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SUMMARY OF SPECIAL TAXATION FOR FOREIGN INVESTMENT IN RESTRICTION OF PREFERENTIAL TAXATION ACT
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SUMMARY OF SPECIAL TAXATION FOR FOREIGN INVESTMENT IN RESTRICTION OF PREFERENTIAL TAXATION ACT
SUMMARY OF SPECIAL TAXATION FOR FOREIGN INVESTMENT IN RESTRICTION OF PREFERENTIAL TAXATION ACT
With respect to foreign investment, the corporate tax, income tax, acquisition tax, registration tax, property tax, value-added tax,
special consumption tax and customs duties are reduced or exempted under Chapter V (§121-2 through §121-7) of the Restriction of
Preferential Taxation Act. A business of industry-supporting service has been added to the business subject to tax reduction or exemption,
a registration tax has been added to the list of taxes to be reduced or exempted, and the scope of tax reduction or exemption for
foreign investment has been widely expanded, such as an elevation of the rates of reduction or exemption and an extension of the
period for reduction or exemption, etc. by drastically improving the system for tax reduction or exemption as a part of means to
positively induce foreign investment on September 16, 1998.
. Reduction of or Exemption from Corporate Tax, Income Tax, Acquisition Tax, Registration Tax and Property Tax on Foreign Investment
(1) Business Subject to Reduction or Exemption
The corporate tax, income tax, acquisition tax, registration tax and property tax may be reduced or exempted with respect to any business
stated below:
1. Where a factory facility (meaning a place of business, in case of any business other than the manufacturing business) is built
or managed in order to carry on any business stated below which is vital to the strengthening of international competitiveness of
domestic industry:
(a) Industry-supporting service business: Service business with a high added value and great effect in supporting the development
of other industries, such as support to the manufacturing business, etc., and which is deemed necessary for strengthening the international
competitiveness of domestic industry; and
(b) Business accompanied by high-level technology: Business accompanied by such technology as is low in a domestic development level
or has not been developed, and which is deemed necessary for strengthening the competitiveness of the domestic industries;
2. Where any business carried on by a foreign-invested enterprise located in a foreign investment area meets any of the following
requirements:
(a) Where the amount of foreign investment is not less than 30 million U.S. dollars and new factory facilities are built in order
to carry on the manufacturing business;
(b) Where the amount of foreign investment is not less than 20 million U.S. dollars and new facilities are built in order to carry
on any business stated below:
- Tourist hotel business and aquatic tourist hotel business;
- Universal recreation business and universal amusement facility business; and
- International convention facility business;
(c) Where the amount of foreign investment is not less than 10 million U.S. dollars and new facilities are built in order to carry
on any business stated below:
- Combined cargo terminal business;
- Business of creating and operating a joint collection and delivery center;
- Business of operating a harbor facility and the distribution business carried on in the harbor background complexes;
- Business of operating an airport facility and the distribution business operated within an airport zone; and
- Private investment business concerning the creation of a reverted facility;
(d) Where research facilities are built or extended in order to carry out research and development activities for any business stated
in 1 above and any of the following requirements is met: and
- The amount of foreign investment shall be 5 million U.S. dollars or more; and
- The regular employment scale of the manpower wholly responsible for researches shall be 10 or more persons, who are those holding
an academic degree of Master or higher in the field relating to the projects, and who have a career of researches for not less than
3 years;
(e) Where any business carried on by two or more foreign-invested enterprises located in one foreign investment area meets any of
the following requirements:
- The amount of foreign investment shall be 30 million U.S. dollars or more; and
- New facilities shall be built in order to carry on any business stated (a), (b), (c) and (d) of 2 above:
3. Where new facilities shall be built for any business carried on by a foreign-invested enterprise located in a free economic zone:
- Following business in whose case the amount of foreign investment is 10 million U.S. dollars or more: manufacturing business, tourist
hotel business, aquatic tourist hotel business, universal recreation business, universal amusement facility business and international
convention facility business; and
- Following business in whose case the amount of foreign investment is 5 million U.S. dollars or more: combined cargo terminal business,
business of creating and operating a joint collection and delivery center, business of operating a harbor facility, distribution
business carried on in the harbor background complexes, business of operating an airport facility, and distribution business operated
within an airport zone;
4. Where a person who implements a development project performing en bloc the planning, finance, design, construction, marketing,
lease, parcelling-out, etc. in order to develop a free economic zone falls under any of the following:
- Where the amount of foreign investment in the free economic zone is 30 million U.S. dollars or more; and
- Where the ratio of foreign investment in the free economic zone is 50/100 or more and the gross development costs for the free economic
zone are 500 million U.S. dollars or more;
5. Where a person who implements a development project performing en bloc the planning, finance, design, construction, marketing,
lease, parcelling-out, etc. in order to develop the Jeju investment promotion district falls under any of the following:
- Where the amount of foreign investment is 10 million U.S. dollars or more; and
- Where the ratio of foreign investment in the Jeju investment promotion district is 50/100 or more and the gross development costs
for the Jeju investment promotion district are 100 million U.S. dollars or more;
6. Where new facilities are built for any of the following business carried on by a foreign-invested enterprise located in a foreign
investment area within a national industrial complex or general local industrial complex:
- Manufacturing business in whose case the amount of foreign investment is 10 million U.S. dollars or more; and
- Following business in whose case the amount of foreign investment is 5 million U.S. dollars or more: combined cargo terminal business,
business of creating and operating a joint collection and delivery center, business of operating a harbor facility, and distribution
business carried on in the harbor background complexes;
7. Where new facilities are built for any of the following business carried on by a foreign-invested enterprise located in an enterprise
city development zone:
- Following business in whose case the amount of foreign investment is 10 million U.S. dollars or more: manufacturing business, engineering
business, augmentation communications business, tourist hotel business, aquatic tourist hotel business, Korean traditional hotel
business, universal recreation business (excluding the golf course business), specialized recreation business (excluding the golf
course business), tourist excursion ship business, tourist public performance place business, universal amusement facility business,
international conference facility business, business of operating the welfare facilities for the aged, juvenile training facility
operation business, cable railway facility operation business, tramroad facility operation business and business of generating the
electricity by utilizing the new and renewable energy; and
- Following business in whose case the amount of foreign investment is 5 million U.S. dollars or more: research and development business,
business related to data processing and any other operation of computers, science and technology service business, movie and video
production business, service business related to movie and video production, public performance and recording facility operation
business, public performance organizations, business related to public performance, business of producing and marketing compact disks
and music record media, game software production business, combined cargo terminal business, business of creating and operating a
joint collection and delivery center, business of operating a harbor facility, and distribution business carried on in the harbor
background complexes;
8. Where any business which is conducted by a foreign-invested enterprise designated as an undertaker of an enterprise city development
project in order to develop an enterprise city development zone according to an enterprise city development plan falls under any
of the following: and
- Where the amount of foreign investment is 30 million U.S. dollars or more; and
- Where the ratio of foreign investment is 50/100 or more and the gross development costs for the said enterprise city development
zone are 500 million U.S. dollars or more;
9. Where new factory facilities are built in order to carry on that business of a foreign-invested enterprise located in a free economic
zone which falls under any of the following:
- Manufacturing business in whose case the amount of foreign investment is 10 million U.S. dollars or more; and
- Following business in whose case the amount of foreign investment is 5 million U.S. dollars or more: goods stevedoring, transportation,
storage or exhibition business, business related to combined logistics such as international transportation mediation business and
international vessel trade, packaging, repair, manufacturing or assembly business, business related to international logistics such
as business of repairing, improving and assembling vessels or aircraft (including equipment necessary for the management thereof),
business of providing vessel or aircraft supplies such as fuel, drinking water and meals on the vessel or aircraft, and development
business and leasing business related to facilities for logistics.
(2) Details of Reduction or Exemption
1. Corporate Tax or Income Tax
(a) Reduction of or Exemption from Corporate Tax or Income Tax on Foreign-invested Enterprise
a. Business stated in 1 and 2 of (1) above:
- In the taxable year ending within 5 years from the taxable year wherein the first income accrues from the relevant enterprise after
commencing the relevant business (in case where no income has accrued from the relevant business not later than the taxable year
whereto belongs the date on which 5 years elapsed from the commencing date of business, the taxable year whereto belongs the date
on which 5 years elapsed), 100 percent of taxes subject to reduction or exemption (the amount obtained by multiplying the amount
equivalent to the corporate tax or income tax on the relevant business incomes by the ratio of foreign investment) shall be reduced
or exempted, and in the taxable year ending within 2 years thereafter, the tax amount equivalent to 50 percent of the tax amount
subject to reduction or exemption shall be reduced or exempted.
b. Business stated in 3, 4 and 5 of (1) above:
- Any business with respect to which the tax reduction or exemption has been requested in or after 2004 shall be applied, but in the
taxable year ending within 3 years from the taxable year wherein the first income accrues from the relevant enterprise after commencing
the relevant business (in case where no income has accrued from the relevant business not later than the taxable year whereto belongs
the date on which 5 years elapsed from the commencing date of business, the taxable year whereto belongs the date on which 5 years
elapsed), 100 percent of taxes subject to reduction or exemption (the amount obtained by multiplying the amount equivalent to the
corporate tax or income tax on the relevant business incomes by the ratio of foreign investment) shall be reduced or exempted, and
in the taxable year ending within 2 years thereafter, the tax amount equivalent to 50 percent of the tax amount subject to reduction
or exemption shall be reduced or exempted.
c. Business stated in 6, 7 and 8 of (1) above:
- Any business with respect to which the foreign investment has been reported in or after 2005 shall be applied, but in the taxable
year ending within 3 years from the taxable year wherein the first income accrues from the relevant enterprise after commencing the
relevant business (in case where no income has accrued from the relevant business not later than the taxable year whereto belongs
the date on which 5 years elapsed from the commencing date of business, the taxable year whereto belongs the date on which 5 years
elapsed), 100 percent of taxes subject to reduction or exemption (the amount obtained by multiplying the amount equivalent to the
corporate tax or income tax on the relevant business incomes by the ratio of foreign investment) shall be reduced or exempted, and
in the taxable year ending within 2 years thereafter, the tax amount equivalent to 50 percent of the tax amount subject to reduction
or exemption shall be reduced or exempted.
d. Business stated in 9 of (1) above:
- In the taxable year ending within 3 years from the taxable year wherein the first income accrues from the relevant enterprise after
commencing the relevant business (in case where no income has accrued from the relevant business not later than the taxable year
whereto belongs the date on which 5 years elapsed from the commencing date of business, the taxable year whereto belongs the date
on which 5 years elapsed), 100 percent of taxes subject to reduction or exemption (the amount obtained by multiplying the amount
equivalent to the corporate tax or income tax on the relevant business incomes by the ratio of foreign investment) shall be reduced
or exempted, and in the taxable year ending within 2 years thereafter, the tax amount equivalent to 50 percent of the tax amount
subject to reduction or exemption shall be reduced or exempted.
(b) Reduction of or Exemption from Corporate Tax or Income Tax on Dividends Accruing from Stocks or Investment Equities Acquired by
Foreign Investors
- The reduction or exemption shall be made pursuant to the ratio of incomes accrued by carrying on the business subject to such reduction
or exemption on the incomes during the respective taxable year of the relevant foreign-invested enterprise, but while the total of
the tax amount subject to the reduction of or exemption from corporate tax or income tax is reduced or exempted, the total shall
be reduced or exempted, and while 50 percent of the tax amount subject to the reduction of or exemption from corporate tax or income
tax is reduced or exempted, 50 percent shall be reduced or exempted.
2. Acquisition Tax, Registration Tax and Property Tax
(a) With respect to the assets acquired or retained by a foreign-invested enterprise for carrying on the reported business, the aquisition
tax, registration tax and property tax shall be reduced or exempted as follows, or a certain amount shall be deducted from the tax
base: Provided, That a local government may extend the period for reduction, exemption or deduction up to 15 years by its municipal
ordinance, or elevate the ratio of reduction, exemption or deduction within the extended period:
a. Aquisition Tax, Registration Tax and Property Tax (excluding the property tax on land):
aa. Business stated in 1 and 2 of (1) above:
- 100 percent of the tax amount subject to reduction or exemption (the amount obtained by multiplying the computed tax amount on relevant
assets by the ratio of foreign investment) shall be reduced or exempted within 5 years from the date of commencing the business,
and the amount equivalent to 50 percent of the tax amount subject to reduction or exemption shall be reduced or exempted within 2
years thereafter.
bb. Business stated in 3, 4 and 5 of (1) above:
- Any business with respect to which the tax reduction or exemption has been requested in or after 2004 shall be applied, but 100
percent of the tax amount subject to reduction or exemption (the amount obtained by multiplying the computed tax amount on relevant
assets by the ratio of foreign investment) shall be reduced or exempted within 3 years from the date of commencing the business,
and the amount equivalent to 50 percent of the tax amount subject to reduction or exemption shall be reduced or exempted within 2
years thereafter.
cc. Business stated in 6, 7 and 8 of (1) above:
- Any business with respect to which the foreign investment has been reported in or after 2005 shall be applied, but 100 percent of
the tax amount subject to reduction or exemption (the amount obtained by multiplying the computed tax amount on relevant assets by
the ratio of foreign investment) shall be reduced or exempted within 3 years from the date of commencing the business, and the amount
equivalent to 50 percent of the tax amount subject to reduction or exemption shall be reduced or exempted within 2 years thereafter.
dd. Business stated in 9 of (1) above:
- 100 percent of the tax amount subject to reduction or exemption (the amount obtained by multiplying the computed tax amount on relevant
assets by the ratio of foreign investment) shall be reduced or exempted within 3 years from the date of commencing the business,
and the amount equivalent to 50 percent of the tax amount subject to reduction or exemption shall be reduced or exempted within 2
years thereafter.
b. Property Tax on Land:
aa. Business stated in 1 and 2 of (1) above:
- 100 percent of the tax amount subject to deduction (the amount obtained by multiplying the tax base on relevant assets by the ratio
of foreign investment) shall be deducted from the tax base for 5 years after the date of commencing the business, and the amount
equivalent to 50 percent of the amount subject to deduction shall be deducted from the tax base for 2 years thereafter.
bb. Business stated in 3, 4 and 5 of (1) above:
- Any business with respect to which the tax reduction or exemption has been requested in or after 2004 shall be applied, but 100
percent of the tax amount subject to deduction (the amount obtained by multiplying the tax base on relevant assets by the ratio of
foreign investment) shall be deducted from the tax base for 3 years after the date of commencing the business, and the amount equivalent
to 50 percent of the amount subject to deduction shall be deducted from the tax base for 2 years thereafter.
cc. Business stated in 6, 7 and 8 of (1) above:
- Any business with respect to which the foreign investment has been reported in or after 2005 shall be applied, but 100 percent of
the tax amount subject to deduction (the amount obtained by multiplying the tax base on relevant assets by the ratio of foreign investment)
shall be deducted from the tax base for 3 years after the date of commencing the business, and the amount equivalent to 50 percent
of the amount subject to deduction shall be deducted from the tax base for 2 years thereafter.
dd. Business stated in 9 of (1) above:
- 100 percent of the tax amount subject to deduction (the amount obtained by multiplying the tax base on relevant assets by the ratio
of foreign investment) shall be deducted from the tax base for 3 years after the date of commencing the business, and the amount
equivalent to 50 percent of the amount subject to deduction shall be deducted from the tax base for 2 years thereafter.
(b) With respect to the assets acquired or retained by a foreign-invested enterprise for the purpose of using them in the business
subject to reduction or exemption (business stated in 1 through 9 of (1) above) prior to the date of commencing business, the aquisition
tax, registration tax and property tax shall be reduced or exempted as follows, or a certain amount shall be deducted from such tax
base: Provided, That a local government may extend the period for reduction, exemption or deduction up to 15 years by its municipal
ordinance, or elevate the ratio of reduction, exemption or deduction within the extended period:
a. Aquisition Tax and Registration Tax: in case of assets acquired after the date of receipt of a decision on tax reduction or exemption,
100 percent of the tax amount subject to reduction or exemption (the amount obtained by multiplying the computed tax amount on relevant
assets by the ratio of foreign investment) shall be reduced or exempted.
b. Property Tax (excluding the property tax on land):
aa. Business stated in 1 and 2 of (1) above:
- 100 percent of the tax amount subject to reduction or exemption (the amount obtained by multiplying the computed tax amount on relevant
assets by the ratio of foreign investment) shall be reduced or exempted for 5 years after acquiring the relevant assets, and the
amount equivalent to 50 percent of the tax amount subject to reduction or exemption shall be reduced or exempted for 2 years thereafter.
bb. Business stated in 3, 4 and 5 of (1) above:
- Any business with respect to which the tax reduction or exemption has been requested in or after 2004 shall be applied, but 100
percent of the tax amount subject to reduction or exemption (the amount obtained by multiplying the computed tax amount on relevant
assets by the ratio of foreign investment) shall be reduced or exempted for 3 years after acquiring the relevant assets, and the
amount equivalent to 50 percent of the tax amount subject to reduction or exemption shall be reduced or exempted for 2 years thereafter.
cc. Business stated in 6, 7 and 8 of (1) above:
- Any business with respect to which the foreign investment has been reported in or after 2005 shall be applied, but 100 percent of
the tax amount subject to reduction or exemption (the amount obtained by multiplying the computed tax amount on relevant assets by
the ratio of foreign investment) shall be reduced or exempted for 3 years after acquiring the relevant assets, and the amount equivalent
to 50 percent of the tax amount subject to reduction or exemption shall be reduced or exempted for 2 years thereafter.
dd. Business stated in 9 of (1) above:
- 100 percent of the tax amount subject to reduction or exemption (the amount obtained by multiplying the computed tax amount on relevant
assets by the ratio of foreign investment) shall be reduced or exempted for 3 years after acquiring the relevant assets, and the
amount equivalent to 50 percent of the tax amount subject to reduction or exemption shall be reduced or exempted for 2 years thereafter.
c. Property Tax on Land:
aa. Business stated in 1 and 2 of (1) above:
- 100 percent of the tax amount subject to deduction (the amount obtained by multiplying the tax base on relevant assets by the ratio
of foreign investment) shall be deducted from the tax base for 5 years after acquiring the relevant assets, and the amount equivalent
to 50 percent of the amount subject to deduction shall be deducted from the tax base for 2 years thereafter.
bb. Business stated in 3, 4 and 5 of (1) above:
- Any business with respect to which the tax reduction or exemption has been requested in or after 2004 shall be applied, but 100
percent of the tax amount subject to deduction (the amount obtained by multiplying the tax base on relevant assets by the ratio of
foreign investment) shall be deducted from the tax base for 3 years after acquiring the relevant assets, and the amount equivalent
to 50 percent of the amount subject to deduction shall be deducted from the tax base for 2 years thereafter.
cc. Business stated in 6, 7 and 8 of (1) above:
- Any business with respect to which the foreign investment has been reported in or after 2005 shall be applied, but 100 percent of
the tax amount subject to deduction (the amount obtained by multiplying the tax base on relevant assets by the ratio of foreign investment)
shall be deducted from the tax base for 3 years after acquiring the relevant assets, and the amount equivalent to 50 percent of the
amount subject to deduction shall be deducted from the tax base for 2 years thereafter.
dd. Business stated in 9 of (1) above:
- 100 percent of the tax amount subject to deduction (the amount obtained by multiplying the tax base on relevant assets by the ratio
of foreign investment) shall be deducted from the tax base for 3 years after acquiring the relevant assets, and the amount equivalent
to 50 percent of the amount subject to deduction shall be deducted from the tax base for 2 years thereafter.
3. Restriction of Tax Reduction or Exemption on Foreign Investment by Modes of Taking Over Existing Enterprises
In case where any foreigner makes a domestic investment in the mode, etc. of taking over an existing enterprise among foreign investments
in any business stated in 1 of (1) above, its effects of employment creation and facility investments are insignificant unlike the
case of new establishment of factories, etc., the corporate tax, income tax, aquisition tax, registration tax and property tax shall
be respectively reduced or exempted, by curtailing the period for reduction, exemption or deduction and the ratio of reduction, exemption
or deduction as follows with respect to any business in whose case the foreign investment has been reported in or after 2003:
(a) Corporate Tax or Income Tax
a. In case of corporate tax and income tax on the foreign-invested enterprise, the amount equivalent to 50 percent of tax amount subject
to reduction or exemption (the amount obtained by multiplying any other amount equivalent to the corporate tax and income tax on
relevant business income by the ratio of foreign investment) in the taxable year ending within 3 years from the taxable year wherein
the first income accrues from the relevant enterprise after commencing the relevant business (in case where no income has accrued
from the relevant business not later than the taxable year whereto belongs the date on which 5 years elapsed from the commencing
date of business, the taxable year whereto belongs the date on which 5 years elapsed), and the amount equivalent to 30 percent of
tax amount subject to reduction or exemption in the taxable year ending within 2 years thereafter, respectively, shall be reduced
or exempted.
b. In case of corporate tax or income tax on dividends accruing from stocks or investment equities acquired by foreign investors,
a reduction or exemption shall be made, for the incomes in each taxable year of the relevant foreign invested enterprise, pursuant
to the ratio of incomes accruing from carrying on the business subject to reduction or exemption by the relevant enterprise, but
the amount equivalent to 50 percent of the tax amount subject to reduction or exemption (the amount obtained by multiplying any other
amount equivalent to the corporate tax and income tax on relevant business income by the ratio of foreign investment) in the taxable
year ending within 3 years from the taxable year wherein the first income accrues from the relevant enterprise after commencing the
relevant business (in case where no income has accrued from the relevant business not later than the taxable year whereto belongs
the date on which 5 years elapsed from the commencing date of business, the taxable year whereto belongs the date on which 5 years
elapsed), and the amount equivalent to 30 percent of tax amount subject to reduction or exemption in the taxable year ending within
2 years thereafter, respectively, shall be reduced or exempted.
(b) Aquisition Tax, Registration Tax and Property Tax
a. With respect to the assets acquired or retained by a foreign-invested enterprise in order to carry on the reported business, the
aquisition tax, registration tax and property tax shall be reduced or exempted as follows, or a certain amount shall be deducted
from the tax base: Provided, That a local government may extend the period for reduction, exemption or deduction up to 10 years by
its municipal ordinance, or elevate the ratio of reduction, exemption or deduction within the extended period:
aa. Aquisition Tax, Registration Tax and Property Tax (excluding the property tax on land): the amount equivalent to 50 percent of
the tax amount subject to reduction or exemption (the amount obtained by multiplying the computed tax amount on relevant assets by
the ratio of foreign investment) shall be reduced or exempted within 3 years from the date of commencing business, and the tax amount
equivalent to 30 percent of the tax amount subject to reduction or exemption shall be reduced or exempted for 2 years thereafter:
and
bb. Property Tax on Land: 50 percent of the tax amount subject to deduction (the amount obtained by multiplying the tax base on relevant
assets by the ratio of foreign investment) shall be deducted from the tax base for 3 years after the date of commencing the business,
and the amount equivalent to 30 percent of the amount subject to deduction shall be deducted from the tax base for 2 years thereafter.
b. With respect to the assets acquired or retained by a foreign-invested enterprise for the purpose of using them in the business
prior to the date of commencing business, the aquisition tax, registration tax and property tax shall be reduced or exempted as follows,
or a certain amount shall be deducted from the tax base: Provided, That a local government may extend the period for reduction, exemption
or deduction up to 10 years by its municipal ordinance, or elevate the ratio of reduction, exemption or deduction within the extended
period:
aa. Aquisition Tax and Registration Tax: in case of the assets acquired after the date of receipt of a decision on tax reduction or
exemption, the amount equivalent to 50 percent of the tax amount subject to reduction or exemption (the amount obtained by multiplying
the computed tax amount on relevant assets by the ratio of foreign investment) shall be reduced or exempted;
bb. Property Tax (excluding the property tax on land): the amount equivalent to 50 percent of the tax amount subject to reduction
or exemption (the amount obtained by multiplying the computed tax amount on relevant assets by the ratio of foreign investment) shall
be reduced or exempted for 3 years after acquiring the relevant assets, and the tax amount equivalent to 30 percent of the tax amount
subject to reduction or exemption shall be reduced or exempted for 2 years thereafter; and
cc. Property Tax on Land: 50 percent of the tax amount subject to deduction (the amount obtained by multiplying the tax base on relevant
assets by the ratio of foreign investment) shall be deducted from the tax base for 3 years after acquiring the relevant assets, and
30 percent of the amount subject to deduction shall be deducted from the tax base for 2 years thereafter.
(3) Procedures for Reduction or Exemption
1. Application for Reduction or Exemption
Any foreigner shall, if he desires the reduction of or exemption from the corporate tax, income tax, acquisition tax, registration
tax and property tax, make an application for such reduction or exemption to the Minister of Finance and Economy not later than the
closing date of the taxable year whereto belongs the date of commencing business by the relevant foreign-invested enterprise (in
the case of capital increase, the date on which 2 years elapsed from the date of reporting the foreign investment).
2. Application for Modification of Contents of Tax Reduction or Exemption
In case a person modifies the business contents on which a decision of tax reduction or exemption is made and desires the reduction
or exemption for such modified business contents, he shall make an application for modified business contents of tax reduction or
exemption to the Minister of Finance and Economy not later than the date on which 2 years elapsed form the date on which such cause
for alteration has occurred.
3. Application for Prior Confirmation
Any foreigner may request the Minister of Finance and Economy to confirm whether or not the relevant business corresponds to the business
subject to a reduction or exemption before making a report of the acquisition of newly issued stocks or investment equities.
(4) Additional Collection of Reduced or Exempted Taxes
1. Additional Collection of Corporate Tax or Income Tax on Foreign-invested Enterprise
The reduced corporate tax or income tax on a foreign-invested enterprise shall be collected additionally in the following cases:
a. Where a registration of foreign-invested enterprise has been revoked;
b. Where any foreign-invested enterprise fails to meet the standards for tax reduction or exemption;
c. Where one fails to comply with a corrective order, even though he has been subjected to it as he failed to implement the reported
details;
d. Where any foreign investor transfers his retained stocks or investment equities to a national or corporation of the Republic of
Korea;
e. Where the relevant foreign-invested enterprise closes its business; and
f. Where the payment of investment in subject matters and the introduction of a loan with the maturity of not less than five years
which is lent to a foreign-invested enterprise by its overseas parent enterprise (including other enterprises having any regular
capital investment relation with that parent enterprise) fail to meet the standards for the tax reduction or exemption within 3 years
after making a report on the foreign investment in 2005.
2. Additional Collection of Acquisition Tax, Registration Tax and Property Tax
The reduced acquisition tax, registration tax and property tax shall be collected additionally in the following cases:
a. Where the ratio of stocks or investment equities of the foreign investors comes to fall short of the ratio thereof at the time
of reduction or exemption, after a foreign-invested enterprise has been subjected to the reduction or exemption of the acquisition
tax, registration tax and property tax on the assets acquired or retained prior to the date of commencing business for the purpose
of using them in the business subject to a reduction or exemption;
b. Where any foreign-invested enterprise transfers the stocks or investment equities of a foreign investor to a national or corporation
of the Republic of Korea, after it has received a reduction or exemption of the acquisition tax, registration tax and property tax
on the assets acquired or retained for carrying on the reported business;
c. Where the registration of a foreign-invested enterprise has been revoked;
d. Where the relevant foreign-invested enterprise closes its business; and
e. Where the payment of investment in subject matters and the introduction of a loan with the maturity of not less than five years
which is lent to a foreign-invested enterprise by its overseas parent enterprise (including other enterprises having any regular
capital investment relation with that parent enterprise) fail to meet the standards for the tax reduction or exemption within 3 years
after making a report on the foreign investment in 2005.
3. Exception of Additional Collection
The reduced or exempted tax amount may not collected additionally in the following cases:
a. Where the registration of a foreign-invested enterprise has been canceled due to its dissolution by a merger;
b. Where any foreign-invested enterprise transfers its stocks or investment equities to a national or corporation of the Republic
of Korea in order to make it go public;
c. Where stocks or investment equities of a foreign investor who makes an investment in any business stated in 1 of (1) above (industry-supporting
service business or business accompanying high-level technology) are transferred to a national or corporation of the Republic of
Korea, and where it is recognized that the relevant enterprise faces with no obstruction in producing the products or services domestically
by itself;
d. Where any foreign investor transfers his retained stocks or investment equities to a national or corporation of the Republic of
Korea pursuant to other Acts and subordinate statutes or the Government policies;
e. Where any cause of the additional collection of taxes occurs after an undertaker of a free economic zone development project completes
that development project; and
f. Where any cause of the additional collection of taxes occurs after an undertaker of a Jeju investment promotion district development
project completes that development project.
II. Exemption from Customs Duties, Special Consumption Tax and Value-Added Tax on Foreign Investment
(1) Capital Goods Subject to Exemption
1. The following capital goods which are directly used for any such business stated in 1 and 2 of (1) of above as is subject to
the reduction of or exemption from the corporate tax or income tax and the import report of which is completed within 3 years after
reporting the foreign investment therein (if the import report may not be completed within such period due to a delay in approval
for a factory installation and other unavoidable causes and there is the approval of the Minister of Finance and Economy within the
limit of within 3 years, the approved period) shall be exempted from the customs duties, special consumption tax and value-added
tax: Provided, That this shall not apply in case that any foreigner makes a foreign investment by acquiring those stocks or investment
equities which have already issued by an enterprise carried on by a national or corporation of the Republic of Korea:
a. Capital goods introduced by a foreign-invested enterprise as a means of foreign payment or of domestic payment which have been
contributed by foreign investors; and
b. Capital goods introduced by a foreign investor as a subject matter for investments.
2. The following capital goods which are directly used for any such business stated in 3, 4, 5, 6 and 9 of (1) of above as is subject
to the reduction of or exemption from the corporate tax or income tax and the import report of which is completed within 3 years
after reporting the foreign investment therein (if the import report may not be completed within such period due to a delay in approval
for a factory installation and other unavoidable causes and there is the approval of the Minister of Finance and Economy within the
limit of within 3 years, the approved period) shall be exempted from the customs duties:
a. Capital goods introduced by a foreign-invested enterprise as a means of foreign payment or of domestic payment which have been
contributed by foreign investors; and
b. Capital goods introduced by a foreign investor as a subject matter for investments.
(2) Procedures for Exemption
Any foreign investor or foreign-invested enterprise shall, if it intends to be exempted from the customs duties, special consumption
tax and value-added tax, make an application for such exemption to the customs collector.
(3) Additional Collection of Exempted Taxes
1. Causes of Additional Collection
The exempted customs duties, special consumption tax and value-added tax shall be collected additionally in a case falling under any
of the following:
a. Where the registration of the relevant foreign-invested enterprise is cancelled;
b. Where the subject matter for investments is used or disposed of for any purpose other than those reported;
c. Where any foreign investor transfers his stocks or investment equities to a national or corporation of the Republic of Korea;
d. Where the relevant foreign-invested enterprise closes its business; and
e. Where the payment of investment in subject matters and the introduction of a loan with the maturity of not less than five years
which is lent to a foreign-invested enterprise by its overseas parent enterprise (including other enterprises having any regular
capital investment relation with that parent enterprise) fail to meet the standards for the tax reduction or exemption within 3 years
after making a report on the foreign investment in 2005.
2. Exception of Additional Collection
The exempted taxes may not be collected additionally in a case falling under any of the following:
a. Where the registration of the relevant foreign-invested enterprise is canceled due to its dissolution by a merger;
b. Where any capital goods which are introduced and used after being subjected to an exemption from the customs duties, special consumption
tax and value-added tax, are used for any purpose other than the original purpose, or disposed of, by obtaining an approval of the
Minister of Finance and Economy, as they have come to be unusable for their original purposes due to the existence of disaster, force
majeure or any other cause beyond control, or any depreciation, technological progress or other changes in economic conditions;
c. Where any foreign-invested enterprise transfers its stocks or investment equities to a national or corporation of the Republic
of Korea in order to make itself go public;
d. Where stocks or investment equities of a foreign investor who makes an investment in any business stated in 1 of (1) of above
(industry-supporting service business or business accompanying high-level technology) are transferred to a national or corporation
of the Republic of Korea, and where it is recognized that the relevant enterprise faces with no obstruction in producing the products
or services domestically by itself; and
e. Where any foreign investor transfers his retained stocks or investment equities to a national or corporation of the Republic of
Korea pursuant to other Acts and subordinate statutes or the Government policies;
f. Where any cause of the additional collection of taxes occurs after an undertaker of a free economic zone development project completes
that development project; and
g. Where any cause of the additional collection of taxes occurs after an undertaker of a Jeju investment promotion district development
project completes that development project.
III. Tax Exemption for Technological License
(1) Technological License Subject to Tax Exemption
As regards a contract which introduces any high-level technology vital to the strengthening of international competitiveness of domestic
industries, where a contract has been concluded to introduce the technologies falling under the following, which are set forth by
the Minister of Finance and Economy via deliberation of the Foreign Investment Committee, the corporate tax or income tax on the
royalties for technological license received by the licenser pursuant to the contents of such contract shall be exempted for 5 years
from the date on which such royalties are to be paid for the first time under the relevant contract:
1. Any technology which has great spreading economic or technological effects on the national economy and is vital to the advancement
of industrial structures and the strengthening of industrial competitiveness;
2. Any technology for which 3 years elapse or do not elapse from the date of its introduction into the Republic of Korea and of which
economic effects or technological capacities are far more superior than the already-introduced technology; and
3. Any technology necessary for the relevant manufacturing process which is mainly achieved in the Republic of Korea.
(2) Application for Exemption
The licenser who provides a technology under a contract introducing a technology shall, when he intends to have taxes exempted, make
an application for such exemption to the Minister of Finance and Economy not later than the date on which one year not elapsed as
yet (in case where the date of first payment of royalties arrives ahead, before the first payment date).
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