Even though the raw material is imported in order to be used in the business eligible for tax deduction, if it is not considered as capital goods for investment in stock or investment, it can not be exempted from the duties.
FAQ-Category: Investment Attraction
Investment Attraction
Can an overseas Korean with permanent foreign residence be acknowledged as a foreign investor?
• According to Article 2 of the Foreign Investment Promotion Act (FIPA), a foreigner is defined as ?an individual of foreign nationality, a corporation established in accordance with a foreign law or an international economic cooperation organization.?
• According to Article 3 of the Enforcement Decree of FIPA, an ?individual who is a permanent resident of a foreign country? refers to a Korean national who has acquired permanent residence, or sojourn permission that can be substituted for permanent residence of the country in which he or she resides. In such cases, that individual is also considered a foreigner.
• Accordingly, a Korean-born individual with permanent foreign residence can be acknowledged as a foreign investor in Korea.
What does Invest KOREA’s ‘One-Stop Service’ mean?
♦ Invest KOREA is the official comprehensive national investment promotion agency (IPA) providing one-stop service to foreign investors.
♦ The scope of activities includes not only business consultation, but also tax and customs, business and factory establishment, as well as resolving difficulties with government and mediating in labor disputes. Invest KOREA thus provides comprehensive services and facilitates the smooth settling in of foreign investors in Korea.
♦ Detailed services provided by Invest KOREA:
– Investment consulting and guidance for individual investors, joint ventures, M&A, real estate investment;
– Investment notification, partner search and market research;
– Administrative duties such as the acquisition of approvals and permissions from the central and local governments;
– Supporting the initial settlement of the foreign investor in Korea such as housing, schools and medical insurance, as well as investor aftercare and grievance solution;
– Establishment of new businesses.
What is the cash grant system?
♦ The cash grant system provides cash support to foreign investors who meet specific
requirements, and its objective is to attract foreign investment, which contributes to the
progress of the national economy.
• Construction costs for factories or research facilities;
• Costs for the purchase of capital goods and research material to be used for business or research activities in factories or research facilities;
• Costs for the establishment of basic infrastructure (electricity and communication facilities) needed for new factories or research facilities;
• Financial assistance for employment and educational training.
requirements, and its objective is to attract foreign investment, which contributes to the
progress of the national economy.
♦ The cash grants are given for the installation of new or additional facilities as well as the
following businesses:
• Industrial-supporting services and high-technology business (more than US$10 mil. pursuant to Art.121 of the Special Tax Treatment Control Act);
• Parts and material business (more than US$10 mil.);
· Included are the items which are selected by the Minister of MOCIE from the parts and material list;
• R&D facilities of industry-supporting service and high-technology businesses with foreign investment of more than US$5 mil. and more than 20 permanent employees who possess at least a Master’s degree and more than three years research experience.
♦ The cash grants may be used for the following purposes:
• Purchase or rental of land needed for the establishment of factory or research facilities;• Construction costs for factories or research facilities;
• Costs for the purchase of capital goods and research material to be used for business or research activities in factories or research facilities;
• Costs for the establishment of basic infrastructure (electricity and communication facilities) needed for new factories or research facilities;
• Financial assistance for employment and educational training.
If a company acquires a theater in a metropolitan district subject to overpopulation control, will local taxes be levied?
In general, if a company acquires real estate or establishes it’s headquarters or branch in a metropolitan area under overpopulation control, local taxes are levied. However, certain business sectors including theaters are not subject to registration tax.
Three-fold acquisition tax is levied on:
– new or additional establishment of factories (excluding industrial complex, FDI zones,
industrial zones);
– acquisition of real estate used for commercial purposes or as office by the
headquarters of the company.
industrial zones);
– acquisition of real estate used for commercial purposes or as office by the
headquarters of the company.
Three-fold registration tax is levied on:
– new or additional establishment of factories (excluding industrial complex, FDI zones,
industrial zones);
– establishment and setup of corporations and branches, corporate registration or real
estate registration due to moving-in (excluding industrial complex);
– Exception: acquisition of real estate after 5 years since business establishment or
moving into the metropolitan area. In such cases, no registration tax is levied.
industrial zones);
– establishment and setup of corporations and branches, corporate registration or real
estate registration due to moving-in (excluding industrial complex);
– Exception: acquisition of real estate after 5 years since business establishment or
moving into the metropolitan area. In such cases, no registration tax is levied.
However, if the real estate was notified as new or additional factory facility of the foreign- invested company by Dec. 31, 2003 then the three-fold acquisition tax and registration tax will not be applied.
Does it make any difference to taxes, if a foreigner acquires existing stocks of a domestic company or acquires new stocks through capital increase for a joint venture?
There are no tax benefits for foreign investment made by means of acquiring existing stocks, but tax deduction is applied for foreign investment through capital increase.
If selling existing stocks, the seller has to pay the acquisition tax (corporate tax) and transaction tax for the transfer of shares. The acquirer does not have to pay any special taxes. One exception is for a corporation not listed on the stock exchange, where acquisition tax is levied for the possession of more than 51% of total stocks.
What are the taxes and tax rates for local companies and branch offices?
Generally, both local company and branch office have to pay corporate tax (15.27%), inhabitant tax (10% of corporate tax), and VAT (10%).From 2005, corporate tax will be reduced by 2%.For certain countries, such as France, Canada, and Australia, a branch office tax (5-15%) is levied under certain conditions.
Can an individual borrow foreign capital from overseas?
Yes, an individual can borrow foreign capital from overseas.If the individual is a non-profit organization or a non-resident, then the designated transaction has to be notified to the Bank of Korea through a foreign exchange bank. The individual who has borrowed foreign capital from overseas has to deposit the received capital into an account of a resident in the designated foreign exchange bank and use it for the purpose as stated at the time of notification / application for permission.
Are all capital goods imported by a foreign invested company eligible for duty exemption?
No, not all capital goods imported by a foreign-invested company are eligible for duty exemption.
In order to receive duty exemption, it is necessary to be following capital goods used in the business that is eligible for corporate and income tax exemption and completed an import notification within three years from the date of notification by newly issued share.
* Capital goods introduced as a means of foreign payment or domestic payment from the foreign investors
* Capital goods invested to buy stocks by a foreign investor
If a domestic company that receives an order by means of Turn Key from a foreign invested company that operates designated business for tax deduction imports capital goods to use in the same business, is it possible to get duty exemption?
If the importer is a foreign invested company that dose not receive an approval for duty exemption from the minister of the Ministry of Finance and Economy
If a domestic company that receives an order by means of Turn-key from a foreign invested company tries to capital goods to use in the designated business eligible for tax deduction, customs duty cannot be exempted because the person who is eligible for tax deduction is not keeping with the responsible person for tax payment.
