer it as security, the applicant shall obtain prior written approval from the Minister of Knowledge Economy.
(5) Cash grant shall not be leaked as dividend or royalty; neither shall the foreign capital-invested company guarantee an obligation for purposes other than the project concerned.
(6) An applicant shall provide -- during the contract period -- enough information necessary for the examination of contract
performance and submit to the Minister of Knowledge Economy each year an annual report audited by outside auditors. In the case of the research & development field, a report on the status of research & development activities and the results shall be submitted together with an annual report.

Article 20 (Time Limit for Reexamination) The time limit for taking measures such as abolition or amendment of this Guideline shall

be July 31, 2012 by reexamining the change of Laws and Regulations and the current circumstances after the issuance of this
Guideline in accordance with
「Regulations on the issue and management of instructions and established rules」(Presidential Decree
No. 248). (Newly established as of August 24, 2009)

Addenda <No. 2010-299, May. 3, 2010>

This Public Notice shall enter into force as of May. 3, 2010.
[Attached Table 1 ], [Attached Table 2 ], and [Attached Table 3 ] shall not be publicized.