• Reduction of tents on state/public properties available even if the business is not high-tech accompanying business and industry support service business

O In case a foreign-invested company gets lease on the land at the foreign investment district (individual and complex type), rents may be reduced by 100% or 75% if it operates following businesses.

– The business a foreign-invested company operates in the individual-type foreign investment district (100%)

– The business which foreign-invested company operates in the complex-type foreign investment district and gets tax reduction decision with the high-tech accompanying business and industrial support service business with more than $ 1 million foreign investment

* Tax exemption on the business which receives such tax reduction

– manufacturing business which is operated by more than $5 million in the complex-type foreign investment district (75%)

– Business which is determined by the Minister of Knowledge & Economy through deliberation of the Foreign Investment Committee, Project (75%)

• When a foreign-invested company get lease on land in the national industrial complex, regional industrial complex, urban high-tech industry and agro-industrial complex, rents may be reduced by 50%. 

o A foreign investor means a person who owns stocks or the equity in accordance with the Foreign Investment Promotion Act

o The scope of a foreigner defined in the same Act is:

– Individual: a person who has the nationality of a foreign country

(Including the case where a Korean achieves a permanent residency or a equivalent residency permit)

※ A Chinese residing in Korea semi-permanently is a foreigner (status of residence (F5), the foreign investment filing with domestic resource income is not accepted).

– Foreign corporation: established in accordance with the laws of the foreign laws

– International Economic Cooperation: the organization acting for international economic cooperative works of foreign countries. One which handles or does international investment works for IBRD, IFC or ADB, etc.

o Since capital goods are the object of investment for the incorporation of foreign-invested company, a foreigner should report the foreign investment application to the commissioned institution (bank or KOTRA (IK trade center, etc.)) and get the review/ confirmation from the filed commissioned institution before customs clearance by the competent customs house for the imported goods (capital goods). Meanwhile, the importing goods list reviewed/ confirmed form the commissioned institution shall be constituted to get the import permit regardless of related provisions of the Foreign Trade Law.

O After customs clearance, a foreigner should get the “certificate of contribution like-kind completion form the Commissioner of the Korea Customs Service (an office who IK Customs Service dispatched) with attachment of import declaration certificate (copy) and in this case, notwithstanding provisions of article 299 of the Commercial Act, the certificate of contribution like-kind completion of which the performance of contribution like-kind and the type, quantity, price, etc. were confirmed form the Commissioner of the Korea Customs Service (an office who IK Customs Service dispatched) is constituted as the inspector’s report and so it may be enclosed at the time of submitting documents for incorporation and foreign-invested company registration. 1-

o General benefits

– Guarantee of transfer to foreign countries

• With remittance of proceeds that come from the stocks, etc. acquired by a foreign investor, proceeds from the sale of stocks or equity shall be guaranteed in accordance with the details of the permission or report of the foreign investment contract.

– Equal national treatment
Except as otherwise prescribed by the Acts of the Republic of Korea, foreign investors and foreign-capital invested companies shall be treated in the same way as nationals of the Republic of Korea and Korean corporations in respect of their business operation.

※ Superior treatment to a resident in tax exemption or location selection

– Special exemption on capital goods at the import declaration

Capital goods which received the capital goods importation item confirmation in accordance with Foreign Investment Promotion Act are regarded as the income permit to provide convenience at the time of import declaration in accordance with the Foreign Trade Act

– Exemption on investment in kind

Ease of procedures under Commercial Act by considering the “completion confirmation on investment in kind confirmed by Commissioner of Customs as “the investigation report by an inspector” in accordance with article 203 of the Non-Contentious Case Litigation Procedure Act

o Tax reduction benefits
When a foreign investor engages in the tax reduction business specified in the “Tax Reduction Regulations on Foreign Investment” (high tech accompany business), such an entity may get reduction of national/ local taxes for a certain period of time

o Location support benefits

The land, factory and other state/ public properties (hereinafter called as “land”) owned by the government, local governments or public agencies may be used by, leased or sold to a foreign-invested company (it is available even not the subject to tax reduction).

– When the land, etc. owned by the government is leased to a foreign-invested company, the rents may be reduced

o Tariff reduction benefits

If the capital goods which are directly used in the tariff reduction business may get the reduction of tariffs in case such capital goods are introduced within 3 years from the date of investment filing according to the acquisition of newly issued stocks, etc.

– Capital goods which are imported as the object of investment by foreign investors

o Securing stable foreign currency instrument

– The foreign investment ensures the stable introduction of international capital without additional debt burden

▶ Since FDI aims at generating business profits from the long-term business through securement of the management rights, it is more stable than the pure nature of financing
– In the situation where the domestic capital does not afford, M&A by the foreign investment plays a positive role in the restructuring of the domestic firms.

o Economic effects of foreign investment

– The overall inflow of capital itself creates added values through the increase of industry production and promotes the economic growth through economy-wide productivity improvement, technology transfer, increased employment, and expansion of exports.

– Effect of increasing economic competitiveness

▶ It promotes competition within markets to improve effectiveness of domestic economy structure and increase consumer benefits through price decline.

– Technology transfer and ripple effects

▶ The direct technology transfer into the subsidy in the nation by the foreign parent company or employment of researchers focusing on the foreign investment subsidy which received technology transfer spreads to other domestic companies through various channel.

– Trade balance effect: Concurrent effect of the positive (+) and negative effects
▶ Local production by the direct investment brings in effects of import substitution, which improves the trade balance, but may worsen the trade balance by resulting in import increase from manufacturing factors such as raw materials/ parts one the other hand.

▶ Production base type foreign investment improves the trade balance whereas the market approach foreign investment aiming at the domestic sales may affect differently depending on the degree of finished goods substitution and the overseas procurement of intermediary goods.

▶ The capital inflow form the host country improves the capital balance nut the payment of royalty, transfer of gains deteriorates the invisible balance.

– Employment effects

▶ The direct employment effect through local labor employment, the employment expansion of local companies for intermediary/ raw material supply by the foreign-invested company, distribution of finished goods by the foreign-invested company require the increase of employment.

▶ However, if the local companies which have used labor-intensive manufacturing methods are replaced by the capital-intensive foreign-invested company, the employment may be reduced.

o The amount of foreign investment (the acquisition amount in case of acquisition of stocks, etc.) shall be more than 100 million won per case.

– When there are more than 2 foreigners, it shall be 1 million a person.

o The ratio of foreign investment, as a rule, should be more than 10% but, even if less than 10%, if it is;

i) a contract which can dispatch or appoint an officer

ii) a contract which can deliver or purchase raw materials or products for more than a year
iii) a contract which intends to introduce or import technologies or make a collaborative R&D, such a contract should be instituted as a FDI. 

• Socioeconomic aspects

– It may minimize the social/ economic loss from the bankruptcy of companies with potential growth, withdraw and exit the declining companies (industries), and facilitate the advancement into growing companies.

– Management efficiency improvement and entry costs reduction in restructuring the industry

▶ Minimization of the lead time of establishing new management bases required in securing new technologies, know-how, human resources development, and new markets

– Reinforcement of market dominance and pursuit of economies of scale

▶ Expansion of company resource concentration and strengthening of market dominance by M&A

▶ Various expense reductions including raw material purchase expense, inventory management cost, fixed manufacturing cost, etc., and economies of scale attainable through M&A

O business aspect

Achievement of added value increase and increase of business synergy effects through expansion of company value chain

– Securement of technological superiority through R&D cost savings and improvement of market advancement time

o Financial aspects

– Risk diversification effects through risk decrease or profit increase of companies expected

– The increase of debt service ability and tax savings benefit expected

o The business types which exclude the foreign investment are 63 such as public administration, foreign affairs, defense, etc. out of 1,121 business types in accordance with the Korean Standard Industrial Classification (the detailed classification: 5 units). And 1,058 business types excluding them are available to the foreign investment, which means the liberalization ratio for the foreign investment amount to 99.8% and is the level of OECD advanced countries’ openness.

– Fully open business types: 1,030

– Partially open business types: 26 (foreign investment available when * the allowance criteria are met)
– Not-open business types: 2 (as of December, 2007: radio broadcasting and television broadcasting)

o Notification in “Regulations on foreign investment and technology adoption“

– The advancement of a foreigner into the domestic business can be divided into 4 methods and they are the entrance by establishment of corporation or by a personal business, advancement through establishment of a branch or representative office in accordance with the Foreign Exchange Transaction Act, etc.

– In case of establishment of a local subsidiary (more than 100 million won investment but more than 1 million won per investor if investors are more than 2 persons) or the investment for the business run as a personal business, only more than 100 million won investment is considered the FDI under the Foreign Investment Promotion Act.

– The domestic branch of the overseas parent company is a branch of a foreign corporation, the income generated from domestic business is applied to the same corporate tax rate with domestic corporations and the representative office may perform the non-business activities or the head office. Because the installation of branch/ representative office (subsidiary) is applied to the Foreign Exchange Transaction Act, it is not applicable to the foreign investment under the Foreign Investment Promotion Act.

Classification of the foreign-invested company and domestic branch

o Object of investment

– Cash (in case of cash contribution, the applicable foreign capital should be directly received or transferred through a domestic bank and be withdrawn in won)
– Capital goods (including used capital goods): They acknowledged by the competent Minister as industrial facilities required for the initial test run. should be machinery, facilities, components, etc. as industrial facilities and raw materials and spare parts
– Proceeds from the stocks or equity achieved in accordance with the PA (dividends)
– Management of technologies equivalent to industrial property rights, intellectual property rights and others, and their use
– The remaining assets according to the liquidation of a foreign domestic branch of a foreign representative office
– The redemption amount against the loan for more than 5 years or other borrowings from a foreign investment company’s, overseas parent company, foreign investor, a company with capital investment relationships with a foreign parent company or a company which has capital investment relationships with a foreign investor should be acknowledged as the foreign investment.

※ The contribution in kind of loan or borrowings (in the place of a lender) is also accepted

– Domestic real estates owned by a foreigner
– Shares of foreign corporation owned and registered in the exchange of foreign country or domestic shares owned by a foreigner in accordance with the Foreign Investment Promotion Act or the Foreign Exchange Transactions Act
– Proceeds for the sale of stocks, equity or real estate which a aforeigner achieved in accordance with the Foreign Investment Promotion Act and the Foreign Exchange Transctions Act