The deduction of taxes is calculated as follows:

• Corporate tax and tax for profits made from dividends
– (Calculated tax amount x tax base (subject to deduction) / total tax base) x rate of
foreign investment x (deduction rate of 100% or 50%)

• Local tax
– Calculated tax x rate of foreign investment x (tax deduction rate of 100% or 50%)

• Customs, special excise tax, value-added tax
– The tax depends on the import of capital goods (with conditions);
– For high-technology sector and foreign investment zones, 100% deduction for
import within three years of the date of FDI notification;
– For other foreign-invested companies, only deduction for customs.

The foreign investor had initially notified an investment of KRW10 billion with a foreign investment ratio of 50%. This changed to KRW15 billion and 75%.
If approval for tax deduction regarding the notified FDI amount was received, and the FDI amount changed before the actual investment took place, then it is not necessary to apply for a change of tax deduction. In such cases, the tax deduction will take effect depending on the application for change in FDI. However, if additional investment was made after starting the business, then application for tax deduction has to be filed for each capital increase.

If the resident is not conducting business:

The duty for imported items is decided by the added trade price according to the price condition that actually made or will be made for sales items in order to export.
However, if there is no market price for investment in kind because it is specially produced, the customs duty calculation will not be applied under the Article 30 or 33 of the Customs Act. In this case, customs duty will be calculated under the Article 34 of the Customs Act, it adds i) raw material cost and other cost to be spent for assembling or manufacturing, ii) general profit and expenditure, occurred when the items are sold, iii) transportation and insurance fee to import port.
Therefore, if a foreign investor specially produced machinery for investment in kind, the price will be calculated based on estimated value. If the price can not be calculated by the estimated value, it can be calculated appropriate standard based on the Article 30 or 35 of the Customs Act under the Article 35 of the Customs Act. 

According to current regulation of the non-litigation case adjective law, in case of a corporation, it is necessary to submit a report about performance of investment in kind. However, in case of a limited company, ‘a statement that verifies the whole asset purpose of investment in kind has been paid’ has to be submitted. Thus it is not necessary to submit the confirmation of completion of the investment in kind.
In addition, in accordance with Foreign Investment Promotion Act, in case of a foreign investor introduces investment in kind, despite of the Article 229 of the Commercial Law, it is regulated that the Commissioner of Customs needs to see a confirmation of completion of investment in kind that confirms type, quantity and price of the items as a report made by inspector under the regulation of the non-litigation case adjective law. Thus, for a corporation, it is necessary to submit a conformation of completion of investment in kind, but not for a limited company.
Therefore, if a limited company wants to register capital goods that were received from a foreign investor with actual things, certification of import notification can be submitted instead of a conformation of completion of investment in kind. 

• Foreign investment through acquisition of newly-issued stocks includes:

– Establishment of a new company alone (100% subsidiary) or through a joint venture with a Korean company;
– Participation in capital increase of a domestic company or foreign-invested company.

• Investment Procedure

– The foreign investor or its proxy submits the FDI notification form to any Korean bank (headquarters or branch), Invest KOREA, or domestic and overseas offices of KOTRA and receives a certificate of notification;
– After arrival of the foreign capital a certificate of purchase of foreign currency is issued. Or in case of importing capital goods as FDI in kind, a confirmation of completing the importation of capital goods is issued;
– The registration of incorporation has to be filed at the competent authority (proxy service for the registration process is provided free of charge by Invest KOREA);
– For company registration, it shall be applied within 30 days from the date the required payment was completed at the location where the FDI notification was conducted or Invest KOREA;
– Even if the payment is not completed, it is possible to file the company registration for foreign investment that is more than 100 million KRW and more than 10%.

• However, foreign-invested companies that have been designated as eligible to receive tax exemption before launch of business, have to apply for business registration within 20 days from the date of business commencement at the relevant tax office. Furthermore, notification of incorporation has to be filed within 30 days from the date of registration of incorporation. It is advantageous to apply for the business registration before going through the customs (for capital goods in kind) or before concluding the contract (for real estate acquisition) in order to receive a refund of VAT.

• When importing capital goods such as investment in kind, application for business registration has to be made prior to registration of incorporation and the importation of capital goods in order to receive an exemption of VAT. It is possible to apply for the business registration at the Foreign Investor Support Office (FISO) of Invest KOREA.

♦ The consulting service sector is not closed to foreign investment, and it is thus possible to
make foreign investment in consulting services by means of individual investment, joint
ventures or any other investment types;

♦ The consulting service sector is a free business sector, and does not require any permi-
ssions or approvals. After business registration at the tax office, it is possible to start the
business immediately. However, a minimum capital investment of KRW100 mil. is necessary
for a shareholder’s company. 

If the application is received after the deadline, it is possible to receive deductions for the year corresponding to the application day and residual period. However, it is not possible to receive tax deductions for paid taxes for the period prior to the day when the decision of tax deduction was made. 

Since it is a new foreign investment, the regulations of tax deduction are applicable.Furthermore, it is also possible to receive tax deduction during the residual period, if a foreigner acquires existing stocks of a foreign-invested company, which are owned by a foreigner.