If a foreign company with direct or indirect investment from a Korean citizen or company (excluding overseas Koreans with permanent residence or equivalent status) conducts foreign investment in Korea, then the investment rate of the Korean citizen or company is not subject to tax deduction pursuant to Art. 121 of the Special Tax Treatment Control Law.
If the rate of investment by the Korean citizen or company is less than 10%, this rule does not apply.
In this case, the rate of investment by the Korean company G is more than 10%, and thus, that part will be applicable to tax deduction. 

A permanent establishment refers to a permanent place in Korea conducting all or part of the business activities of a foreign company. The foreign company does not only decide on how to pay the taxes regarding the withheld income, but also about whether or not the profits from the business are subject to taxation.

Several conditions must be met to be acknowledged as a permanent establishment:
– Existence of a business location (place);
– Business location has to be fixed (duration);
– Business has to be conducted through that location (function).

Even if the above conditions are not met, a permanent establishment is also whe

– There is a person acting as a subordinate agent with the right to execute;
– A domestic liaison office actually executing business activities of the foreign company;
– A domestic liaison office conducting business activities not for the headquarters but for
an affiliate company.

If a foreign investor is purchasing the capital goods to be used as investment in kind, then the price will be determined depending on the other factors concerning shipment and additional cost. For example, if the foreign investor has paid transportation cost and insurance fee until the goods arrive at the destination, then the cost for that will be included in calculating the final price. Thus, the final price will be accepted as the amount of foreign investment.
Process of Investment in Kind

If ATA Carnet that is imported for exhibition with condition of re-export after specific period is wanted to import, it has to be notified at the relevant customs office and get an approval. In this case, if certain conditions are met for import, the necessary documents need to be submitted before import is permitted.

• If foreign capital was imported and exchanged into Korean won without investment notification, it is assumed that the capital is used for other purposes than for investment and thus is not accepted as investment capital.

• If a foreign-invested company wants to conduct FDI in Korea, it has to open an account at a foreign exchange bank after investment notification, and the investment capital has to be deposited into that account. However, if the foreign capital was deposited in an account of a non-resident?s foreign currency account in foreign currency, then the money can be seen as investment capital even if it was received before investment notification.

• Furthermore, it is possible to take the money out of the country in foreign currency when it was deposited in a non-resident’s account by showing the receipt of exchange on departure. However, if the investor has left the country leaving behind deposited money in Korean won, re-enters Korea and wants to exchange the deposited money, then it would not be possible to sell the Korean won and buy foreign currency with it. 

♦ Establishment and function of the foreign investment promotion center:

– In order to efficiently support foreign investors, the foreign investment promotion center shall be established in the central administrative bodies, major metropolitan areas as well as
‘shi’ (cities), ‘gun’ (counties), and ‘gu’ (districts). The center shall set up a cooperative
system with relevant agencies and allow the smooth flow of administrative duties including
approvals, licenses, permissions, certificates, notifications, recommendations, consulta-
tions, etc.

– Duties include the following:

• Checking and supporting administrative processes;
• Filling out and submitting documents related to foreign investment;
• Promoting, attracting and supporting foreign investment;
• Accepting, investigating and processing grievances of foreign investors or foreign-invested companies;
• Exchanging information and cooperating with relevant institutions;
• Other administrative support services.

♦ Establishment and function of the foreign investment promotion committees

– The committees shall be set up in the major metropolitan cities and provinces and conduct the following duties:

• Planning with regard to attracting, promoting and supporting foreign investment;
• Consulting the grievance solution process of foreign investors or foreign-invested companies;
• Consulting administrative duties;
• Other measures that the governors of the metropolitan cities or provinces find necessary to promote foreign investment.

The initial day of reckoning would be the registration day of the capital increase regardless of when the capital increase was notified. 

Profits from dividends from businesses eligible for tax deduction are subject to tax deduction. However, in case of capital decrease it is not subject to tax deduction since it goes against the purpose of attracting foreign capital.

– For reference, a certain price for the capital decrease has to be paid for capital
decrease. And if the price for the shares exceeds the acquisition price, the excess
amount is the fictitious dividend from capital decrease.

No, only the sectors that are listed are eligible for tax deduction benefits. 

♦ Insurance Sector

· Type of approval or permit and relevant institution:
– Permit from the Financial Supervisory Committee
· Capital requirement: KRW30 billion (KRW 10 billion, in case only partial business is
conducted)
· Documentary requirements for a foreign insurance business:
– The type of business to be conducted in Korea has to be the same as that conducted
overseas pursuant to foreign laws;
– Enough assets, and proven financial transparency and business stability to conduct
business in Korea. Status quo is to be internationally acknowledged;
– Possibility of protecting the insurance contractor, and enough physical facilities such
as professional manpower and computer equipment available to conduct the
insurance business;
– Sound and adequate business plan.

♦ Credit-Specialized Financial Business Sector

· Type of approval or permit and relevant institution:
– For facility lease and rent, installment finance, new technology business financing:
registration at the Financial Supervisory Committee;
– For credit-card business: permit of the Financial Supervisory Committee.
· Capital requirement:
– less than two credit-specialized financial businesses : KRW 20 billion;
– more than three credit-specialized financial businesses : KRW 40 billion.

♦ Security Investment Trust Sector

· Type of approval or permit and relevant institution:
– Permit of the Financial Supervisory Committee
· Capital requirement: KRW10 billion
· Requirements for a foreign investor:
– Has to conduct the same kind of business overseas at the day of filing the
application for the permit;
– The amount of capital has to be at least three times the amount for investment as of
the end of the most recent business year;
– Has to satisfy a certain credit-rating-level from an internationally-renowned credit-
rating institute (e.g. above ‘investment-qualified’ level) or other standards set by a
government evaluation agency proving it’s financial soundness;
– No record of administrative penalty heavier than a corporate warning or a penal
punishment of more than a fine during the last three years.