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Automatic Translation Available This service is provided via an automatic translator. Hence, there may be some errors in the translation.
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The free trade zones are based on the Act on Designation of Free Trade Zones with the purpose to designate zones nearby harbors and airports as well as industrial complexes for attracting foreign direct investment, promote trade and develop the surrounding area. Presently, eight zones are designated as free trade zones, and they are located in Masan, Iksan, Gunsan, Daebul, Incheon harbor, Busan harbor, Gwangyang harbor, and Incheon airport. The businesses eligible to move into the free trade zones are manufacturing companies, logistics, trade and supporting service companies:
The lender of the site is the government and it is possible to receive various benefits such as reduction of rent and withholding of customs as well as one-stop service for administrative support. For the manufacturing sector with an investment of more than US$10 million, and for the logistics sector with an investment of more than US$5 million, tax reductions are given for corporate and income tax (100% reduction for five years, and 50% for two years), as well as for local tax (100% for three years and 50% for two years).
Presently, there are six exclusive industrial complexes for foreign companies across the country that solely house foreign-invested firms: Pyungdong (Gwangju Metropolitan City), Chonan (South Chungcheon Province), Ochang (North Chungcheon Province), Gumi (North Gyeongsang Province), Jinja (South Gyeongsang Province), and Daebul (South Jeolla Province). There are also three more such industrial parks managed by the Gyeonggi Province in Pyungtaek Ehyun Hasan, Choopal and Poseung.The requirements to move into these exclusive complexes include meeting a fixed foreign investment ratio (i.e., 10% in the case of Pyungdong and Daebul). Also, restrictions exist in terms of the industry that a company belongs to. That is, only companies in specific industries (i.e., high-tech) are eligible.The requirements to move into these exclusive complexes include meeting a fixed foreign investment ratio (i.e., 10% in the case of Pyungdong and Daebul). Also, restrictions exist in terms of the industry that a company belongs to. That is, only companies in specific industries (i.e., high-tech) are eligible.
The general advantages and disadvantages are listed below, however, the actual advantages and disadvantages of establishing a factory in an industrial complex or another location vary for each company.
| Individual Location | Industrial Complex | |
| Advantages | · Free choice of time, location and size of the factory · Purchase of farm or forest land at a cheap price | · Industrial complexes are systematically planned by the government with various financial and tax benefits such as: – Loan and fund – Exemption from acquisition tax and registration tax – 50% reduction of property tax and comprehensive land tax (within five years of initial acquisition) · Extensive infrastructure and other |
| Dis- advantages | · Complicated process to purchase land and get approval for factory establishment · Weak industrial infrastructure (electricity, water irrigation, harbor, roads, etc.) · Not enough educational or cultural facilities · Subject to various fees and payments · Civil petitions | · It is difficult to find adequate factories when needed, because they are usually sold first before occupation · It is difficult to find factories in the desired locations, because the factory site locations are fixed and dispersed throughout the country · The locations are usually only a section of land so that it is difficult to expand the factory after moving in · Generally, the price for the industrial complex is fairly expensive. |
If the process is planned and the factory shall be established in an industrial complex, then an appropriate industrial complex has to be selected a priori. With the conclusion of a contract to move into the complex, it is at the same time accepted as an approval for factory establishment. Therefore, the construction and operation of the factory can follow.
If the factory is to be established in a location other than industrial complex, then the investor has to find out, if those locations are available for factory establishment and needs to get an approval from the competent local government before starting the construction and operation of the factory. The approval for factory establishment is compulsory for areas of more than 500m2, but it is also possible to receive an approval for areas of less than 500m2.
If a used car imported by a foreign investor wants to be recognized as freight, the car has to be registered as private possession before departure (at least three months)
In this case, for a car per a house, it is exempted from the duties if the car was made in Korea and then exported. However, for a car per a house, it has to be paid customs duty if the car was made in foreign country regardless of used period.
In order to pass through the customs clearance, the car should be a sedan, jeep or station wagon and the size of the car should not be exceed a capacity of 9 people, and documents that prove evidence of registration including a car registration issued by government of the country where has been or certificate of insurance have to be submitted. However, large trucks, caravans and pick-up trucks cannot clear customs as freight when moving to Korea.
Customs duties for a car are following, and for a used car, if the actual paid price cannot be found, customs duty is calculated by taking reference to the list of price in the blue book by taking also the depreciation cost and insurance fee into consideration.
| Classification | Customs (%) | Special Expenditure Tax (%) | Educational Tax (%) | Value Added Tax (%) | Total (%) |
| Over 2000cc | 8 | 10 | 30 | 10 | 34.24 |
| 800~2000cc | 8 | 5 | 30 | 10 | 26.52 |
| Under 800cc | 8 | 10 | 18.80 |
In order to receive duty exemption, the capital goods have to be used for business eligible for tax deduction.
Therefore, if the capital goods are used for other purpose, then the exempted duty will be charged.
Furthermore, at the stage of customs clearance, it is not possible to divide the use of the capital goods according to the type of business they will be used for. Therefore, it is not possible to get duty abatement depending on their use.
There are no differences in the accounting process of a branch office and a foreign-invested company.If capital is transferred from the parent company (operating capital, other financial needs, etc.), the reason for its import and its accountability need to be examined. If the additional capital is to be treated as capital increase, then it has to follow the regulations in the FIPA as newly acquired stocks of an existing company. If the additional capital is to be treated as a loan, a contract with the conditions of the loan has to be signed before the necessary capital can be imported pursuant to the Foreign Exchange Transaction Act.
There are generally no financial support facilities or benefits for foreign-invested companiesHowever, foreign-invested companies can borrow short-term loans with a maturity of less than one year from a non-resident (e.g. overseas parent company) by notifying a foreign exchange bank about the transaction.If the company is not a foreign-invested company and borrows a loan of the same conditions as above, it has to get an approval from the Ministry of Finance and Economy.But local governments are providing various kinds of financial assistance under certain conditions to attract foreign investment. Therefore, foreign investors might get some financial support under negotiations with the local governments.
A foreign-invested companies in the general manufacturing or high-technology sectors are allowed to borrow short-term loans of less than one year within the range of a certain fixed amount. If the foreign-invested company is a general manufacturing company, it can borrow a short-term loan within 50% of the amount of foreign investment. If the foreign-invested company conducts high-technology business, it can borrow a short-term loan within 100% of the amount of foreign investment. However, if the foreign-invested company has a foreign investment ratio of less than one third, the range of the loan is 75% of the amount of foreign investment.
The term five years refers to the weighted average redemption period. It does not mean that the loan has to be paid back five years after its import. Accordingly, even if the loan is paid back in installments from the fifth year and the weighted average of the redemption period is more than five years, it will be considered as a long-term loan.
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