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How to Invest in Korea

Incentives & Procedures


How to Invest in Korea
Incentives & Procedures

Contents
Ⅰ. Laws and Regulations Related to Foreign Investment
1. INTRODUCTION 04
2. FOREIGN INVESTMENT PROMOTION ACT 04

Ⅱ. Foreign Investment Support Programs


1. TAX RELIEF 14
2. RENT SUPPORT FOR GOVERNMENT-OWNED PROPERTY AND
FAVORABLE CONDITIONS OF LOCATION 17
3. CASH GRANT 18
4. FOREIGN INVESTMENT SUPPORT AGENCIES 20

Ⅲ. Investment Procedures
1. OVERVIEW AND NOTIFICATION OF FOREIGN DIRECT INVESTMENT 21
2. ACQUISITION OF NEW SHARES 22
3. ACQUISITION OF ISSUED AND OUTSTANDING SHARES 25
4. ACQUISITION OF SHARES BY MERGER OR CONSOLIDATION 26
5. FOREIGN INVESTMENT THROUGH LONG-TERM LOAN 26

Ⅳ. Detailed Explanation of Investment Procedures


1. BUSINESS ESTABLISHMENT 27
2. FACTORY ESTABLISHMENT 39
3. LAND ACQUISITION BY FOREIGN NATIONALS 55
4. EMPLOYMENT PRACTICES 70
5. TAX SYSTEM 79
Ⅰ. Laws and Regulations Related to
Foreign Investment
1. INTRODUCTION
The Foreign Investment Promotion Act shall be the fundamental law governing the
granting of incentives to foreign investors. These incentives shall include
Expedited processing of foreign investment applications
Reduced taxes for foreign investors, and
Prompt resolution of complaints.

Laws and regulations related to Foreign Investment Promotion Act shall be:
Enforcement Ordinances and Enforcement Regulations of Foreign Investment
Promotion Act, that prescribe particulars authorized by Foreign Investment
Promotion Act and mandatory subjects for their enforcement;
Foreign Exchange Transaction Regulations, dealing cases for foreign exchange and
foreign transactions;
Regulations on Foreign Investment and Introduction of Technology, which state
business areas where foreign investment is not permitted or permitted with certain
limitations; and
Special Taxation Restriction Act and its Enforcement Ordinances and Enforcement
Regulations, which include tax reduction for foreign investment.

2. FOREIGN INVESTMENT PROMOTION ACT


1) Definition of Foreign Direct Investment
▶Foreigners
The term "foreigners” refers to individuals of foreign nationality; corporations established
in accordance with any relevant foreign Act (hereinafter referred to as a "foreign
corporation") or international economic cooperation organizations.

International economic cooperation organizations are;


Organizations carrying out international economic cooperation activities for a
relevant foreign government as its agency;
International development financing organizations such as International Bank for
Reconstruction and Development (IBRD), International Finance Corporation (IFC)
and Asian Development Bank (ADB); and
International organizations engaged in foreign investment both as a concerned party
and as an agency.

▶Foreign Investment
"Foreign Investment" largely consists of two types:
Where foreigners purchase stocks or interest in a Korean corporation or a company;
Where foreigners grant a long-term loan to a Korean corporation or a company.

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The term "purchase of stocks or interest in a Korean corporation or a company” refers to:
Where foreigners purchase stocks or interest in a Korean corporation (including a
Korean corporation in the process of being established) or in a company operated
by a national of the Republic of Korea, for the purpose of establishing a continuous
economic relationship with the said Korean corporation or company by means such
as participating in the management, etc.

In this case, "purchase of stocks or interest in a Korean corporation or a company” means:


Where foreigners possess 10 percent or more of the total voting stocks or of the total
amount of capital contribution to a Korean corporation or company;
Or, otherwise, foreigners possess less than 10 percent of the total voting stocks or of
the total amount of capital contribution to a Korean corporation or company, but at the
same time;
a) enter into an agreement whereby they are given the authority/responsibility for
dispatching and appointing board members;
b) enter into an agreement for supplying/purchasing raw materials/products for
more than one year, or;
c) enter into an agreement for the purposes of technical assistance/introduction or
joint research and development projects.

The amount of foreign direct investment (the amount of direct investment per person in the
case of a joint investment by two foreign nationals or more) shall be a minimum of KRW 50
million.

“Long-term loan” refers to a loan with maturity of five years or more, extended to a foreign-
capital invested company by its overseas parent company or by a company that has capital
affiliation with the parent company in any of the following manners;
a) A company that owns 50 percent or more of the total stocks issued, or the total
amount of capital contribution of the overseas parent company;
b) A third company that has 10% or more of the total stocks issued(or the tota
amount of capital contribution) of the overseas parent company extends the loan
to a foreign-capital invested company whose overseas parent company has 50% or
more of the total stocks issued (or the total amount of its capital contribution); or,
c) Another third company, 50 percent or more of whose total stocks issued
(or the total amount of its capital contribution) are owned by the overseas
parent company or the company mentioned in the subparagraph b) hereof.
2) Foreign Investors and Objects of Investment

▶Foreign Investors
The term "foreign investors" shall refer to foreigners who are in possession of stocks and
interest under the conditions prescribed by the Foreign Investment Promotion Act.

▶Foreign-capital Invested Company


The term "foreign-capital invested company" shall refer to companies that foreign
investors have financed under the conditions prescribed in the Foreign Investment
Promotion Act.

▶Operators of Facilities that Enhance the Foreign Investment Environment


The term "operators of facilities for the promotion of foreign investment environment"
shall refer to individuals running facilities to provide an improved environment for foreign
investors such as schools, hospitals and clinics, pharmacies, residential buildings and
business incubation centers.

▶Objects of Investment
The term "objects of investment" shall refer to items such as stocks that foreign investors
finance in order to possess pursuant to Foreign Investment Promotion Act and which falls
under any of the followings;

Categories of Objects of Investment

▶ International means of payment approved under the Foreign Exchange Transaction Regulations
or domestic means of payment incurred by exchange of the international means of payment
▶ Capital goods
▶ Proceeds (dividends) accruing from stocks and others purchased as foreign direct investment
▶ Industrial property rights; copyrights used for industrial activities, rights to Layout Designs of
Semiconductor Integrated Circuits, technologies corresponding thereto, or any other rights
pertaining to the use of such rights or technologies
▶ Residual assets resulting from the liquidation of foreign-owned branch offices, offices or
corporations in Korea
▶ Amount of redemption of either loans as prescribed above or other loans from foreign countries
▶ Stocks of foreign corporations listed or registered on foreign securities markets
▶ Stocks owned by foreigners according to the Foreign Investment Promotion Act and the Foreign
Exchange Transaction Regulations
▶ Immovables located in the Republic of Korea
▶ Proceeds from liquidation of stocks and immovables of foreign-owned companies

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3) Protection and Liberalization of Foreign Investment

▶Protection of Foreign Investment and National Treatment


The Korean government extends a greater level of protection to foreign direct investment
than for foreign investment such as portfolio investment in stocks and bonds.

With respect to the proceeds of foreign direct investment, the Foreign Investment
Promotion Act guarantees remittances by foreign investors to foreign countries in
accordance with the contents of the contract for foreign investment or for the introduction
of technology, at the time of the said remittance.

Also, except as otherwise prescribed by specific laws and regulations of the Republic of
Korea, foreign investors and foreign-capital invested companies and corporations shall be
treated equally as Korean nationals and Korean companies and corporations in all their
business operations.

Rules and regulations on tax benefits that apply to Korean nationals and Korean
companies and corporations shall be applied equally to foreign investors and foreign-
capital invested companies and corporations, except as otherwise prescribed by specific
laws and regulations.

Foreign Investment Protection items permitted for foreign remittance

▶ Income incurred by acquired stocks, etc.


▶ Proceeds from sale of stocks, etc.
▶ Principal, interest and commission paid according to relevant loan agreement(s)
▶ Royalties on technology introduction

▶Liberalization of Foreign Investment


Except as otherwise set by specific laws and the regulations of the Republic of Korea, foreigners
may engage in, without restraint, various activities of foreign direct investment in the Republic of
Korea. However, subject to restriction are foreign investment activities that threaten national
security and public order; or would have a harmful effect on public health or the preservation of
the environment; or are markedly contrary to commonly accepted Korean standards of decency
and morality, or violate any Korean laws and regulations.

The categories of business in which foreign investment is restricted are the business categories
where it is difficult to apply the Foreign Investment Promotion Act rather than prohibits foreign
investment.
Business Categories where Foreign Investment is Restricted

▶ Postal service, central bank, individual-business mutual aid, pension, stock and future exchange,
other financial market management, clearing house
▶ Legislative, administrative, judiciary, foreign diplomatic missions to Korea, and other international
and foreign organizations.
▶ Research and development of economics, other research and development on cultural and
social science
▶ Educational organizations (infant school, primary and secondary educational institutions,
special educational institutions)
▶ Artist; religious organizations; organizations of industries, experts, environment movement, politics,
labor movement, etc.

The Korean government enforces, if applicable, the restrictions on foreign investment by


capping the number of stocks that foreigners can acquire.

To enhance transparency in foreign investment restriction, the Korean government


enforces the Consolidated Public Notice for Foreign Investment. This system is to help
foreigners easily understand changes made in the laws and regulations relevant to foreign
investment as the Korean government consolidates such changes and place public
notification every year.

Foreigners are not allowed to invest in the companies that are engaged, in any way, in
businesses where foreign investment is prohibited and/or partially permitted. In the case
where a foreigner intends to invest in a company that is engaged in more than two
businesses where foreign investment is limitedly permitted, the foreigner cannot invest
exceeding the investment ratio prescribed for the business with the lowest ratio for foreign
investment permission.

However, a foreigner can invest in a company engaged in foreign-investment restricted


business if only the sales revenues of the restricted business are less than 1 percent of its
total sales amount. Nevertheless, in case the company’s revenues from the restricted
business exceed 1 percent of its total sales amount after the foreigner purchases its stocks,
the foreigner should transfer his/her stocks in the company to a Korean national or a
Korean corporation within six months from the settlement of its account.

If the transfer, for any unavoidable reason, can not be performed within the given period,
it can be postponed within the limit of an additional six months after obtaining permission
from the Ministry of Commerce, Industry, and Energy.

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< Foreign-Investment Restricted Business Categories >
Criteria for approval for
Restricted business categories
foreign investment

Grain and other food crop cultivation business Rice and barley are excluded
Foreign-investment percentage: less than 50
Beef cattle breeding
percent of total investment amount

Foreign-investment percentage: less than 50


Coast water fishery
percent of total investment amount

Foreign-investment percentage for newspapers:


Publication of newspapers, magazines and less than 30 percent of total investment amount.
other periodicals Others: less than 50 percent of total investment
amount

Nuclear fuel processing Permitted except manufacturing and supplying


fuel for atomic power generation
Electric power generation Excluding atomic power generation

A foreigner should not be the largest share holder;


Power transmission, distribution and Foreign-investment percentage: less than 50
sales business percent of total investment amount.

Foreign-investment percentage: less than 50


Wholesaling of meat percent of total investment amount.

Transportation between South and North Korea; a


Passenger and freight transportation service joint venture with Korean company is mandatory;
within home waters Foreign-investment percentage: less than 50
percent of total investment amount.

Scheduled and non-scheduled Foreign-investment percentage: less than 50


transportation by air percent of total investment amount

Telecommunication circuit facility leasing, wired Foreign-investment percentage: less than 49


and wireless telephone service, wireless paging percent of total investment amount. (For KT,
and other wireless communication service, and foreigners can be a majority owner only when the
other telecommunication services FDI ratio is 5% or less)

Permitted for commercial banks and provincial


Local banks banks. (Special banks and agricultural, fishery and
livestock cooperatives are not open yet to FDI)

Radio and television broadcasting Not permitted

Foreign-investment percentage: less than 33


Cable networks percent of the total investment amount;
News program supply business is not open.

Foreign-investment percentage: Less than 33


Cable and other program distribution percent of the total investment amount; relaying
cable broadcasting is not open to FDI.

Foreign-investment percentage: less than 33


Satellite broadcasting
percent of the total investment amount

News agency activities Foreign-investment percentage: less than 25


percent

Permitted except radioactive waste management


Radioactive waste collection, transportation and service pursuant to Article 82 of Electrical
processing service Construction Business Act
4) Investment Procedures
Refer to “3. Investment Procedures”

5) Foreign Investment Zone


▶Definition of Foreign Investment Zone
The Foreign Investment Zone is a client-oriented support program designed to induce
large-scale foreign investment under which a mayor or a governor designates a specific
zone where a foreign investor wishes to build a plant and where the company in question
can qualify for a generous range of benefits. In other words, it is an arrangement, which
enables investor-selected zone to be designated as a Foreign Investment Zone, and
different from the supplier-oriented approach where foreign investment is induced through
a certain industrial zone established beforehand.

▶Designation and Development of Foreign Investment Zone


Each mayor and governor shall designate and supervise a zone, in which a foreign investor
desires to invest, as a Foreign Investment Zone after deliberation by the Foreign
Investment Committee, if necessary for promoting foreign investment with following
specifications. However, if all or part of a National Industrial Complex has been
designated as a Foreign Investment Zone and already is run by a coordinating government
organization, the organization will continue to manage the zone.

In the case where constructing a new site is necessary to build a plant, etc., in a Foreign
Investment Zone, it can be developed as a provincial industrial complex, which requires a
development plan.

On the other hand, an area where more than two foreign investors invest can be designated
as the Foreign Investment Zone, provided that
The total foreign investment is over US$30 million
Both of their business categories fall under the following criteria (see below), and
The site where their plants or research facilities are located is in the same National
Industrial Complex or Provincial Industrial Complex or is adjacent to either one.

In case where the area is designated as a Foreign Investment Zone, the investors should
fulfill the following criteria within 5 years of the designation notification.

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< Criteria for Foreign Investment Zone Designation >
Criteria for Business Categories Criteria for Designation
Manufacturing, industry support service, hi-tech Foreign investment amount should be more than
business US$30 million
Tourist hotel business, floating tourist hotel
business, general recreation service, Foreign investment amount should be more than
general resort facility provider, US$20 million
international convention facility

Complex cargo terminal business, establishing and


operating site for public pick-up/delivery center,
Business operating harbor facilities, Business Foreign investment amount should be more than
operating airport facilities, logistics industry, SOC US$10 million
facilities establishment business

Research facilities ▶ Foreign investment amount should be


more than US$5 million
▶ Regular employment of more than 10
full-time researchers with 3 years or
above research experience holding
master’s degrees or higher.

▶Support for Foreign Investment Zones


The Korean government supports foreign-invested companies operating in Foreign
Investment Zones with tax reductions or exemptions and privileges such as construction
costs and basic facility support and exemption of the traffic generation charge. Details of
the available tax benefits are as follows:
Property Tax, Acquisition Tax, Aggregate
Corporate Tax, Income Tax
Land Tax, Registration Tax

▶ Until the end of 2004, if a foreign-invested ▶ Until the end of 2004, if a foreign-
company reports and applies for a tax invested company reports and applies
reduction/exemption from the Korean for a tax reduction/exemption from the
government, a 100-percent exemption Korean government, a 100-percent
for the initial 7 years and a 50-percent exemption for the initial 7 years and 50-
exemption for the following 3 years percent exemption for the following 3
will be available. years will be available.
▶ From Jan. 1st 2005, if a foreign-invested ▶ From Jan. 1st 2005, if a foreign-invested
company reports and applies for a tax company reports and applies for a tax
reduction/exemption from the Korean reduction/exemption from the Korean
government, a 100-percent exemption government, a 100-percent exemption
for the initial 5 years and a 50 percent for the initial 5 years and a 50- percent
exemption for the following 2 years will exemption for the following 2 years will
be available. be available.
▶ A provincial government can increase
the reduction/ exemption period and
percentage within 15 years.

If designated as the Foreign-Investment Zone, support for infrastructures such as harbors,


roads, water supplies, railroads, communications and electrical power supplies will be
provided plus rentals for national properties will be 100-percent exempted. The traffic
generation fee caused by necessary construction work will also be exempted. At the same
time, restrictions on the invested companies’ exporting and importing will be alleviated.

6) Post-Investment Actions for Foreign Investors


▶Foreign-Invested Company Registration
When a foreign investor or a foreign-invested company has paid in full its contribution to
the required capitalization and acquires outstanding shares, or converts or subscribes to, or
exchanges any depository receipts or any other convertible bonds or exchangeable bonds
or securities into or for equity securities, then such foreign investor must file for foreign-
invested company registration or modification to the registration within 30 days from such
event.

In addition, if a foreign investor or a foreign-invested company files a notification of the


acquisition of equity securities arising due to merger or otherwise, completes transfer or
reduction of equity securities, or changes its corporate name, designation, investment
amount or business objectives, then such foreign investor or foreign-invested company
must file for modification to its foreign-invested company registration within 30 days of
such event.

▶Restrictions on Disposal of Capital Goods


A foreign investor or a foreign-invested company must report to the Ministry of
Commerce, Industry and Energy (MOCIE) in advance if it intends to transfer, lease, or use
for any other purposes than reported within five years from the date of import notification
of any capital goods imported under customs exemption.

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▶Conduct of Other Business of Foreign-Invested Company
Any registered foreign-invested company must not engage in any lines of business with
respect to which foreign investment is restricted beyond the extent permitted (unless the
foreign investment ratio is less than 10 percent).

It is also prohibited to acquire, beyond the extent permitted, equity securities in another
domestic company that is engaged in any lines of business with respect to which foreign
investment is restricted; provided, however, that such prohibition does not apply if
foreign investment ratio of the acquirer is less than 50 percent and the largest
shareholder of the acquirer is not a foreign investor (including any affiliates),
a foreign-invested company engaged in financial or insurance business whose business
objectives include acquisition of equity securities in other companies acquires equity
securities in other companies in accordance with the provisions of other laws, or
the acquired equity securities are not more than 10 percent of the aggregate number of
the issued and outstanding shares or the aggregate equity investment.

Besides, a foreign investor or a foreign-invested company must not use the capital
contributions for any other purposes than reported or permitted.

▶Notification of Transfer of Shares and Capital Reduction


A foreign investor must file a notification with the MOCIE within 30 days of the entry into
a transfer agreement if it transfers the acquired shares to another person or within 30 days
of the expiration of the notice period for creditors if it intends to reduce the shares held by
it through capital reduction.

If the license or registration of a foreign investor is revoked or cancelled, such foreign


investor must transfer the equity securities held by itself to a Korean national or
corporation within six months of such revocation or cancellation.

Besides, if any unregistered foreign investor receives and fails to comply with a correction
order, then such foreign investor must transfer the equity securities held by itself to a
Korean national or corporation within six months of the expiration of the period within
which such correction order must be complied with.

However, if unavoidable circumstances prevent such transfer in the above two cases, then
the period within which such transfer must be performed may be extended for up to six
months with the approval of the MOCIE.
Ⅱ. Foreign Investment Support Programs
1. TAX RELIEF
1) Reduction and Exemption of Corporate and Individual Income Tax, Acquisition
Tax, Registration Tax, Property Tax, and Aggregate Land Tax
With respect to foreign investment, the corporate income tax and individual income tax
imposed on, among others the active business income, dividend income, technology
capital gains and earned income, and the acquisition tax, registration tax, property tax and
aggregate land tax imposed on the acquired and owned property are reduced and/or
exempted in accordance with the provisions of the Special Tax Treatment Control Law.

▶Eligibility
Those eligible are the foreign-invested companies under the Foreign Investment
Promotion Act that are engaged in the following lines of business:

< Business Sectors Restricted to FDI >


Eligibility Requirements

Industrial support ▶ Any high value added service business rendering substantial
service businesses development support for manufacturing and other businesses

Any business involving the following technologies that are domestically


underdeveloped or undeveloped:
▶ Any technology judged likely to have far-reaching economic or
technological impact upon the national economy and considered
essential for the advancement of the industrial structure and the
strengthening of industrial competitiveness
High-tech businesses ▶ Any technology whose date of the initial introduction to the country
(dates of foreign investment notification) has not exceeded 3 years,
or any technology that have more economic impact or better
technological performance than do those previously introduced
notwithstanding that it has been more than 3 years since
its initial introduction
▶ any technology required by processes employed mostly within
the nation

▶ The amount of foreign investment in a manufacturing business is


US$30 million or more
▶ The amount of foreign investment in a tourist hotel business, a
comprehensive recreation business, a comprehensive amusement
park business, or an international conference facility business is
US$20 million or more
Foreign investors establishing a ▶ The amount of foreign investment in a logistics (or distribution)
new plant or new facilities in a business or an SOC business is US$10 million or more
Foreign Investment Zone
▶ The amount of foreign investment in a high-tech research facility is
US$5 million or more where such facility employees 10 or more
researchers holding master’s degrees or higher
▶ The aggregate amount of investment made by 2 or more foreign
investors in a business is US$30 million or more.


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< Business Sectors Restricted to FDI >
Eligibility Requirements

▶ The amount of foreign investment in a logistics business is


US$ 5 million or more
Occupants of a Free Trade Zone
▶ The amount of foreign investment in a manufacturing business
is US$10 million or more
▶ The amount of foreign investment in a manufacturing or tourist
Occupants of a Free Economic business is US$10 million or more
Zone ▶ The amount of foreign investment in a logistics business is
US$5 million or more

▶ The total development costs amount to US$500 million or more,


Developers of a Free Economic
where the amount of foreign investment is US$30 million
Zone
or more or the foreign investment ratio is 50 percent or more

▶ The total development costs amount to US$100 million or more,


Developers of the Jeju Investment where the amount of foreign investment is US$10 million or
Promotion Zone more or the foreign investment ratio is 50 percent or more

Occupants of Jeju
Advanced Science & ▶ Bio-engineering, information technology, culture and
Technology Complex advanced technology

▶ Tourist, cultural, elderly citizen welfare facility, youth training


facility, track facility, alternative energy, Korean traditional hotel,
Jeju Investment specialized recreation, sightseeing boat and live-performance
Promotion Zone theater, and comprehensive amusement park businesses
Jeju Area ▶ The amount of foreign investment is US$10 million or more
▶ The amount of foreign investment in a manufacturing business
is US$10 million or more and the number of full-time
Occupants of Jeju
Free Trade Zone employees is 100 or more
▶ The amount of foreign investment in a logistics business is
US$ 10 million or more
▶Reduction and Exemption
Establishment and/or operation of new plants or a place of business is eligible for full
exemption. Foreign investment by way of purchase and assumption of pre-established
businesses is eligible for a 50 percent reduction for the first three years and 30 percent for
the subsequent two years.

Reduction /
Period of Relief Requirements
exemption

▶ 10 years up until Dec. 31, 2004 ▶ Industrial support service businesses


Corporate and (100 percent for the first 7 years and ▶ High-tech businesses
individual income tax 50 percent for the subsequent 3 years)
▶ Designated businesses in a Foreign
▶ 7 years from Jan. 1, 2005 Investment Zone
(100 percent for the first 5 years and 50
percent for the subsequent 2 years)

▶ Occupants of a Free Trade Zone


▶ 5 years in total(100 percent for the ▶ Occupants of a Free Economic Zone
first 3 years and 50 percent for the
subsequent 2 years) ▶ Foreign-invested developers of a Free
Economic Zone or the Jeju Investment
Promotion Zone
▶ Occupants of the Jeju Advanced
Science & Technology Complex, Jeju
Investment Promotion Zone, and Jeju
Free Trade Zone

▶ 8 years up until Dec. 31, 2004 ▶ Industrial support service businesses


Property tax, (100 percent for the first 5 years and 50 ▶ High-tech businesses
acquisition tax, percent for the subsequent 3 years)
▶ Designated businesses in a Foreign
aggregate land tax ▶ 7 years from Jan. 1, 2005 Investment Zone
and registration tax (100 percent for the first 5 years and 50
percent for the subsequent 2 years)

▶ 5 years in total ▶ Occupants of a Free Trade Zone


(100 percent for the first 3 years and 50
▶ Occupants of a Free Economic Zone
percent for the subsequent 2 years)
▶ Foreign-invested developers of a Free
Economic Zone or the Jeju Investment
Promotion Zone
▶ Occupants of the Jeju Advanced Science
& Technology Complex, Jeju Investment
Promotion Zone, and Jeju Free Trade Zone

Note : With respect to the property tax, acquisition tax, aggregate land tax, and registration tax, the local government
may, by ordinance, extend the tax relief period to a maximum of 15 years or increase the reduction rate.

2) Customs, Special Excise, and Value-added Tax Exemption


Customs duties, special excise tax and value-added tax are exempted on
Any capital goods that a foreign-invested company imports as international or
domestic means of payment contributed by its foreign investors and
Any capital goods that a foreign investor imports as its contribution to the capital.

Eligible capital goods must be used directly for the eligible business, and the import
notification must be completed within 3 years from the date of the filing of the foreign
investment notification.

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Reduction /
exemption Period of Relief Requirements

▶ Industrial support service businesses


▶ High-tech businesses
▶ Designated businesses in a Foreign Investment Zone
▶ Occupants of a Free Trade Zone
▶ Occupants of a Free Economic Zone
Customs duties 100 percent for the
first 3 years ▶ Foreign-invested developers of a Free Economic Zone or
the Jeju Investment Promotion Zone
▶ Occupants of the Jeju Advanced Science &
Technology Complex, Jeju Investment Promotion
Zone, and Jeju Free Trade Zone

Special excise ▶ Industrial support service businesses


100 percent for the
and VAT first 3 years ▶ High-tech businesses
▶ Designated businesses in a Foreign Investment Zone

2. RENT SUPPORT FOR GOVERNMENT-OWNED PROPERTY AND


FAVORABLE CONDITIONS OF LOCATION
▶Rent Period and Rate
A foreign-invested company or an operator of a foreign investment environment
improvement facility may rent or purchase, by means of a negotiated contract, the land,
factories or other properties owned by the central government, local governments, and
state or local government enterprises. The rent period may be renewed within the extent of
50 years. The rental fee is the total value of the land, factories, and other properties
multiplied by a rate of 1 percent or more. The rental fee for any land, factories, and other
properties located within a Foreign Exclusive Industrial Complex, however, is determined
in consultation with the MOCIE and the MOFE if the central government owns the
property or the applicable local government if the local government owns the property.

If it is deemed difficult for a foreign-invested company to pay the purchase price in a lump
sum for land, factories or other properties, then such company may make the payment by
the extended due date or in multiple installments at interest of 4 percent per year or less in
the following manner:
Any property owned by the state may be paid for by a due date extended for 1 year
or less, or on an installment plan within the extent of 20 years.
Any property owned by the local government may be paid for by an extended due
date or on an installment plan in accordance with the provisions of its ordinances.

▶Rent Reduction
Eligible for rent reduction are the foreign-invested companies that rents land located in a
Foreign Investment Zone, a Foreign Exclusive Industrial Complex, a national industrial
complex, a general local industrial complex, a municipal high tech industrial complex, or
an agro-industrial complex and establishes, for its conduct of business, a new factory or
new place of business thereon.
The eligibility requirements and rate of reduction are as follows:

Requirements Reduction Rate


▶ A foreign-invested company occupant of a Foreign Investment Zone
▶ An industrial support service business or high-tech business that is
determined to be eligible for tax relief and has foreign investment
amounting to US$1 million or more Up to 100 percent
▶ An operator of a foreign investment environment improvement facility
who rents the property owned by the government

▶ A manufacturing business having foreign investment amounting to US$ 5


million or more Up to 75 percent
▶ A business substantially contributing to the expansion of SOC, restructuring of
the industry or financial independence of the local government
▶ An occupant of a state industrial complex, a general local industrial
complex, a municipal high tech industrial complex, or an agro-industrial Up to 50 percent
complex

※Further details can be found in a separate book, “Creating Condition for Success”.

3. CASH GRANT
1) Eligibility
In 2004, a cash grant program was introduced for investing companies whose foreign
investment ratio is 30 percent or more. The amount of cash grant is determined through
negotiations with the foreign investor and deliberation by the Foreign Investment
Committee. With respect to the parts industry and basic materials industry, eligible
businesses must:
make substantial contribution to the added high value of the final products,
involve advanced technology or essential high technology and have a potentially far-
reaching technological impact or substantial impact on the addition of high value to
the final products, or
play an infrastructural role within an industry or have significant inter-industry
effects.

Any foreign investor intending to apply to the cash grant program must file with the
MOCIE an investment plan and an application for a cash grant, stating the projected total
investment amount and details, number of employees, technological impact, and
contribution to the local economy. Any cash grant from the central government and the
purchase price paid by the government for any land rented to the company will be
accounted for in determination of the total amount of the cash grant.

2) Payment of Cash Grant


A cash grant is paid either in a lump sum or in 10 or less installments within the period of
years or less. With respect to the installment plan, the amount of each installment or the
date of payment will be adjusted in consideration of any changes in the investment plan or
any actual disbursement from the paid amount.
A land purchase price will be paid in installments depending on the specific payment of
interim and final payments after the entry into a land purchase contract. The rental fee will

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be paid in accordance with the lease contract between the applicant and the owner or the
trustee of the land.

Training grants and employment grants will be paid in a lump sum at the beginning of the
year following actual disbursement, for duration of five years after the registration of the
foreign-invested company. With respect to the training grants, KRW 1 million or less will
be paid up to six months for each trainee in a training course for 20 or more Korean
nationals. With respect to the employment grants, KRW 1 million or less will be paid up to
six months for each new employee in excess of 20; provided, however, that KRW 500
thousand or less will be paid up to 12 months for each newly employed member of the
technical staff having a bachelor’s degree or higher in science or engineering.

Payment of construction costs together with the purchase price of equipment and
installation costs of infrastructure will be based on the actual record of execution of the
investment and disbursement plan.

3) Cancellation, Revocation, and Reduction of Cash Grants


Any falsification or undue means employed in applying for cash grants, any non-
performance of the obligation under a cash grant agreement, or any inability to conduct the
business arising due to insolvency or cessation of business during the period of the
agreement may result in cancellation or revocation of the cash grant agreement, or
reduction or recovery of the cash grant.

Considerations Requirements Cash grant

▶ Involvement of high ▶ Foreign investment that amounts to ▶ The purchase price of or rental
technology and US$10 million or more and involves fee for the land used for
technology transfer establishment or expansion of plant establishment of plant or
facilities or places of business for the research facilities
▶ Number of jobs created
purpose of conducting an industrial ▶ Construction costs of plant or
▶ Investment overlaps with support service business or research facilities
domestic investment high-tech business
▶ Capital goods and research
▶ Adequacy of location ▶ Foreign investment that amounts to equipment to be used for
Impact on local and US$10 million or more and involves business or research purposes
national economy establishment or expansion of plant in plant or research facilities
facilities for the purpose of producing
▶ Investment viability ▶ Installation costs of power,
parts and/or materials that have
substantial impact on the addition of communication and other
high value to the final products or infrastructure required for the
involve advanced or essential construction of new plant or
technology. research facilities
▶ Establishment or expansion of ▶ Employment and training grants
research facilities for an industrial
support service business or high-
tech business; provided that the
foreign investment amounts to
US$5 million or more, and the
company employs 20 or more full-
time researchers having master’s
degree or higher and research
experience of 3 years or more
4. FOREIGN INVESTMENT SUPPORT AGENCIES
1) Invest KOREA: “Premier One-Stop Service”
Invest KOREA is established to provide comprehensive services in counseling, market
surveys, paper works and administrative filing, business start-up nurturing and other
supports for foreign-invested companies. Government officials from relevant
administrative agencies and officers and employees of other foreign-investment related
agencies are seconded to Invest KOREA.

In addition, a project manager is designated for each foreign investor or a foreign-invested


company to facilitate effective support for investment-related tasks of foreign-invested
companies. Duties performed by a project manager include, among other things,
collection and provision of materials and information and arrangement of meetings
upon the request of a foreign investor or a foreign-invested company,
advising on tax relief, rent and sale of property owned by the central or local
governments, local government activities to attract and support foreign investment,
and the qualifications for receiving foreign-investment related cash grant,
administrative support and agency service for foreign investment, and
provision of information on renting, housing and school admission and other
settlement support for the officers, employees and their family members of a foreign
investor or a foreign-invested company.

2) Investment Ombudsman
Investment Ombudsmen collects information on difficulties faced by foreign-invested
companies, and prepares, and recommends to relevant administrative agencies the means
to improve foreign investment programs, and perform any other activities as may be
necessary to support resolution of such difficulties. Additionally, a grievance system has
been established to resolve the grievances of foreign-invested companies, whereby a home
doctor is designated for each region and each foreign-invested company.

20 21
Ⅲ. Investment Procedures
1. OVERVIEW AND NOTIFICATION OF FOREIGN DIRECT
INVESTMENT
The procedures for establishment of a foreign-invested company largely consist of foreign
investment notification, corporation or sole proprietorship registration, and foreign-
invested company registration. The certificate to be issued attesting to foreign-invested
company registration is used as an attachment when filing for overseas remittance of
investment proceeds, extended-stay visa (D-8), etc.

Procedures to register a plant include selection of the location, approval of establishment


of the plant or entry into an occupancy agreement, obtaining of a building permit, and the
final registration of the plant.

▶Procedures for Foreign Direct Investment


Those eligible are the foreign-invested companies under the Foreign Investment
Promotion Act that are engaged in the following lines of business:

< Procedures Applicable to All Lines of Business >

Verification of Registration of
Foreign Foreign-invested
payment of the incorporation and
investment company
investment in business
registration registration
cash or kind registration

Invest KOREA / Designated foreign Court/Invest KOREA Invest KOREA/


designated foreign exchange bank/ designated foreign
exchange bank Invest KOREA exchange bank

< Procedures Applicable to Manufacturing Business >


Approval of
establishment of the
Selection of plant (individual Registration of
establishment) or entry Building permit
location plant
into an occupancy
agreement (planned
establishment)

Invest KOREA / Applicable


Applicable Applicable
applicable municipal office or
municipal office municipal office
municipal office industrial complex
Foreign investment can be made through either investment via stocks in three ways -
acquisition of newly issued shares, acquisition of issued and outstanding shares, and
merger or consolidation, or Investment via long-term loan.
Each type of investment entails a different set of procedures.

2. ACQUISITION OF NEW SHARES


Any foreigner who intends to undertake a foreign investment by acquisition of equity
securities newly issued by a Korean corporation (including those going through
incorporation procedures) or a company operated by a Korean national must file a
notification in advance with any branch of a designated foreign exchange bank or a
designated foreign bank, or Invest KOREA.

Newly issued shares can be acquired in two ways:


Establishment of a new corporation and
Participation in the capital increase of an existing domestic company or a foreign-
invested company.

The notifying party may be either the foreign investor himself or any other person having
a power of attorney. The documents to be submitted are a foreign investment notification
by acquisition of new equity securities (or of ‘new shares etc.’) as well as a certificate of
nationality of the foreign purchaser and any other documents related to the investment in
kind, if applicable. If the notifying party is another person acting for and on behalf of the
investor, a power of attorney is required as well.

The notification procedures are identical if there are any changes in the previous
notification statement, i.e. the corporate name or designation or nationality of the foreign
investor, the amount of the foreign investment, foreign investment ratio (the percentage of
the shares to be owned by foreign investors in the equity securities of the foreign-invested
company), means of investment, business objectives, share transferor, the lender, the
amount of the loan, and the terms and conditions of the loan. The modification must be
filed with the previously notified agency.

22 23
< Flow Chart of FDI through Acquisition of Newly Issued Shares >

▶ Consulting foreign investors(real estate, M&A, factory


establishment/moving into industrial complex, small-and-medium
companies, environment, Constructionengineering & transportation,
Invest national taxes/customs)
FDI
KOREA
Consulting ▶ Tax benefits & guide to regional investment conditions
(IK)
▶ Administrative works on factory site selection & factory building
▶ Administrative supports like customs clearance,business
registration, confirmation on completion of FDI in kind

▶ Notification by Foreign invesotr in person or by an agent with power


of attorney
▶ Required documents
- Notification form of FDI through acquisition of Newly-issued stocks
(two copies)
Preparation - A copy of a certificate of nationality of the foreign purchaser
of FDI - Other documents, if applicable(a copy of each)
Notification Appraisal statement of industrial property rights by a technology
assessment agency
Proof of residual assets arised from liquidation of a branch or
corpoation
Proof of redemption of a overseas borrwoings
Proof of proceeds from disposal of stocks or real estates, etc.

▶ Application for tax reduction can be filed concurrently with FDI


notificatio
Invest - Foreign investors may check whether or not their intended
KOREA, business is eligible for tax reduction before filing a separate
KOTRA application for tax reduction or FDI notification with Economic
Cooperation Division at Ministry of Finance and Economy (MOFE) at
Foreign
Submission ☎+82-2-2110-2183
Networks,
of FDI ▶ Application Period
Local banks,
Notification - New FDI: before the last day of the tax year in which the business is
Domestic
Branches of started
- Capital increase: within 2 years from the filing date of FDI
Foreign
notification
Banks
※If application filed in after the period, tax reductions
will be granted only for the rest applicable period

▶ A certificate of FDI notification shall be issued afterchecking


Issue if there is missiong one, whether it is eligibleand if it is intending
Certificate a restricted business(es)
(immediately)
▶ Capital in kind
- Verification on the detailed statement of imported items by either
KOTRA president or president of the foreign exchange bank is
required (file with IK or foreign exchange bank)
FDI - Confirmation on the completion of contribution in kindupon
Capital completion of importing the capital in question (Customs officer
seconded to IK)
▶ In cash
- Remitted in foreign currency via domestic foreign exchange bank
- Carrying in through customs clearance

▶ Required Documents (New establishment)


- Application form & Articles of incorporation (notarized)
- Certificate of underwriting & written subscription
- Reports and attendant documents by director(s), auditor and
Invest Incor- inspector
KOREA poration - Minutes of the inaugural meeting & Minutes of the board of
directors meeting or shareholders’ meeting
- Acceptance receipt of FDI notification form & custody cerfiticate of
paid-in capital
- Inspector’s deposit receipt or investment in kind confirmation

FDI
Company ▶ Required Documents
Institution - Foreign-invested company registry application
Registration
where FDI - A transcript of corporation register (In case of sole proprietorship,
(Within 30
notification business registration certificate or a copy of ID number certificate)
days - Certificate of deposit/purchase of foreign currency (In case of
was filed
from capital capital, a certificate prving copletion of contribution in kind)
payment)

Permission & approval of


factory building & business
commencement

▶ Handlig civil appeals en bloc (10)


▶ Survey on location - Approval of factory building,
Factory ·Site selection Building permission, approval of
IK Building business plan by small-and- mid-
▶ Factory Establish-ment
·Business plan size businesses, etc.
▶ Individual handling (97)
- Authorization of allowed business
field
※All application forms are available
and can be submitted at the
IK office

24 25
※Registration of changes in foreign-
invested company (Within 30 days
from the date changes occured)

▶ When notification of acquisition of


existing stocks of a company
through mergers is made;
Foreign-
invested ▶ When notification of transfer/
reduction in stocks is made;
company
established ▶ When the name of a foreign-
(in operation) invested company is changed;
▶ When change(s) is made to the
name of the company, nationality
of the investor, FDI amount, type,
ratio or business operated;
▶ When change(s) is made to the
stock transferor, loan provider
and others;

3. ACQUISITION OF ISSUED AND OUTSTANDING SHARES


Any foreigner who intends to undertake a foreign investment by acquisition of outstanding
shares issued by a Korean corporation (including those going through incorporation
procedures) or a company operated by a Korean national must file a notification in
advance with any branch of a designated foreign exchange bank or a designated foreign
bank, or Invest KOREA.

Any foreigner who intends to undertake a foreign investment by acquisition of


outstanding shares issued by a corporation operating a defense-industry business, however,
must obtain the approval of the MOCIE in advance. The notification and approval
procedures are identical if there are any changes in previously approved statement in
which notification was made, i.e. the amount of the foreign investment, foreign investment
ratio, and other details as set forth in the aforementioned case of new shares.

Any person who has acquired issued and outstanding shares in violation of the approved
terms and conditions may not exercise his/her voting rights, and the MOCIE may order
such person to transfer his/her holding to another person.
4. ACQUISITION OF SHARES BY MERGER OR CONSOLIDATION
Any foreigner who undertakes a foreign investment by acquisition of shares by merger or
consolidation must file a notification with any branch of a designated foreign exchange
bank or a designated foreign bank, or Invest KOREA.

The most distinctive difference between the procedures required for acquisition of shares
by merger or consolidation and those for acquisition of new or outstanding shares is that
the notification must be filed within 30 days after the acquisition. This preferential
treatment is in the consideration of the fact that it is difficult to file a notification of any
investment by merger or consolidation in advance before the foreign capital contribution is
imported into the country. The requirements of the notifying party, notified agency, and
documents attached hardly differ, though.

Mergers or Consolidations Requiring Notification

▶ Acquisition of any shares issued due to capital transfer of any reserve, revaluation reserve,
or any other surpluses of the foreign-invested company under the provisions of any law
▶ Merger or consolidation of the foreign-invested company with or into any other company, merger
or consolidation through the shares owned at the time of any share swap, any transfer
of shares or company-split, or acquisition of the shares in a corporation surviving or
consolidated after such share swap, transfer of shares or company-split
▶ Acquisition by purchase, inheritance, bequest or gift of shares in a registered
foreign-invested company from a foreign investor
▶ Acquisition of shares by investing the proceeds from the shares under conditions prescribed by law
▶ Conversion of, subscription to or exchange of any convertible bonds, exchangeable bonds,
depositary receipts or any other convertible, subscribable or exchangeable bonds or securities into or
for equity securities

5. FOREIGN INVESTMENT THROUGH LONG-TERM LOAN


If a loan with a maturity of not less than five years is extended to a foreign- invested
company by its overseas holding company or by a company in a relationship with the said
holding company of a capital investment meeting certain requirements, then the foreign
investor must file a notification in advance with any branch of a designated foreign
exchange bank or a designated foreign bank, or Invest KOREA.

The requirements of the notifying party and notified agency are identical to those in other
cases of share acquisition but differ in that the documents to be submitted include loan
agreements and other documents related thereto. Any modification of the amount or terms
and conditions of the loan under the Presidential Decree requires a notification of
modification.

26 27
Ⅳ. Detailed Explanation of Investment
Procedures
1. BUSINESS ESTABLISHMENT
1) Establishment of Presence for Foreigners
A foreigner may establish a domestic business presence in the following four ways:
through establishment of a local corporation or a sole proprietorship, to either of which the
Foreign Investment Promotion Act (FIPA) is applicable, or through establishment of a
branch or an office under the procedures as set forth in the Foreign Exchange Transactions
Act (FETA). A foreign corporation, however, may not be registered as a domestic sole
proprietorship.

< Establishment of Presence for Foreigners >

Local Corporation
FIPA
applicable
Sole proprietorship
Domestic
business
presence
Branch

FETA
applicable
Office
▶Local Corporation
The provisions of the FIPA and the Commercial Law are applicable to foreign investment
through establishment of a local corporation by a foreigner or a foreign company. A local
corporation is treated equally as a domestic corporation. Establishment of a local
corporation requires a foreigner to invest KRW 50 million or more, whereas such
minimum capital requirement is not applicable in the case of a branch or an office.

▶Sole Proprietorship
Investment in the form of sole proprietorship is classified as direct foreign investment as
well if the amount of the investment is KRW 50 million or more. Although such form is
no different from a local corporation in its ability to conduct business, yet it is simpler and
easier to open, suspend, and close a business and has less social responsibilities and
requirements than a local corporation does. The down side, however, is that the poor
creditworthiness inherent in this form makes it more difficult to finance the business and
secure quality labor. Thus, sole proprietorship is more often utilized for small businesses.

< Differences between a Sole Proprietor and a Corporation >


Type Sole proprietorship Corporation

▶ All profit taken by the sole proprietor ▶ Easier financing


▶ Easier to establish an enterprise ▶ Non-trivial procedures for incorporation
Characteristics ▶ Faster decision-makings ▶ Time-consuming decision-makings
▶ Unlimited liability of the owner ▶ Liability limited within the capital invested
▶ Limited financing ▶ Ownership and management separable

Adequacy Small businesses Medium and large businesses

Registration Not required Required

Capital contributor Sole proprietor One promoter or more

Investment KRW 50 million or more KRW 50 million or more

28 29
▶Branch
Conduct by a foreign company of ordinary business activities in Korea requires
appointment of a representative of a domestic branch, undertaking procedures to establish
a branch under the FETA and registration with the court. In addition, a branch is classified
as a permanent establishment of business under tax law. To the income generated from the
domestic business, the same corporate income tax rate is applicable as to those from
domestic corporations.

< Differences Between a Foreign-invested Company and Domestic Branch >


Type Foreign-invested company Domestic branch of foreign company

Governing law FIPA FETA


Nature Domestic corporation Foreign corporation

The foreign investor and the foreign- The head office and the branch office
Legal entity invested company are separate entities are the same entity
(independent accounting and closing) (in accounting and closing)

Designated foreign exchange bank


Notification and Invest KOREA, (notification),The Ministry of Finance
permits or designated foreign exchange bank and Economy (“MOFE”) (financial
business license and other permits)

Minimum (maximum) Minimum: KRW 50 million per


amount of investment N/A
investment Maximum: N/A

All income generated within or outside Only the income generated within the
Taxability the country is taxable: at 15 percent and country is taxable: at 15 percent and 27
27 percent (13 percent and 25 percent percent (13 percent and 25 percent from
from 2005) 2005)

▶Office
An office is fundamentally different from a branch. An office is allowed to perform non-
business activities only while a branch may conduct business activities. Accordingly, an
office requires a serial number issued by the competent tax office similar to that in
business registration, but no registration with the court.
2) Procedures to Establish Local Corporation
The procedures to establish a local corporation largely consist of three steps: foreign
investment notification; corporation or sole proprietorship registration; and finally foreign-
invested company registration. The business-establishing procedure by a foreign
investor/foreign-invested company is essentially identical with those by a Korean national,
except that advance notification of foreign investment and registration of a foreign-
invested company are required in addition.

▶Foreign Investment Notification


Notification can be made by either the foreign investor himself/herself or any other person
presenting a power of attorney signed by the investor. The notification must be filed with
designated foreign exchange bank or Invest KOREA and will be processed immediately
upon filing. The documents to be submitted are a foreign investment notification form, a
certificate of nationality, and a power of attorney, if applicable.

▶Import of Foreign Capital Contributions


Foreign capital contributions may be either remitted to a remittance account or carried in
through customs. If remitted, the contributions are exchanged within the country and
deposited in a capital contribution account (or a securities margin account), then, against
which the bank issues a custody certificate of paid-in capital.

▶Business Establishment Registration with Court


See the “Procedures to Register Business Establishment” paragraph below.

▶Business Registration
See the “Business Registration” paragraph below.

▶Transfer of Paid-in Capital to Corporation’s Account


Completion of the court registration and business registration makes the newly
incorporated company lawful and valid and allows the paid-in capital in the custody of the
bank to be transferred to the account of the company.

▶Foreign-Invested Company Registration


A foreign-invested company must register, within 30 days from the date the payment of
the capital was completed, to the agency that was earlier notified of the foreign
investment. The documents to be submitted are one copy of an application for foreign-
invested company registration, one copy of a corporate registry extract, and one copy of a
foreign exchange purchase receipt / deposit certificate.

The foreign-invested company registration certificate is attached to filing for overseas


remittance of investment proceeds and is required when the investor applies for extended-
stay visa (D-8).

30 31
3) Procedures to Register Business Establishment
The Commercial Law allows four types of companies: unlimited partnership companies;
limited partnership companies; corporations; and limited companies. As corporation is the
most popular form of business, the following explanation is focused on corporation. It is
highly recommended to entrust a lawyer, a judicial scrivener or Invest KOREA with
business establishment registration than to undertake it by oneself. Any foreign-invested
company whose head office is in Seoul can get help from Invest KOREA as long as the
representative director of the local corporation is present at the time of the filing.

▶Types of Business Establishment


There are two ways to establish business(es) in Korea: by promotion and by public
offering. By promotion, the promoters subscribe for all shares issued at the time of
establishment. By public offering, on the other hand, promoters subscribe for part of the
shares issued at the time of incorporation and the remaining shares publicly offered.

▶Procedures for Establishment of a Corporation


Promoters promoters’ general meeting and keeping minutes of the meeting
preparation and notarization of Corporate Statute decision on the number and class of
the shares to be issued subscription by the promoters for the shares (business
establishment by promotion), or subscription by the promoters for the shares, offering of
the shares to the public and allotment of the shares (business establishment by public
offering) investment in cash or in kind made the progress of business establishment
examined and reported by directors and a statutory auditor inaugural meeting (by
public offering) board of director’s meeting business establishment registration
notification of business establishment and business registration

▶Registration
Period of registration
The new business established by promotion must be registered within two weeks of the
completion of the investigation of the establishment progress, and as for establishment by
public offering, within two weeks of the closing day of the inaugural meeting.

Pre-registration decisions
The promoters and any similar corporate names are subject to review. A corporation
requires one or more promoters, who must subscribe for shares in writing and thereby
become shareholders of the newly incorporated company. Any corporate name that is
identical to or not clearly differentiated from another name registered by another person
for the same line of business in the same municipality may not be registered.
Documents required for registration
The list of the documents required for registration is as follows:

Prepared with the aid


Prepared by applican
of Invest KOREA

1. Foreign investment notification form 6. Urban rail bond


2. Power of attorney: 7. Supreme Court revenue stamp
▶If applied for by the representative director: 8. Registration tax receipt: issued by the ward
The representative director must be the office exercising jurisdiction over the head office
appointee in all powers of attorney. 9. Seal of each officer and promoter
▶If applied for by a judicial scrivener: (including foreign nationals)
The scrivener must be the appointee in the 10. Corporate Statute: notarized
powers of attorney regardless of promoters or
11. Share subscription certificate
officers
12. Application for shares
3. Acceptance of appointment of officer
13. Organizational report
▶Korean nationals: Each acceptance must be 14. Consent to shortening the inaugural
sealed, to which a seal impression certificate meeting period
and a resident registration certificate must be
attached. 15. Minutes of the inaugural meeting: notarized
▶Foreign nationals: Each acceptance must be 16. Minutes of the board of directors’ meeting:
signed, to which an original copy of signature notarized
notarization and a photocopy of the passport 17. Common seal notification and application for
must be attached. common seal card
4. Custody certificate of paid-in capital 18. Register of shareholders
5. Common seal of the company 19. Consent to issuance of shares

The list of the documents prepared by the investor in his/her own country depends on
whether the investor is an individual or a corporation and as to a Japanese investor, a
separate rule will be applied. In the case of a corporate investor, the applicant must bring a
copy of the resident registration certificate or driver’s license of the representative, and
seals of all shareholders and officers (including foreign nationals) listed in documents.

All powers of attorney or acceptance of appointee to officer(s) must be notarized if given


by foreign nationals (with the exception of Japanese nationals). The list of the promoters is
not required to be identical to that of the officers.

32 33
< Documents Prepared by Individual Investor >
▶ Given by investors, officers and any other persons listed in documents
- Korean/Japanese: sealed and with a seal impression certificate
Power of attorney (1) attached thereto
- Foreign national: signed and notarized

▶ Prepared by all persons listed as officers


- Korean/Japanese: sealed and with a seal impression certificate and a
Acceptance of appointment (1)
resident registry extract attached thereto
- Foreign national: signed and notarized

Seal impression certificate (2) ▶ To be attached to the powers of attorney and acceptances
Resident registry extract (1) of appointment
Photo copies of passport (1) ▶ All foreign nationals

< Documents Prepared by Corporate Investors >


▶ Given by investors, officers and any other persons listed in documents
- Korean/Japanese: sealed and with a seal impression
Power of attorney (1)
certificate attached thereto
- Foreign national: signed and notarized

▶ Prepared by all persons listed as officers


Acceptance of - Korean/Japanese: sealed and with a seal impression certificate and a
appointment (1) resident registry extract attached thereto
- Foreign national: signed and notarized

Seal impression certificate (2) ▶ To be attached to the powers of attorney and acceptances of
Resident registry extract (1) appointment
▶ Korean/Japanese corporation: with the common seal affixed, and
a common seal impression certificate and a corporate registry extract
Corporate registry extract, attached thereto
power of attorney given by ▶ Foreign corporation: notarized and given by the representative director
the corporation of the foreign investor corporation to the representative director of the
Korean corporation, together with a corporate registry extract notarized
and attached thereto
Photo copies of passport (1) ▶ All foreign nationals

Business establishing expenses


The costs and expenses for setting up companies include, among other things, the
registration tax, education tax, and urban rail bond and registration application fee.

< Business Establishing Expenses Exemplified (capital of KRW 50 million, in a large city) >
Registration tax: 0.4percent of the paid-in capital (3 times as much if the company is to locate in a large city) 600,000 Won

Local education tax: 20 percent of the registration tax 120,000 Won

Purchase of urban rail bond: 0.1 percent of the paid-in capital 50,000 Won

Supreme Court revenue stamp (registration application fee) 15,000 Won

Notarization fee (Corporate Statute, etc.) Approx. 150,000 Won

Total Approx. 935,000 Won


4) Notifying Business Establishment and Business Registration
▶Notification and Business Registration Done at the Same Time
In general, notification of setting up a company and business registration application may
be filed at the same time at the tax office-exercising jurisdiction over the head office or at
Invest KOREA. The business registration must be filed for within 20 days of the
commencement of business, and the notification be filed within two months of the
registration of business establishment. The list of the required documents is as follows:

▶ FDI notification and business registration application forms (available at Invest Korea and the tax office)
▶ Corporate Statute (as well as the specification of contributions in case of contributions in kind)
▶ List of shareholders
▶ Business license (if it falls on the category of the line of businesses requiring license, approval or notification)
▶ Copy of the lease agreement (if the place of business is rented)
※If part of a building is rented, the applicable floor plan must be attached (Only if the key money deposit is
equal to or less than 240 million won in Seoul, 190 million won in the Metropolitan Overpopulation Control
District, 150 million won in other metropolises, or 140 million won in any other area)
▶ Miscellaneous
- Tax payment manager notification (unless there is an employee to handle tax matters)
- Copy of foreign exchange purchase receipt / deposit certificate
- Copy of foreign exchange purchase certificate
- Copy of foreign national registration or passport (if the representative director is a non-resident)

▶Business Registration to Be Done Beforehand


When a foreign investor wishes to set up a company through contributions in kind,
business registration must be completed before the capital contribution in kind is imported
because business registration certificate is required to get refund of the VAT imposed
during the customs clearance upon the contribution. Required documents include the
resident registry extracts of the promoters, copies of lease agreements, and a copy of the
application for business license (if applicable) or a business plan. Others must also be filed
after the business setup as well.

5) Sole Proprietorship Registration


▶Registration Flow Chart

Foreign investment Capital contributions deposited Business


notification (designated foreign exchange bank) registration

Foreign-invested
company
registration

34 35
▶Foreign Investment Notification
Notification can be made by either the foreign investor himself/herself or any other person
presenting a power of attorney signed by the investor (notarization not required).
Notification must be filed as foreign investment by acquisition of newly issued equity
securities with designated foreign exchange bank or Invest KOREA and will be processed
immediately upon filing.

▶Remittance of Capital Contributions


Funds of domestic origin are not allowed to be remitted as capital contributions to a
foreign-invested company. In principle, remittance by third party in lieu of the investor is
not allowed either. Against remittance of capital contributions, the bank issues a foreign
exchange purchase receipt or deposit certificate, which is required when filing for business
registration and foreign-invested company registration.

▶Business Registration
The application must be filed by, in principle, the applicant in person, but other person can
do the job if only the person presents a notarized power of attorney. The filing must be done
at the tax office that exercises jurisdiction over the place of business or at Invest KOREA
within 20 days of the commencement of business. The required documents are as follows:

▶Business registration application form (available at Invest KOREA or the tax office)
▶Copy of business license (if it falls on the category of the line of business requiring license,
approval or notification)
▶Copy of the lease agreement (if the place of business is rented)
※ If part of a building is rented then the applicable floor plan must also be attached.
(Only if the rental deposit is equal to or less than 240 million won in Seoul, 190 million won in the
Metropolitan Overpopulation Control District, 150 million won in other metropolises, or 140 million
won in any other area)
▶Miscellaneous
- Tax payment manager notification (if the sole proprietor stays outside the country
for 6 months or more or is not ordinarily stationed at the place of business)
- Joint venture agreement, if applicable (notarized)
- Copy of foreign investment notification
- Copy of foreign exchange purchase receipt / deposit certificate
- Copy of foreign national registration or passport (if the sole proprietor is a non-resident)

▶Foreign-Invested Company Registration


The registration must be filed, within 30 days of the completion of the payment of the
capital contributions, with the same agency where FDI notification was made. Required
documents include an application for foreign-invested company registration, a certificate
of business registration, and a foreign exchange purchase receipt / deposit certificate.
6) Domestic Branch of Foreign Company
▶Establishment Flow Chart
Designated foreign
exchange bank
Application for
establishment of
branch Deliberation by
MOFE relevant government
agencies

Acceptance &
Authorization of
branch establishment
notification

Court registration
and business
registration: branch
Procedures under
individual laws
Serial no. issued:
office

▶Classification of a Branch
Classification Activities

Branch office Engaged in business activities that generate income within the country

Nonprofit-making activities like liaison works, market research, research


and development are allowed, Quality control, market research,
Liaison office advertising, and other activities of preliminary and supplementary nature
may be allowed, but maintaining an inventory of products for the purposes
of direct sales or sales on behalf of the head office are not allowed.

▶Establishment Notification
Principle
Notification must be made to the head of designated foreign exchange bank.

Notification must be made to the Minister of Finance and Economy in case of


business(es) as follows (both branch offices and liaison offices);
Extension of loans, overseas financial brokerage and mediation, credit card services,
installment financing and other non-banking financial services
Services related to securities and/or insurance
Any other services not allowed as prescribed in the provisions of the FIPA or
any other law
Any other services deemed to threaten public order and standards of decency

36 37
Documents to be submitted when applying for permits or filing notification with a
designated foreign exchange bank
Notification form of establishment of domestic branch by foreign company
Corporate statute of the head office (notarized in the region where the head
office is located)
Letter of appointment of the head of the domestic branch
Power of attorney if applicable (notarized in the region where the head office is located)
Corporate registry extract or business license of the head office (a copy notarized in
the region where the head office is located can substitute the original)

▶Registration of Establishment of Branch


Concept under commercial law
The Commercial Law does not have a classification for branches and merely defines a
branch as a place of business, which is required to be registered if engaged in profit-
generating business activities. According to registration practice, an office is not engaged
in revenue-generating business activities but is only allowed to conduct routine exchange
of information and similar activities under foreign exchange regulations and thus may not
be registered as a place of business. Only a branch may be registered as a place of
business.

Registration procedure
Registration Applicant: Representative of the Korean Branch
Registration Period: Within three weeks since the establishment of the
place of business
Matters Required to be Registered
- Matters identical to those of a branch of other corporation in the same business
category or the most similar corporation
- Governing law for the corporation establishment
- Name, Address, Resident Registration No. or Date of Birth of the Representative of
the Korean Branch
Matters to be included in the application form
- Place of Business, Date of Decision, Period, etc.
Matters to be included in the application form
- Law governing f the Company’s Establishment
- Name, Address, Resident Registration No. or Date of
- Birth of the Representative of the Korea Branch
Matters to be included in the application form
- Name of the company in Korean letters and classification of it (unlimited
partnership, limited partnership, corporate or limited company)
- Head office: place where the headquarters located overseas
- Business place in Korea
- Purpose of registration: place of business
- Reasons for registration: establishment of business place, resolution date and period, etc.
- Matters Required to be Registered:
Law governing the company’s Eestablishment
Name, address, resident registration No. or date of Bbirth of the representative of the
Korean branch
Date of Establishment of the company, purpose in establishing the place of business
and its establishment date.
- Date of arrival of the necessary written Permits
- Registered Tax Amount, etc.
- Date of Application
- Foreign company’s name, head office, name and address of the representative for
Korean branch
- If applied by an agent or attorney, the name and address of the agent or attorney
- Mention of concerned registration office
Supporting Documents
- Certificate (certificate of company establishment Matters): government’s certificate
or attested copy of register
- Document(s) verifying the status of the representative: minutes of the genera
l meeting of stockholders; or letter of resolution from the board of director’s
meeting;or letter of appointment
- Corporate statute of the company or any other document identifying the nature of
the company: as certified by the competent office of the foreign company’s home
government or by the consul of the country stationed in Korea
Letters of permit, if necessary
Translations of each of the above documents or written permits by the consul of the
country stationed in Korea
Notice of all concerned tax receipts and confirmations, and registration filing fees
Power of attorney
A registered seal of the Representative: or a signature affixed to the power of attorney
given for registration purposes and certified by a government office or a notary
public in the company's home country.
Letter of acceptance of appointment (Representative)
A document verifying the foreigner’s address or certification of address of the
foreigner
Registration costs
Registration tax: KRW 23,000 (or 3 times as much in Seoul and other large cities in
its vicinity)
Education tax: 20% of the registration tax (KRW 4,600 or KRW 13,800 if levied
3 times as much)

38 39
▶Withdrawal of Residual Assets from Closure and Liquidation
Notification
If any person having obtained a permit for establishment, etc. under Korean law intends to
close a domestic branch or to withdraw the fund from disposal of his domestic assets after
the closure, such person must file a notification with the president of a designated foreign
exchange bank.

Limit of withdrawal amount


The withdrawable amount is limited within the sum of the initial operating capital
imported from abroad, retained earnings and other reserves (deducting deficits, if any)

Application form for withdrawal of liquidation income


Letter of Application: to be filed under the name of the liquidator if an applicant is appointed
Background to the application
Liquidation report audited by a CPA (including a balance sheet and a statement of
income as of the date of closure or liquidation)
Certificates of tax clearance (one copy each for national and local taxes)
A statement of the operating capital remitted from abroad, retained earnings and other reserves
A certificate of deposit balance (must be consistent with the remittable amount as
stated on the liquidation report)
A certified copy of liquidation registration, if the branch has been engaged in
business activities
Or the following documents if a certified copy of liquidation registration is not available
- A closure notification certificate (issued by the competent tax office)
- A document evidencing appointment of a liquidator
- A document evidencing that notification has been made to liquidation creditors
(photocopies of public notices in newspapers)
- A confirmation of wage arrears clearance for Korean workers (issued by the
competent labor office)
An original copy of the closure notification

2. FACTORY ESTABLISHMENT
1) Legal System Relevant to Factory Establishment
The Industrial Cluster Development and Factory Establishment Act (as well as its
Enforcement Decree and Enforcement Regulations) plus the Factory Establishment
Administration Guidelines serve as the fundamental law governing the establishment of
individual factories and management of industrial complexes. Meanwhile, the Industrial
Location and Development Act (as well as the Enforcement Decree and Enforcement
Regulations) and the Industrial Site Development Guidelines form the law and regulations
governing development of planned industrial sites. In addition, the National Land Planning
and Utilization Act (NLPUA), the Farmland Act, the Highlands Act, the Building Act, the
Clean Air Conservation Act (CACA), as well as the National Land Construction Master
Plan, the Metropolitan Area Readjustment Plan, and various other pieces of land use
legislation may be relevant, depending upon land use, construction methods and
environmental matters.

2) Factory Establishment Procedures by Different Types


▶Planned Location
Planned location refers to a set of procedures to establish a factory in an industrial
complex, whereby the state, a municipality or a private developer: (i) develops an
industrial site, (ii) issues a public notice beforehand of the business category, occupancy
requirements, occupancy procedures, etc. that are in conformance with the purpose of the
development, and (iii) sells or leases the lots to qualified companies.

An occupancy contract between the company and the managing agency eliminates the
need to obtain factory establishment approval from the municipality. In other words,
conclusion of the occupancy contract is regarded as issuance of factory establishment
approval.

Application for Occupancy, Conclusion of Occupancy Contract Building permit Occupancy permit
Notification of Factory Establishment Completion (Factory Registration)

▶Individual Location
Factory establishment approval procedures under the Industrial Cluster
Development and Factory Establishment Act (ICDFEA)
The following is the procedure whereby a person who intends to engage in a
manufacturing business freely selects a location for his/her factory and establishes it
accordingly.

Factory Establishment Approval ( Building Permit) Occupancy permit Notification of Factory


Establishment Completion (Factory Registration)

Business establishment approval procedures under the Small and Medium Business
Enterprise Establishment Support Act (SMBEESA)
The above Act is applicable to small and medium start-up businesses that have been
operating less than five years since their establishment. In most cases, such companies
choose to freely select their location.

Business Establishment Plan Approval Building Permit Occupancy permit Notification of


Factory Establishment Completion (Factory Registration)

40 41
3) Definition of a Factory
Although the definition of “factory” varies slightly in each statute, “factory,” in general,
refers to a “building or premises” placed in a certain area (a factory site) “for the purpose
of manufacturing, processing or repairing of goods.”

The Industrial Cluster Development and Factory Establishment Act defines the concept of
a “factory” as a business place for conducting a manufacturing business, equipped with a
building or structures, manufacturing facility (including processing, assembly, repairing
and test-production facilities) such as machinery and equipment and its accessory
facilities. The category of manufacturing business is more precisely, “manufacturing and
coal processing” as classified under the Korea Standard Industry Code (KSIC).

Scope of Accessory Facilities

▶ Offices, warehouses, guardhouses, observatories, parking lots, restrooms, and bicycle racks
▶ Water cisterns, oil tanks, silos, storage spaces and other outdoor structures for storage purposes
▶ Oil pipelines, outdoor fueling facilities, water supply and drainage facilities, substations, machine
rooms and pump rooms
▶ Waste processing facilities and environmental pollution prevention facilities
▶ Test and research facilities and other facilities intended to increase energy efficiency
▶ Public industrial safety facilities and health management facilities
▶ Cafeterias, game rooms, bathrooms, laundries, medical facilities, outdoor physical training facilities,
and other facilities such as dorms, for promoting the welfare of employees
▶ Product exhibition and sales site, hoists installed for loading and unloading raw materials and
finished products
▶ Other facilities recognized by the Minister of Commerce, Industry and Energy to be necessary for the
management and support of the manufacturing plant and the welfare of employees

4) Factory Foundation, Extension and Transfer


The definitions given in the ICDFEA are as follows:

Classification Definition

Constructing a new building (or a structure) or converting the use of an existing


Factory Foundation building to manufacturing use and installing manufacturing facilities
Installation of manufacturing facilities in an existing factory building is not a
foundation of a factory

Factory Extension Increasing the factory building area or factory site area of a registered factory

Factory Transfer Closing down a registered factory and building a new factory of the sam
e business category in a different location

Changing the business category of a registered factory or a factory that


Change of Factory obtained approval for establishment into one under a different business
Business Category category (as classified in the Factory Location Standard Notice) or adding
another business category to an existing factory
5) Factory Establishment Procedures
▶Business Plan Establishment
Prior to establishment of a factory through foundation, extension or transfer to another
location, a careful review of the following considerations in the planning phase and during
the establishment procedures in accordance with the applicable law may reduce
unnecessary errors.

Considerations in factory establishment

▶ Whether the business falls under manufacturing as classified under the KSIC, the name of the
business category, the class number, and the standard factory area ratio
▶ Size of the factory to be established: factory building area and lot area
▶ Whether any environmental discharge facilities under environmental law need to be installed
▶ Whether the founder falls under the category of a small/medium enterprise founder
(or whether the company qualifies a venture business under the Act on the Special Measures for
the Promotion of Small and Venture Businesses)
▶ Whether the company is eligible for tax relief or financial support
▶ Whether the establishment falls under the FIPA
▶ Whether the business falls under the category of a high-tech business: A business involving advanced
technology is eligible for tax relief, while businesses that fall under the high-tech business category are
eligible for location support
▶ Whether the business is eligible to receive permits under relevant laws

▶Selection of an Adequate Location and Confirmation of Location Requirements


Establishment of a business plan would entail selection of an adequate location, made in
consideration of the business category, size, labor force demand and end-market of the
factory to be established.

Planned location (e.g. industrial complexes, etc.) versus individual location


With respect to the sale of lots in industrial complexes and occupancy schedule, the
relevant department of the Korea Industrial Complex Corporation is available to answer
questions (at +82-2-6300-5613/4), while individual municipalities may also advise on the
current status of lot availability and sales requirements.

<Comparison of Individual Location and Planned Location>


Type Individual location Planned location
▶ Simple establishment procedures (occupancy contract)
▶ Selecting desired location at the ▶ Sharing Industrial infrastructure
desired time is possible
Merits ▶ Tax relief and various incentives
▶ Easy expansion
▶ Typical economic benefits of industrial clustering
▶ Relatively inexpensive land
(mutual exchange of information, technology etc.)
▶ Complicated procedures ▶ Selecting desired location at the desired time
in location selection and development is impossible (purchase prior to development)
Demerits ▶ Difficulties in changing the land use ▶ Length of time involved in building industrial complex
▶ Possible friction with local residents ▶ High purchase prices
▶ Difficulties in purchasing the land ▶ Limited business category eligible for occupancy

42 43
Establishment in metropolitan area(Review compliance with ICDFEA)
Establishment of factories in the Metropolitan area (Seoul, Incheon and Gyeonggi-do) is
strictly limited to control industrial concentration and foster balanced regional
development. Since the ICDFEA, in particular, has detailed provisions for the location of
individual factories, selection of a location requires review of such provisions.

Zoning district by usage of land(Review compliance with Building Act and National
Land Planning and Utilization Act(NLPUA))
With respect to land use, the National Land Planning and Utilization Act(NLPUA) is
applicable to each zoning district. Each industrial complex has its own management (and
development) master plan governing occupancy requirements and grouped placement for
different business categories.

Each municipality operates a Location Standard Confirmation System and inquiries


regarding location requirements are answered within 10 days.

<Types of Location >

Factory establishment
location approval

Individual location
Business establishment
plan approval location
(Art. 21 of the SMBEESA)

Types
of National industrial complex
location

Provincial industrial complex

Planned location Agro-industrial complex

Cooperation project complex


(Arts. 18 through 25 of the
Promotion of Small and
Medium Enterprises and
Encouragement of Purchase
of Their Products Act)
6) Factory Establishment Approval Procedures
▶Overview
Any person intending to establish a factory of a building size of 500 square meters or
larger must obtain an establishment approval from the competent municipality. The
building size of a factory refers to the combined horizontal plane of projection of each
floor of any building built for the installation of machinery or equipment used for
manufacturing and of each outdoor structure used for manufacturing.

Additionally, any person intending to establish a factory must obtain permits under
individual laws if the zoning district of the land restricts certain acts. For instance, a
factory in farmland or forested land requires permission to convert farmland or forested
land under the Farmland Act or the Management of Mountainous Districts Act, in which
case, simultaneous filing of applications for the permits under each law applicable to the
intended land use at the time of applying for factory establishment approval allows for
batch processing.

Upon the application for factory establishment approval, the municipality decides upon the
level of compliance with applicable law and grants approval within seven days if no
processing of a legal fiction is required, or 30 days if a conversion of land use is involved.

If permits under other laws were required, then stating the required processing by legal
fiction and filing relevant documents would require the applicable municipality to consult
with other applicable government agencies and consider issuance of the approval, which
issuance would be deemed to constitute obtainment of such other permits. If issuance of
all such permits is under the authority of the applicable municipality, then the
Comprehensive Working Review Committee (CWRC) may make a direct decision (within
a statutory period of 14 days). If any of the relevant permits, however, are to be issued
under the authority of any other government agencies (e.g. other municipalities, a regional
construction management office, and the Korea Forest Service), then consultation is
required and such consultation takes a period of up to 30 days.

The NLPUA sections the national territory into four types of zoning districts, where only
certain acts are permitted. Thus, any factory not suitable for the zoning district (e.g. a
factory of 30,000 square meters or larger in a managed area), in principle, may not be
established, yet the national territory use plan may be changed so that the zoning district
may be converted and the factory established.

44 45
< Permits Assumed by Legal Fiction for Each Phase of Factory Establishment >

Phase Permits assumed by legal fiction

1. Permission to convert farmland, notification of farmland conversion, and use conversion approval
2. Permission to convert forested land, notification of forested land conversion, use conversion approval,
deforestation permits, etc.
3. Permission to convert grassland
4. Bamboo deforestation permits in erosion control areas, and cancellation of the designation as erosion-
control areas
5. Permission to alter the form and nature of the land or to partition the land, designation of the
Factory undertaker of an urban planning facility project, and permission for land transaction contract
establish 6. Permission to undertake river-related works, and permission to occupy and use a river area
ment
7. Permission to occupy and use public waters
approval
8. Permission to relocate graves
9. Permission to open private roads
10. Permission to occupy and use roads
11. Licenses to reclaiming tidal flats in public waters
12. Approval to use agricultural infrastructure facilities for purposes other than designated
13. Permission to use and make profits from state-owned properties, and disuse of roads, rivers, ditches
and river banks
14. Permission to use and make profits from administrative properties and preservation properties, and
disuse of administrative properties and preservation properties
15. Permission to construct temporary structures, notification of construction of temporary structures, and
notification of setup of such installations

1. Permission to occupy and use roads


2. Permission to install facilities or installations under the Sewerage Act, and notification of installation of
drainage facilities
3. Authorization to install exclusive waterworks
4. Authorization for and notification of private-use electrical installation work plans
5. Notification of installation of fire fighting facilities, and permission to install hazardous material
manufacturing facilities
6. Permission to construct buildings or set up installations, and designation of the undertaker of an urban
planning facility project and authorization for implementation program
Building
7. Permission to construct temporary structures, and notification of setup of installations
Permit
8. Approval for and notification of installation of waste disposal facilities,
9. Notification and installation of wastewater treatment facilities, notification and installation of an
exclusive septic tank, and permission to install or notification of installation of discharge facilities
10. Approval for and notification of installation of discharge facilities under atmosphere and water quality
environmental laws and noise and vibration control laws
11. Notification of installation of specified soil-polluting facilities
12. Permission to install simple explosives warehouses
13. Permission to establish liquefied petroleum gas storehouses
14. Permission to establish high-pressure gas storehouses

1. Use inspection of private electrical facilities


2. Completion of inspection of fire fighting facilities, and completion inspection of hazardous material
manufacturing facilities
3. Notification of commencement of use of waste disposal facilities
Use 4. Completion of inspection of sewage treatment facilities and exclusive septic tanks
5. Notification of commencement of operation of discharge facilities under the Clean Air Conservation
Act, the Water Quality Conservation Act (WQCA) and the Noise and Vibration Control Act
6. Completion inspection under the provisions of the Firearms, Swords and Explosives Control Act
7. Completion of inspection of liquefied petroleum gas storehouses and gas utensil manufacturing facilities
8. Completion of inspection of high-pressure gas storehouses and manufacturing factories, high-
pressure gas apparatuses, and specific high-pressure gas facilities
9. Completion of inspection under the NLPUA
10. Application for registration of land change under the Cadastral Act





Phase Permits assumed by legal fiction

1. Registration of publishing companies and printing houses


2. Registration of grain processing businesses
3. Notification of ginseng manufacturing businesses
4. Registration of livestock feed manufacturing businesses
5. Registration of fertilizer production businesses
6. Permission to conduct butchery businesses and livestock product processing businesses
7. Registration of gauge and meter manufacturing businesses and repair businesses
Factory 8. Permission to manufacture materials under the Industrial Safety and Health Act
Registration
9. Notification of manufacturing of observation materials under the Toxic Chemicals Control Act
10. Notification of recycling of livestock excreta or wastewater
11. Notification of drinking fountain water manufacturing businesses, registration of water-treatment
material manufacturing businesses and notification of water purifier manufacturing businesses
12. Permission to conduct and notification of food and food additive manufacturing and processing
businesses, and food container and packaging manufacturing businesses.
13. Permission to conduct functional food manufacturing businesses
14. Permission to conduct esthetics manufacturing businesses
15. Permission to conduct aggregate collection businesses
16. Notification of construction equipment repair businesses
17. Registration of car scrapping businesses
18. Registration and notification of fishery product processing businesses
19. Permission to conduct gambling implement manufacturing businesses

▶Documents to be filed
Application: An application for factory establishment approval in the Form No. 12 of
the Enforcement Regulations of the Foreign Investment Promotion Act (ERFIPA)
Cadastral map: Specifying the planned factory site and facility placement plans
(issued by the municipality)
Legal fiction specification: A legal fiction specification in the Form No. 12 of the ERFIPA
Documents evidencing the rights to use the land and buildings: The filing does not
require the land ownership of the planned factory site. The right to use the land
would suffice (as evidenced by an occupancy permit, a lease contract, etc., issued or
signed by the owner)
Business plan
Documents attesting the foreign investment ratio

▶Factory Establishment Approval Procedures


The review period may be extended with respect to the comprehensive compliance review
under the ICDFEA and other laws, and the review of the standard factory area ratio test
covering the construction scheduled for a total of four years.

The factory establishment approval involving any change in the national territory use plan
requires the following considerations:
Compliance with the requirements of zoning districts within the National Land
Planning and Use Act (NLPUA)
Propriety of the business plan and the size of location
Impact upon environmental and cultural assets preservation
Impact upon the protection of military facilities and military operations
Nature of the waste management plan and measures to counter heightened traffic
Whether the factory waste water flows into agricultural irrigation and
drainage facilities and causes any hindrance to the use of agricultural water

46 47
Compliance with other industrial complex development plans, the National Land
Construction Master Plan, the Industrial Block Master Plan, regional development
plans, urban plans and any other relevant plans
Amount of available groundwater and any impact upon water pollution levels
if ground water is to be used as industrial water

Review by CWRC
Application (Intra-agency Consultation Issuance
for approval consultation) (Inter-agency Conclusion of
(Inspection on the consultation) approval
spot if necessary)

Founder Municipality Relevant agencies Municipality

▶Revocation of Factory Establishment Approval


Any of the following events may result in revocation of factory establishment approval, in
which case it may be ordered to restore forestland or farmland to its original state.
The construction of the factory has not commenced within three years of the
obtainment of the approval (or two years if permission for, or notification of
conversion of farmland is assumed by legal fiction).
Revocation of the permission to alter the form and nature of the land renders it
impossible to establish the proposed factory
The land or buildings for which factory establishment approval was obtained are
used for other purposes than as a factory
The factory establishment approval requirements are not met

▶Building Permit
Any person who obtains a factory establishment permit must obtain a building permit
under the Building Act (unless such permit is assumed by legal fiction at the time of
issuance of the approval) if the building size is 500 square meters or more; or, file a
building notification if it is less than 500 square meters in size.

The documents to be filed include an application for a building permit, documents


evidencing the rights to the lot, master design drawings, a legal fiction specification, and
documents evidencing the foreign investment ratio. Issuance of an approval takes from
three to 30 days.

Meanwhile, if one building permit is obtained with respect to two buildings or more
located in the same factory site, a pre-use inspection may be conducted for each building
as it is completed.
Application Consultation Other
or review administrative
Applicant Municipality agencies and
building
committees
Permit

< Building Coverage and Floor Area Ratio in Zoning District >
District Building to land ratio Total floor space to land ratio
Residential up to 70% up to 500%
- Class 1 Exclusive up to 50% 50% through 100%
- Class 2 Exclusive up to 50% 100% through 150%
- Class 1 General up to 60% 100% through 200%
- Class 2 General up to 60% 150% through 250%
- Class 3 General up to 50% 200% through 300%
- Semi-residential up to 70% 200% through 500%
Commercial up to 90% up to 1,500%

Urban - Central up to 90% 400% through 1,500%


- General up to 80% 300% through 1,300%
- Local up to 70% 200% through 900%
- Retail up to 80% 200% through 1,100%
Industrial up to 70% up to 400%
- Exclusive up to 70% 150% through 300%
- General up to 70% 200% through 350%
- Semi-industrial up to 70% 200% through 400%
Green up to 20% up to 100%
- Preservation up to 20% 50% through 80%
- Production up to 20% 50% through 100%
- Natural up to 20% 50% through 100%
Preservation up to 20% up to 80% (50% through 80%)
Managed Production up to 20% up to 80% (50% through 80% )
Planned up to 40% up to 100% (50% through 100% )
Agricultural and forested up to 20% up to 80% (50% through 80% )
Environmental preservation up to 20% up to 80% (50% through 80% )

▶Factory Occupancy Permit


Any person who obtains a building permit or files a building notification must obtain an
occupancy permit for the factory; provided, however, that 11 permits including a pre-
occupancy permit for a private-use electrical installation may be assumed by legal fiction.
Documents required include an application for occupancy permit and a final supervision
report.

Application
Consultation

Applicant Municipality Other agencies

Issuance of
occupancy permit

▶Notification of Factory Establishment Completion


If any person having obtained factory establishment permission and has completed
construction of a factory, such person must then file a notification of factory establishment

48 49
completion with the municipality within two months; provided, however, that such person
is an occupant in an industrial complex, then the notification may be filed with the
managing agency.

If any person, having obtained factory establishment permission has obtained a temporary
occupancy permit, installed manufacturing facilities, and finally obtained the occupancy
permit for the buildings, then the notification of factory establishment is deemed to have
been filed.

Notification

Applicant Municipality or managing agency


(verification visits)
Acceptance of notification
(to be processed within 7 days)

If review of the notified factory establishment completion leads to the discovery of any
standard excess area as calculated by reference to the standard factory area ratio applicable
to the factory, then compliance with the conditions of the issued factory establishment
approval is recommended.

Calculation of standard excess area


If a single factory unit is engaged in a single business category:Standard excess area =
factory lot size – (factory building size/standard factory area ratio.

If a single factory unit is engaged in two or more lines of business (the standard factory
area ratio applicable to the business category generating the most sales is applicable if
the lines of business are not readily distinguishable):

Total floorage for the business category A Total floorage for the business category B
Standard = Building -
excsee size ( Standard factory area ratio for
+ Standard factory area ratio
)
area for the business category B
the business category A

Exceptional Area

▶ Any lot located in a Green District under the provisions of Art. 36 of the NLPUA
▶ Any lot having an airstrip, a railroad, or a road that is 6 meters wide or wider
▶ Any lot where roadside clear zones make it difficult to build a factory
▶ Any lot used as a large reservoir or settling pond for the purposes of production processes
▶ Any lot located in a green district under the ICDFEA
▶ A sloped lot having an incline of 30 degrees or more that is deemed unsuitable for the construction of factories
▶ Any other lot deemed by the municipality or the managing agency where construction in strict conformance with
the standard factory area ratio may cause material hindrance to the operation of the factory
▶ Any lot where the lessee builds a factory
▶Factory Registration
The municipality or managing agency in receipt of the factory establishment completion
notification makes visits to verify completion of buildings and installation of machinery.
If, in such cases, the progress of work during the verification visits is found consistent with
the factory establishment approval, the responsible municipality or managing agency
makes an entry in the factory registry and notifies the filing party of such registration
within seven days of the filing of the factory establishment completion notification.

Factory establishment
completion notification Municipality or the managing
Filing party
Notice of registration agency
(Within 7 days)

< Factory Establishment Procedure Flowchart >


< Establishment of business plan > Establishment of
Decision on line of business and size, environmental impact assessment, etc. small/medium
Review of various support programs (business establishment, high tech, business
financing, tax benefits, etc.)
Misc. (Business licensing, foreign investment, etc.)

< Selection of location >


Planned (e.g. in an industrial complex) or individual location
Metropolitan area or not (compliance with the ICDFEA)
Zoning district review (compliance with the Building Act and the NLPUA)

Planned location Individual location


(Industrial complex)

<Factory establishment approval> Business establishment


Occupancy contract
Land-related permits by legal fiction plan approval

<Building permit>
Building-related permits by legal fiction

<Occupancy permit>
Occupancy-related inspections by legal fiction

<Completion notification>
Verification visits

<Factory registration>
Within 7 days of commencement of operation

50 51
7) Other Considerations in Factory Establishment
▶Business Category
Business categories under the Korea Standard Industry Code
The lines of business of a factory under the ICDFEA include manufacturing (Classes
15,000 through 37,000) and coal processing as classified under the Korea Standard
Industry Code (KSIC). A manufacturing business as defined in the KSIC is any industrial
activity applying physical and chemical actions to raw materials and thereby converting
such raw materials to a new product of a different nature, which definition effectively
excludes processing activities that do not change the inherent nature of the goods as in the
case of selection, arrangement, partitioning, packaging and repackaging of goods.

Urban factory
An urban factory is a high-tech factory, a low-pollution factory, or a factory closely related
to the life of urban residents. The specific requirements are based on the amount of
pollution generated. An urban factory is the criterion by which to determine (i) the
acceptability of location in the Metropolitan area under the ICDFEA, (ii) the acceptability
of establishment of factory buildings under the NLPUA, and (iii) the eligibility of tax
relief under the Local Tax Act.

Urban type factory Non-urban type factory

▶ Premises of Atmospheric Classes 4 ▶ Premises of Atmospheric Classes


through 5 that do not have a factory with 1 through 3 or the premises that have a
certain air pollutant discharge facilities factory with certain air pollutant
discharge facilities
▶ Premises of Water Quality Class 5 that do ▶ Premises of Water Quality Classes
not have a factory with certain water 1 through 4 or the premises that have a
pollutant discharge facilities factory with certain water pollutant
discharge facilities

< Classification by Premises Size under Clean Air Conservation Act >

Class Description

Classes 1 thru 3 Premises generating air pollutants of up to 80 tons per year

Premises generating air pollutants of 10 tons and above but less than 20 tons
Class 4 per year

Class 5 Any other premises not falling under Classes 1 through 4


< Classification by Premises Size under Clean Air Conservation Act >
Class Requirements

Class 1 Premises generating waste water of no less than 2,000㎥ per day
Class 2 Premises generating waste water of no less than 700㎥ but less than 2,000㎥ per day
Class 3 Premises generating waste water of no less than 200㎥ but less than 700㎥ per day
Class 4 Premises generating waste water of no less than 50㎥ but less than 200㎥ per day
Class 5 Any other premises not falling under Classes 1 through 4

▶Land Use Management System in Korea


The NLPUA is the fundamental law governing land use in Korea, which sections the
national territory into four types of zoning district for the purpose of efficient land use,
whereby only certain acts of use are permitted in compliance with the designated purposes
of each zoning district. Under the NLPUA, an Urban District is subdivided into four
zoning districts for efficient urban development, and each district is further subdivided into
three or four classes, resulting in a maximum of 16 zoning district classes in total.

The uses of land in each zoning district (acts of constructing buildings) are regulated in the
Building Act. If the planned location for a factory to be established is in the Metropolitan
area, the compliance with the Seoul Metropolitan Area Readjustment Planning Act
(SMARPA) as well as the ICDFEA must be the first consideration.

The SMARPA sets a ceiling on the total annual building size for factory establishment per
year, over which no building permit is given.

The ICDFEA sections the Metropolitan area into three regions in consideration of the
special qualities of each region and provides for the extension of factories that can be
established within the above ceiling in each region.

▶Details of Restrictions in Metropolitan Area


Regions
The SMARPA and the ICDFEA sections the Metropolitan area into three regions where
different regulations are applicable: the Congestion Control Region, the Growth
Management Region and the Nature Preservation Region. It is easier to establish a factory
in the Growth Management Region than in the Congestion Control Region, more so than
in the Nature Preservation Region, in that order.

< Regions in the Metropolitan Area >


Region Congestion Control Growth Management Nature Preservation

Seoul, Incheon, Suwon and Southern and northern Han River basin in Eastern
Bounds other urban areas near Seoul Gyeonggi-do Gyeonggi-do

Cities and provinces where Regions having direct or Any region other than the
the population growth rate is indirect impact on the Han Congestion Control and
Criteria higher than that of River basin Nature Preservation regions
Metropolitan average

52 53
Seoul metropolitan area readjustment planning act(SMARPA)
The SMARPA places a ceiling on permissible factory installations and restrictions on the
permissible acts within each region. No building permit is given above a ceiling (for each
municipality) on the total building size created by factory establishment per year. The
acquisition tax, registration tax and property tax are levied upon a factory established in
the Congestion Control Region, will be three to five times as much as upon one outside the
region (2 percent of the acquisition price, 3 percent of the property price, and 0.6 percent
of the property price, respectively).

Further, a congestion levy is imposed at the rate of 5 percent of construction costs up to the
standard lot size, and 10 percent of construction costs on any lot in excess of the standard
size.

< Acts Restricted in Each Region >

Acts Congestion Control Region Growth Management Region Nature Preservation Region

Development of In principle: prohibited over 30


factory lots New designation prohibited New designation limited thousand ㎡
Exception: permitted under 60
thousand ㎡
Development of
In principle: prohibited over 30
housing lots
Permitted below 1 million ㎡ Permitted below 1 million ㎡ thousand ㎡
Exception: permitted under 60
thousand ㎡
Development of
tourist resort lots In principle: prohibited over 30
Permitted below 100 thousand ㎡ Permitted below 100 thousand ㎡
Retail buildings thousand ㎡ Exception: permitted under 60
(e.g. dept. stores)
thousand ㎡
Business buildings
(office buildings) Congestion levy imposed for Permitted if the total floorage is 15
Permitted
Gov. office buildings over 15 thousand ㎡ thousand ㎡
Congestion levy imposed for Permitted if the total floorage is 25
over 25 thousand ㎡ Permitted
Training facilities thousand ㎡
Permission subject to review Permission subject to review Permission subject to review
Colleges and Establishment or extension of
universities Prohibited Permission subject to review training facilities of public
institutions permitted

New establishment regulated New establishment regulated


New establishment regulated (permission subject to review (permission subject to review if the
(Move within the region is if the quota for new quota for new enrollment is 50
possible) enrollment is 50 persons) persons)
Industrial cluster development and factory establishment act(ICDFEA)
The ICDFEA stipulates restrictions on the foundation and extension of factories. Factories
of a large company are, in principle, prohibited, but factories of small/medium companies
are differentially regulated for each region.

First, in the Congestion Control Region, factories of large companies are prohibited but
those of small/medium companies are permitted under the following conditions:

▶ Foundation and extension of factories of small/medium companies


Industrial ▶ Assumption of a closed factory and establishment of a factory of the same size
complex
▶ Move of a factory within the same industrial complex
▶ Foundation and extension of factories for daily newspapers

Industrial ▶ Foundation and extension of urban factories of small/medium companies


districts ▶ Extension of an existing factory (within 3,000 m2)
▶ Move of a factory from another region or between Industrial Districts

Other areas ▶ Foundation and extension of a factory engaged in a high-tech business category
or one that meets the regular needs of people in adjacent residential areas
(within 1,000 m2)
▶ Extension of an existing factory of a small/medium company

Second, in the Growth Management Region, no restrictions are placed on foundation and
extension of a factory of a small/medium company, while factories of large companies are
permitted under the following conditions:

▶ Foundation and extension of a factory of a large company within Asan


Industrial
National Industrial Complex
complex
▶ Move of a factory within the same industrial complex

▶ Foundation of a factory that is engaged in any of the following 8 lines of


business and moved from the Congestion Control Region or Nature
Preservation Region
- Computers, electronic coils, transformers, other electronic inducers
Industrial
Districts - Diodes, transistors, quasi-semiconductors, electronic capacitors
- Cable telecommunication devices, broadcasting and radio
telecommunication devices
- Broadcasting receivers and other audio/visual devices
- Aircraft, spacecraft and accessory devices

▶ Foundation and extension of a factory engaged in a business category


that meets the regular needs of people in adjacent residential areas or
that produces construction materials (within 5,000m2)
▶ Extension of a factory engaged in a high-tech business category
(within the extent of 50% of the existing factory size in the case of certain 10
lines of business, or 25% in the case of certain 4 lines of business)
※10 lines of business
· Computers, diodes, transistors, quasi-semiconductors
· Integrated circuits, electronic cards, LCD devices
Other areas · Cable telecommunication devices, broadcasting and radio
telecommunication devices
· Broadcasting receivers and other audio/visual devices
· Aircraft, spacecraft and accessory devices
※5 lines of business
· Electronic coils, transformers, other electronic inducers
· Electronic capacitors, passenger cars and vehicles
· Freight trucks and other special-purpose vehicles
▶ Foundation and extension of a factory of a foreign-invested company
(25 high-tech lines of business)

54 55
Third, in the Nature Preservation Region, factories of large companies are prohibited but
those of small/medium companies are permitted on the following conditions:

Industrial Foundation and extension of factories of small/medium companies


complex (no limit to the size)

Foundation and extension of urban factories of small/medium companies


Industrial
(within 3,000 m2)
districts
Move of a factory from another region or between Industrial Districts

Foundation and extension of a factory engaged in a high-tech business


category or one that meets the regular needs of people in adjacent
residential areas (within 1,000 m2)
Other areas Foundation and extension of urban factories of small/medium companies
(within 1,000 m2)
Extension of an existing factory for the purpose of engaging in a business
category that is eligible for establishment in the area

3. LAND ACQUISITION BY FOREIGN NATIONALS


1) Land Acquisition System for Foreigners
The regulations on land acquisition and its use and development applied to Korean
nationals apply equally to foreigners. If a foreigner intends to acquire any land in Korea, in
principle, the foreigner can purchase it regardless of the target land’s zoning district. The
foreigner only needs to report to the competent government office after the land
acquisition. However, prior approval is required for acquisition of land in a military
facility protection zone, cultural property protection zone, ecosystem conservation zone, or
some islands that are used for military purposes. Meanwhile, a building site
developer/supplier cannot undertake an enterprise independently but can take part in the
business as one of the investors of a corporation by investing jointly with the central
government, local government, the Korea Land Corporation or the Korea National
Housing Corporation etc. In this case, the share of foreign investment should be less than
50 percent of the total investment.

▶Introduction to the System


There are three main laws governing land acquisition by foreigners in Korea.

Firstly, the Foreigner’s Land Acquisition Act prescribes general matters regarding
foreigners’ local land acquisition.

Secondly, the Foreign Investment Promotion Act deals incentives for foreign-investment
Company such as simplified investment notification procedures, tax reductions or
exemptions and favorable conditions on purchasing government properties if they register
under the said law and acquire any land in Korea.
Thirdly, the Foreign Exchange Transaction Regulations stipulate matters regarding foreign
exchange inflow and outflow related to foreigners’ acquisition of local immovables. In this
way, if a foreigner acquires real estate in Korea, the governing law on the acquisition can
be different according to the purpose of the acquisition or whether the foreigner resides in
Korea or not. For example, if a foreign resident purchases a house as his/her residence,
he/she needs only to notify the acquisition to the relevant government office prescribed in
the Foreigner’s Land Acquisition Act.

However, if a non-resident foreigner purchases real estate in Korea, he/she not only needs
to make notification of the land acquisition according to the Foreigner’s Land Acquisition
Act, but also needs to make notification of the land acquisition according to the Foreign
Exchange Transaction Regulations due to the foreign exchange inflow the acquisition
would create. In the case where a foreign-invested corporation is established for the
purposes of profit making and purchases land in Korea, the corporation should acquire the
land after notification of foreign investment and registering itself as a foreign-invested
enterprise as prescribed in the Foreign Investment Promotion Act.

Foreigner's Land Foreign Investment Foreign Exchange


Acquisition Act Promotion Act Transactions Act
(real estate)
Foreigners (any individual of Foreigners (any individual of Non-residents
foreign nationality, any foreign nationality and any ※Persons having permanent
foreign corporation, and any foreign corporation) residence in foreign
Applicable to domestic corporation where ※Applicable to persons countries are nonresidents,
50% or more of its shares are having permanent but not required to file real
owned by foreigners) residence in foreign estate acquisition
※ Not applicable to persons countries as well notifications.
having permanentresid-
ence in foreign countries
Any foreigner acquiring Any foreign investment Any nonresident acquiring
lands in the country is under the Act must be domestic real estate or any
Provisions required to file a notification notified in accordance with rights thereto(chonsegwon,
in accordance with certain certain procedures mortgage, etc.)must file a
procedures (land acquisition (Foreign investment notification in accordance
notification) notification) with certain procedures(real
estate acquisition notification)

▶ Cadastral department of ▶ Designated foreign ▶ Designated foreign exchange


Filing
the municipal office where exchange bank, or Invest bank, or Invest KOREA
the lands is located KOREA ▶ At the time of withdrawal of
▶Within 60 days of the entry ▶ Prior to inbound the real estate purchase price
into a land purchasecontract remittance of an investment from the bank

▶Foreigner's Land Acquisition Act (FLAA)


Any foreigner may acquire domestic lands merely by filing a notification in accordance
with certain procedures except in a limited number of cases where permission is required.
There are two types of notifications: land acquisition notifications and notifications of
continuous holding of land. The documents must be attached to a land acquisition
notification vary depending on the cause of acquisition (acquisition by contract,
inheritance, auction, exercise of the right of repurchase, acquisition by a final court
judgment, etc.).

56 57
In the case of permission as opposed to notification, the foreign purchaser must apply for
and obtain a permit prior to the entry into any land purchase contract where the permission
is required. If the lands are acquired for for-profit purposes, a foreign investment
notification must be filed in addition to a land acquisition notification. If the foreigner
acquiring the lands is a non-resident, a real estate acquisition notification under the
Foreign Exchange Transactions Act (FETA) must be additionally filed.

Land acquisition through notification


There are three types of notifications following land acquisition: land acquisition by
contract, non-contracted land acquisition, and continuous holding of land.

Type By contract Other than contract Continuous holding

Land acquired by contract Land acquired by Where a Korean national


(except where permission inheritance, auction, a final or a corporation or
is required) court judgment, etc. organization established
under the laws of Korea
Applicable to having lands in Korea has
become a foreign entity
and such foreign entity
intends to maintain
ownership of the lands.

Within 60 days of the entry Within 6 months of Within 6 months of the day
into a contract (execution acquisition of lands (arising on which the domestic
of the contract) of the non-contractual entity
cause) becomes a foreign one
Filing period ※Inheritance: inheritor’s
date of decease
Auction: the date of
auction approval
Final judgment: the date
of judgment

Cadastral department of Cadastral department of Cadastral department of


Filed with the municipal office where the municipal office where the municipal office where
the lands are located the lands are located the lands are located

A land registry extract, a A land registry extract, A land registry extract,


land purchase contract, documents evidencing the documents evidencing the
and an ID, and non-contracted cause, an ID change of nationality, and
※If filed by proxy, a ※Inheritance: Documents an ID
photocopy of the foreign evidencing the status of
Required purchaser’s ID and the ID the inheritor (a census
attachments of the person who files registration extract of the
inheritor, etc.)
the
Auction: the auction
notification by proxy approval
Final judgment: the final
judgment

Immediately Immediately Immediately


Processing time
(3 hours or less) (3 hours or less) (3 hours or less)
Land acquisition through prior permission
For the acquisition procedures for the lands requiring permission differ from those for the
lands requiring notification, it is desirable for a foreigner acquiring domestic lands to
check, in advance, whether the target lands require notification or prior permission prior to
the entry into a contract. Any purchase contract on any lands in a permission-required
zone entered into without permission will result in not only invalidity of the contract but
also imprisonment and/or a fine.

Permission-required zones may be verified by a land use plan verification issued by the
municipal office or through a phone call to the cadastral department of the municipal
office.

Requirement Description

Permission- Military installation protection zones, naval base zones, military air base zones,
required zones cultural property reservation zones, ecosystem conservation zones, and insular zones
necessary for military purposes
Application for
permission Prior to entry into a contract

Permission
issued by Cadastral department of the municipal office where the lands is located

Required
attachments A land registry extract, a pre-contract agreement between the parties, IDs

Processing time
Within 15 days of the filing of the application

Penal provisions
Failure to notify land acquisition by contract may result in a fine for negligence of up to
KRW 3 million. Failure to notify non-contracted land acquisition or continuous holding of
lands may result in a fine for negligence of up to KRW 1 million. Any purchase contract
relating to any lands in a permission-required zone entered into without permission may
result in invalidity of the contract as well as imprisonment of up to two years and/or a fine
of up to KRW 20 million.

▶Foreign Investment Promotion Act


Acquisition of real estate for for-profit purposes (office buildings of the company, factory
sites, rental housing, etc.) requires foreign investment registration under the FIPA and land
acquisition notification as provided for under the FLAA. However, although any
company where foreigners own 50 percent or more of the shares is categorized as foreign
company under the FLAA and therefore requires land acquisition notification, a company
where the foreign shareholding ratio is less than 50 percent is not categorized as foreign
and therefore is treated as Korean and may acquire lands without notification. The above
explanations of the FIPA provide more in-depth details.

58 59
▶Foreign Exchange Transactions Act
If a real estate transaction accompanies inbound or outbound remittance of foreign
currency, the FETA is applicable, which stipulates procedures relevant to foreign currency.
The explanations of inbound and outbound remittance of real estate purchase prices
provide more details on the FETA provisions regarding real estate transactions.

▶General Restrictions on Domestic Lands


The restrictions on lands in Korea that are applicable regardless of the purchaser’s
nationality may be classified into acquisition restrictions, use restrictions, and
development restrictions.

Land acquisition restrictions


Although acquisition by a Korean national of lands in a land transaction permission zone
requires a permit issued by the municipal office, such restriction is not applicable to
foreigners.

In addition, the Farmland Act does not allow any person to own farmland in excess of five
hectares outside “Agriculture Promotion Zones”. The Act requires any farmland purchaser
to obtain a farmland acquisition license. The Farmland Act, however, permits acquisition
of farmland only when the owner can engage in farming business; therefore, it is
practically impossible for a non-resident foreigner to acquire farmland in Korea.

Land use restrictions


The national territory of Korea is divided into four zoning districts (urban, managed,
agricultural and forested, and environmental preservation) under the National Land
Planning and Utilization Act (NLPUA) and each zoning district places restrictions on
certain acts.

Furthermore, the Metropolitan area is sectioned into three regions (the Congestion Control
Region, the Growth Management Region and the Nature Preservation Region), where
various acts are restricted. Construction of, among other things, commercial office, retail,
and government buildings requires payment of congestion levies. The Act also places
gross ceilings on the size of factories and schools, establishment and extension of which
are restricted.

Restrictions on a given tract of land may be verified by a land use plan issued by the
municipal office where the lands are located.
Land development restrictions
On development projects for, among other, housing sites, industrial complexes and tourist
resorts in the Metropolitan area, the Restitution of Development Gains Act had been
imposing development levies at the rate of 25 percent of the development gains until the
end of 2003, when the government halted the development levy program as part of a levy
reduction program. The additional levy program for land development is not yet in effect.

2) Land Acquisition Procedures for Foreigners


The laws and procedures applicable to a foreigner acquiring domestic lands vary
depending on the purpose of acquisition, residence, and whether the foreigner is an
individual or a corporation.

The FLAA merely provides for the procedures to follow when a foreigner acquires lands
in Korea (land acquisition notification, etc.). In addition to the land acquisition
notification, acquisition of real estate for for-profit purposes (real estate lease, etc.)
requires foreign investment notification, and acquisition by a non-resident under the FETA
involves real estate acquisition notification.

▶Foreign-invested Company
Where a foreigner incorporates a domestic corporation (foreign-invested company) under
the FIPA to engage in profit-making activities in Korea and purchases real estate (office
buildings, factory sites, etc.) in the name of such corporation, the applicable laws are the
FLAA, the FIPA, and the Registration of Real Estate Act, which provide for the following
acquisition procedures.

Procedure Relevant authority Precautions

① Filing: prior to inbound remittance of the investment


▶ Designated ② To be filed by: the foreign investor or any other person having
Foreign foreign exchange a power of attorney
investment bank ③ Documents to be filed: a foreign investment notification (available at
notification ▶ Invest KOREA the filing office)
④ Processing time: immediately (notification receipt issued)

▶ By Invest KOREA
Incorporation for and on behalf
of the applicant

① Filing: Business registration is ordinarily filed for at the time of


incorporation in the case of a corporation or within 20 days of the
commencement of business in the case of a sole proprietor. Yet if
▶ Competent tax business property including buildings is newly constructed or
Business
office purchased, refund of value added taxes requires business
registration
▶ Invest KOREA registration prior to construction or entry into a purchase contract.
② Required attachments: Corporation: a corporate registry extract, etc.
Sole proprietor: a photocopy of the foreign investment
notification, etc.

60 61
▶ The authority ① Registration: within 30 days of the payment of the
Foreign-invested with which the capital contribution
company foreign investment ② Required attachments: a foreign exchange purchase receipt / deposit
registration registration was certificate, and a corporate registry extract (or business registration
filed with in the case of a sole proprietor)

Entry into a real estate


purchase contract and
payment of the
purchase price

▶ Cadastral ① Filing: within 60 days of the entry into a land purchase contract
department of the ② Required attachments: a real estate purchase contract,
Land acquisition
municipal office
notification and a real estate registration extract
where the lands
are located
※Applicable only if the foreign investment ratio is 50% ore more

① Registration: within 60 days of the entry into the contract


(the payment of the balance)
② Required attachments: a corporate registry extract (or a photocopy
▶ The competent of a resident foreign national registration in the case of a sole
Real estate registry office
registration proprietor), a registration application, documents evidencing the
where the lands cause of registration (contracts certified by the municipal office, etc.),
are located a registration right deed, and a real estate registry extract
※Also, a power of attorney as signed by the registrant if the
registration is filed for by any other person for and on behalf
of the registrant

▶Resident Foreign National


Where a resident foreign national purchases a residential apartment unit or a domestic
branch of a foreign corporation acquires real estate, registration of transfer of ownership
requires only filing of a notification with the competent municipal office within 60 days of
the entry into the purchase contract and no notifications under the FETA (since only lands
requires acquisition notification). The applicable laws are the FLAA and the Registration
of Real Estate Act(RREA).

Procedure Relevant authority Precautions

Entry into a real estate


purchase contract and
payment of the
purchase price

▶ Cadastral department ① Filing: within 60 days of the entry into a land purchase contract
Land acquisition
of the municipal office ② Required attachments: a real estate purchase contract and a real
notification
where the lands estate registry extract
(FLAA) are located

① Registration: within 60 days of the entry into the contract


(payment of the balance)
▶ The competent ② Required attachments: a photocopy of a resident foreign national registration
Real estate registry office (or a corporate registry extract in the case of a branch), a registration application,
registration where the lands documents evidencing the cause of registration (contracts certified by the
are located municipal office, etc.), and a real estate registry extract
※Also, a power of attorney as signed by the registrant if the registration is
filed for by any other person for and on behalf of the registrant
▶Non-resident Foreign National
A non-resident foreign national must, in principle, first file a “real estate acquisition
notification” with the designated foreign exchange bank at the time of the inbound
remittance of the purchase price, and then, if the property is land, file a “land acquisition
notification” with the competent municipal office prior to going through transfer of
ownership registration procedures. The applicable laws are the FLAA, the FETA, and the
RREA.

The real estate purchase price filed may be remitted overseas after filing of a payment
notification with the designated foreign exchange bank. Any proceeds from the sale of real
estate that was not filed must notify the Bank of Korea at the time of the outbound
remittance.

Procedure Relevant authority Precautions

Entry into a real estate


purchase contract

Real estate ① Filing: at the time of withdrawal of the real estate purchase price from the bank
▶ Designated
acquisition ② Required attachments: a real estate purchase contract, a real estate appraisal
foreign exchange report(or a government-appraised land value statement), and a real estate
notification (FETA) bank registry extract

Payment of the
purchase price

▶ Cadastral ① Filing: within 60 days of the entry into a land purchase contract
Land acquisition department of the ② Required attachments: a real estate purchase contract, and a real estate
notification municipal office registration extract
(FLAA) where the lands ※No land acquisition notification is required where any real estate other than
are located lands (buildings) and rights thereto (chonsegwon, mortgage, etc.) is acquired

① Non-resident foreign individual


- Application filed with: Seoul Immigration Office
- Required attachments: a receipt for land acquisition notification, and a
▶ Individual: Seoul photocopy of the passport
Immigration ② Non-resident foreign corporation
Office - Application filed with: the cadastral department of the municipal office
Application for real ▶ Corporation: where the lands are located
estate registration Cadastral - Required attachments: a receipt for land acquisition notification, and
number department of documents evidencing the corporate registration, the identification of the
the municipal representative, the certification of the address of the representative as
office where the issued by the company’s country of incorporation (or the embassy of
lands is located such country to Korea), etc.
③ If applied for by proxy: an ID identifying the nationality of the attorney, and
a power of attorney as notarized by a notary public in the company’s
country of incorporation

① Registration: within 60 days of the entry into the contract (the payment of the balance)
② Required attachments: a document evidencing the address, a registration
certificate issued for real estate registration purposes, a registration
▶ The competent application, documents evidencing the cause of registration (contracts
Real estate registry office where certified by the municipal office, etc.), a registration right deed, and a real
registration the lands are located estate registry extract
※Also, a power of attorney as notarized by a notary public in the
company’s country of incorporation if the registration is filed for by any
other person for and on behalf of the registrant

62 63
▶Korean Nationals with Permanent Residence in a Foreign Country
Since any Korean national having permanent residence in a foreign country has Korean
nationality and treated as a Korean residing in Korea, such person is not subject to the
FLAA or land acquisition notification. Furthermore, such person is not subject to real
estate acquisition under the FETA, either, regardless of domestic residence. The applicable
law is the RREA.

A Korean of foreign citizenship, however, as opposed to those of mere foreign permanent


residence, is a foreigner under the FLAA, and is therefore required to file land acquisition
notifications. Moreover, if such person is a non-resident in Korea, acquisition of domestic
real estate requires notification under the provisions of the FETA.

Procedure Relevant authority Precautions

Entry into a real estate


purchase contract
and payment of the
purchase price

Application for real ▶ Registration ① Required attachments: documents evidencing the address or the
estate registration no. Department of residence (may be substituted with a overseas Korean registration
(if the resident the District Court certificate)
registration no. is of Seoul
deregistered) (Tel.: 530-1892)

① Registration: within 60 days of the entry into the contract (the payment
of the balance payment)
② Required attachments: a document evidencing the address or residence,
▶ The competent a registration application, documents evidencing the cause of
Real estate registration (contracts certified by the municipal office, etc.), a
registration registry office
where the lands registration right deed, and a real estate registry extract
are located ※Document evidencing the address: an overseas Korean residence
certificate as issued by the competent diplomatic establishment of Korea
※Also, a power of attorney as signed by the registrant if the registration
is filed for by any other person for and on behalf of the registrant

3) Procedure for carry-in/carry-out of Real Estate Purchase/Sale fund


The FETA classifies the fund involved in real estate transactions into three categories:
those personally carried in, those remitted from abroad, and those domestically generated.

Both resident and non-resident foreigners can freely carry in money or get remittance from
abroad if it is used for real estate acquisition. In this case, outbound remittance of the sales
proceeds of the relevant real estate is also guaranteed if the designated foreign exchange
bank is notified). The outbound remittance of the proceeds from the sale of the real estate
that was purchased with money domestically generated, however, requires permission of
the Bank of Korea.
▶Foreign-invested Company and Korean Branch of a Foreign Company
Inbound remittance
As discussed in the above paragraphs describing the procedures for real estate acquisition
by foreigners, a foreign investor planning for foreign-invested company registration may
remit from abroad real estate purchase prices after filing a foreign investment notification,
and then file for foreign-invested company registration after other preparations for real
estate acquisition are made. A domestic branch of a foreign company may remit from
abroad real estate purchase prices in the form of operating capital through the designated
foreign exchange bank and then use them to purchase real estate.

Outbound remittance
Ordinary purchase of real estate does not entail a separate inbound remittance for each
transaction. Rather, either the paid-in capital of a foreign-invested company or the
operating capital of a domestic branch allotted for the payment of the purchase price.
Accordingly, the proceeds from the sale of real estate must be remitted abroad on the
account of capital reduction or dividends in the case of a foreign-invested company or on
the account of operating profit, in the case of a domestic branch of a foreign company,
instead of separate outbound remittance for each transaction. In the case of a domestic
branch, though, no reduction of operating capital is accepted except where the branch is
closed and the liquidation income there from is remitted abroad.

If a foreign-invested company has sold its business real estate, its outbound remittance is
possible after it files a share transfer notification and files a payment notification to the
designated foreign exchange bank.

※Notification of transfer of equity securities


- Notification period: within 30 days of the transfer agreement on equity securities
- Office for notification: foreign banks, or Invest KOREA
- Documents to be submitted: a real estate purchase agreement and a copy of a tax payment receipt
※Cancellation of registration of foreign-invested company must be filed for
if the business is liquidated
※Payment notification
- Notification period: at the time of the outbound remittance of the proceeds from the real estate sale
- Office for notification: designated foreign exchange bank
- Documents to be submitted: a sales contract, a receipt for share transfer notification, a copy of
passport and resident foreign national registration, foreign exchange purchase certificates
(in the case of a non-resident or a resident foreign national who has resided in the country
less than 5 years), a confirmation of taxes paid (to be paid)

64 65
▶Resident Foreign Nationals
Inbound remittance
If a resident foreign national purchases real estate for residential or non-profit purpose, no
separate notification procedures under the Foreign Exchange Transactions Act (FETA) are
required at the time of the inbound remittance for the purchase.

Outbound remittance
A foreign-invested company’s outbound remittance of income from sale of its domestic
real estate, which was acquired with money carried in or remitted from abroad (including
the money deposited in an overseas account), requires only filing of a payment notification
and supporting documents with the designated foreign exchange bank. In other cases, (e.g.
where real estate was purchased with money domestically generated), the resident foreign
national should notify to the Bank of Korea of the outbound payment of the income from
the domestic real estate sale.

▶Non-resident Foreign Nationals


If a non-resident foreign national intends to purchases domestic properties for non-profit
purposes, the notification of real estate acquisition, in principle, must be filed with the
designated foreign exchange bank at the time of the inbound remittance of the purchase
price. The real estate purchase price that was filed may be remitted overseas after filing of
a payment notification with the designated foreign exchange bank. Any proceeds from the
sale of real estate that was not filed must be notified with the Bank of Korea at the time of
the outbound remittance.

Although a non-resident foreign national as well as a foreign corporation may purchase


domestic properties for non-profit purposes, purchase of properties for for-profit purposes
requires establishment of a domestic corporation or branch in advance. Engaging in
leasing or other profit-making activities after purchasing domestic properties in the name
of a foreign corporation would require establishment of a domestic corporation and
transfer of title and thereby bears twice the burden of paying acquisition taxes, registration
taxes and other taxes on transfer of title.

Some under-funded domestic companies enter into sale and leaseback agreements with
foreign companies, in which case the leaseback also constitutes an act of profit making
and therefore the foreign company must establish a domestic corporation or branch.
Inbound remittance
If a non-resident intends to acquire a domestic real estate or the real right, right of lease or
any other rights similar thereto, a notification must be filed with the designated foreign
exchange bank in any of the following cases:
Where the acquisition is made with funds carried in or remitted from abroad
(including the moneys deposited in an overseas account);
Where the non-resident acquires a lien arising from a due transaction with a resident,
or a domestic real estate or any other rights thereto through exercise of such lien; and
Where the non-resident acquires a domestic real estate or any other rights thereto from
any other non-resident who acquired the same real estate or any other rights thereto
with the monies as set forth in (a).

The filing must be made at the time of withdrawal of the purchase fund and with the
designated foreign exchange bank. The documents to be filed are a real estate acquisition
notification, a lease contract notification (if leased), a collateral offering notification (if a
resident offers collateral to a non-resident), a real estate purchase contract, and documents
evidencing acquisition of liens, if any.

In this case, foreigners should be aware that sale of real estate and overseas remittance of
the proceeds would require submitting a real estate acquisition notification to the remitting
bank, and that unlike the case of land acquisition notification, in the acquisition of
building(s) only the real estate-related rights other than the ownership is subject to filing.

No notification or permit, however, is required in any of the following cases:


Where a non-resident mining right holder acquires a domestic real estate or any other
rights thereto as permitted under the provisions of the Submarine Mineral Resources
Development Act;
Where a non-resident leases a domestic real estate for the residential purposes for
himself, his relatives and/or his employees;
Where a non-resident Korean national (a legal resident in a foreign country) acquires
a domestic real estate or any other rights thereto; and
Where a non-resident acquires a domestic real estate or any other rights thereto from
another non-resident staying in Korea.

Outbound remittance
Outbound remittance of income from sale of domestic real estate or any other rights
thereto that was acquired in any of the following manners requires notification to the
designated foreign exchange bank with documents which prove the acquisition and sale of
the said real estate or any other rights thereto.

Where the non-resident acquired with fund carried in or remitted from abroad the
domestic real estate or any other rights thereto that are exempted from permits and
notifications; and

66 67
Where the acquisition was made with notification to the designated foreign exchange
bank or notification given to and permits given by the Bank of Korea.

If a Korean national residing in a foreign country intends to remit overseas the proceeds
from the sale of real estate owned in his name, a real estate sale price confirmation and
other documents must be filed with the designated foreign exchange bank.

In any other cases than the above, if a non-resident intends to remit the proceeds from the
sale of a domestic real estate or any other rights thereto, a notification must be made with
the Bank of Korea.

< Resident and Non - resident under FETA >


Resident Non - resident

Any individual having an address or a place of abode Any other individual or corporation
in Korea or any corporation having its principal office
in Korea
Any branch or satellite and other offices of a non-
resident located in Korea

Any overseas diplomatic establishment of Korea Any diplomatic establishment of a foreign government
or any international organization in Korea
Any organization, agency or any other similar units
The US armed forces, or any member or civilian
having its principal office in Korea
employee thereof
Any Korean national dispatched to and stationed Any place of business or any other office located in a
in an overseas diplomatic establishment foreign country
Any organization, agency or any other similar units
having its principal office in a foreign country
The following foreign nationals The following foreign nationals:
- Any person working or engaged in business - Any person staying in Korea for the purpose of
activities for a domestic place of business or any working for any diplomatic establishment of a foreign
other office government or any international organization in Korea
- Any person staying in Korea for 6 months or more - Any person entering Korea for the purpose of official
- Any person who was a resident and who reentered business of a foreign government or any international
within 6 months of the last departure and is staying organization
in Korea for the purpose of staying for 6 months or Any of the following:
more A Korean national deemed as a non-resident; provided,
however, that such person is deemed a resident if such
person temporarily enters Korea and stays in the
country for 3 months or more.
- Any person working for a place of business or any
other office or any international organization in a
foreign country
- Any person who has stayed abroad for 2 years or more
or who has left Korea for the purpose of staying abroad
for 2 years
4) Real Estate Taxes
▶Taxes Applicable to Each Phase
Purchasing phase
The taxes levied in the phase of purchase (registration) of real estate include the
acquisition tax (2 percent of the acquisition price), registration tax (3 percent of the
acquisition price) and value-added tax (10 percent of the acquisition price, which may be
refunded or count toward tax credit for a business), and other cascading taxes such as the
local education tax (20 percent of the registration tax). As another burden, national
housing bonds must be purchased as well (the amount of which may be reduced at the rate
of the foreign investment ratio if the company is registered as a foreign-invested
company).

On any of the following types of purchase, the acquisition tax is levied at 6 percent, three
times as much as otherwise:
Where real estate is acquired for the purpose of founding or extending a factory in the
Metropolitan Congestion Control Region (except in industrial complexes, investment
promotion areas and Industrial Districts);
Where business purpose real estate of the head office or principal office of
a corporation is built or extended in the Metropolitan Congestion Control Region; and
Where luxurious real estate (deluxe houses, country houses, golf courses, etc.) or
a non-business purpose real estate is acquired (levied at 10 percent, five times as muc
h as the normal rate).

Additionally, the registration tax is levied three times as much (9 percent) in any of the
following cases:
Where the registration of real property is arising from foundation or extension of a
factory in the Metropolitan Congestion Control Region (except in industrial
complexes, investment promotion areas and Industrial Districts); and
Where the registration of real estate is arising from establishment or moving of a head
office or a branch office, or acquisition of any and all properties made within five
years of such establishment or moving in or to the Metropolitan Congestion Control
Region (except in industrial complexes).

Provided, however, that the acquisition tax and registration tax are either reduced or
exempted for high-tech businesses and the businesses in foreign investment zones.

Ownership phase
The taxes levied in the phase of owning real estate include the property tax (0.3 percent to
7 percent of the value of buildings), aggregate land tax (0.2 percent to 5 percent of the land
value), and other cascading taxes such as the local education tax (20 percent of the real
estate tax and aggregate land tax).

68 69
Founding or extending a factory in the Metropolitan Congestion Control Region, however,
results in the property tax levied five times (1.5 percent) as much for the subsequent five
years; provided, however, that the property tax and aggregate land tax are either reduced or
exempted for high-tech businesses and the businesses in foreign investment zones.

A rental business operator must pay the value-added tax (10 percent of the lease fee,
collected from the lessee) and the corporate income tax (15 percent or 27 percent) or
personal income tax (9 percent to 36 percent) on the lease income.

Selling phase
The taxes levied in the selling phase of real estate include the value-added tax (10 percent
of the transfer price of buildings) as well as the capital gains tax (9 percent to 36 percent)
and resident tax (10 percent of the capital gains tax) in the case of an individual or the
corporate income tax (15 percent or 27 percent) and resident tax (10 percent of the capital
gains tax). In the case of individuals, however, sale of unregistered real estate may result in
a heavy tax burden at the rate of 70 percent.

▶Tax Incentives for a Foreign-Invested Company


Acquisition of a real estate made by an industry support service business or a high-tech
businesses under the Foreign Investment Promotion Act (FIPA) or acquisition of real
estate within a foreign investment zone is eligible for tax relief with respect to the
acquisition tax, registration tax, property tax and aggregate land tax (100 percent for the
first five years and 50 percent for the subsequent two years). The local government may,
by its ordinances, extend the relief period within the extent of 15 years or increase the
reduction rate (refer for details to the tax relief paragraph in the explanation of foreign
investment programs).

If any company registered as a foreign-invested company under the FIPA files for a
building permit for business purpose buildings or registration of business purpose real
estate, any company eligible for tax relief under the Restriction of Preferential Taxation
Act (RPTA) is eligible for total exemption from purchase of national housing bonds, and
any other foreign-invested company is eligible for reduction of the amount of the bonds to
be purchased in proportion to the foreign investment ratio.
▶Summary of Real Estate Related Taxes
Phase Taxes and dues Remarks
▶ Founding or extending a factory and construction of business-purpose
real estate for the head office in the Metropolitan Congestion Control
Heavier Region: 3 times normal rate (6%)
Acquisition tax imposition ▶ Acquisition of golf courses, country houses and other luxurious real
Acquisition (2% of the acquisition price) estate and non-business purpose land for a corporation: 5 times
normal rate (10%)
Relief ▶ High-tech businesses and the businesses in Foreign Investment Zones

Value-added tax May count toward tax credit if engaged in business


(10% of the acquisition price) Exempted if a house under the national housing standard size is purchased (85 m2)

▶ Founding or extending a factory in the Metropolitan Congestion


Control Region: 3 times normal rate (9%)
Registration tax Heavier ▶ Registration of real estate arising from establishment or moving of a
(3% of the acquisition price) imposition head office or a branch office, or acquisition of any properties made
within 5 years of such establishment or moving in or to the
Registration

Metropolitan Congestion Control Region: 3 times normal rate (9%)


Local education tax
(20% of the registration tax) Relief ※Same as in the above case of the acquisition tax

▶ Reduction of the amount of the bonds to be purchased in proportion to


the foreign investment ratio.
National housing bonds Relief ▶ If the standard market value is 100 million won or more: 6.5% on
residential buildings (or 7% in large cities) or 4.5% on any other
buildings (or 5% in large cities)
Heavier Founding or extending a factory in the Metropolitan Congestion Control
imposition Region: 5 times normal rate for the subsequent 5 years
Property tax (0.3 to 7%)
High-tech businesses and businesses in Foreign Investment
Owning

Relief
Zones are eligible

Aggregate land tax High-tech businesses and businesses in Foreign Investment


Relief
(0.2 to 5%) Zones are eligible

Cascading taxes Local education tax (20% of the real estate tax and comprehensive land tax)
Capital gains Heavier 70% on sale of unregistered real estate (or 60% if sold within 1 year or
Individual
tax (9 to 36%) imposition 50% if sold after 1 year)

Corporate
income tax Any capital gains are counted toward non-operating income and the corporate income
Sale

Corporation (15 % or 27%)


tax is levied thereon.
(13% or 25%
from 2005)
Resident tax 10% of the capital gains tax or corporate income tax
Value-added tax 10% of the transfer price of buildings (collectible from the transferee)

4. EMPLOYMENT PRACTICES
1) Employment
▶Overview
The employer must enter into an employment contract setting forth the wages, working
hours, place of employment and duties. In particular, the components, calculations, and
terms of payment of wages must be expressed in writing. The employer may not enter into
a contract that provides for any monetary penalty or any liquidated damages for breach of
employment contract. Any employment contract setting forth any working conditions that
fail to meet the standards as set forth by the law is invalid within such extent, and the
standards as set forth by the law are applicable.

70 71
▶Mandatory Employment
Any company employing 50 persons or more must fill 2 percent or more of its employees
with physically handicapped persons, and failure to do so results in a penal share. Such
company should also make its efforts to keep 3 percent of its work force as elderly
persons. The employment insurance scheme pays incentives to those companies who keep
or newly employ elderly persons at a certain ratio or more or to those who reemploy any
person aged from 45 years up to 60 years within two years of his/her previous retirement
in the process of restructuring.

▶Prohibited Employment
For any harmful or dangerous duties involving high-pressure containers, radioactivity, etc.,
no unqualified, unlicensed, or unskilled person may be employed. No female employee or
employee aged less than 18 years may be engaged in any harmful or dangerous duties or
any duties in a pit. No person aged under 15 years may be employed unless such person
owns an employment permit issued by the Ministry of Labor.

2) Employer’s Duties
▶Working Hours, Breaks, and Holidays
Although the daily and weekly working hours may not exceed eight hours a day and 40
hours (excluding breaks) per week, respectively, the hours, however, may be extended up
to 12 hours per week, if agreed to by the workers.

Breaks of 30 minutes or more must be given if the working hours are four hours or more,
and breaks of 1 hour or more if the working hours are eight hours or more. Any worker
who served a prescribed number of days in a week must be given one paid holiday or
more per week on the average.

Companies can not force any female to work between 10 p.m. and 6 a.m. or on a holiday
without her consent. No pregnant female nor person under the age of 18 may be compelled
to work between hours from 10 p.m. and 6 a.m. or on a holiday without the approval of the
Ministry of Labor (MOL).

Any worker who reported for duty for 80 percent or more of a year must be granted 15
days paid leave, to which an additional day of leave is added for every two years up to a
total of 25 days. Leave must be granted on such days at requested by the worker and the
ordinary or average wages in accordance with the staff regulations or other provisions
must be paid for the leave. The employer, however, may grant leave at other days than
requested if granting of leaves at requested days would cause a critical impediment to the
operation of the business.
Pregnant female workers may not be scheduled to work overtime and must be granted 90
days of maternity leave inclusive of the date of childbirth (with the first 60 days paid).

Workers requesting time off to participate in any election covered under the Election of
Public Officials and the Prevention of Election Malpractices or in the exercise of any other
civil rights or performance of other civil duties must be granted upon request.

▶Payment of Wages and Allowances


Payment of wages must be made in full, in common currency, and in the minimum
amount or more, directly to the worker on one or more prescribed days in each month.

The minimum wages are annually determined and publicly notified by the MOL. The
minimum wages for any person under the age of 18 who has served for less than six
months, however, is 90 percent of the above minimum wages. The term “minimum
wages” implies that such wages excluding (i) any wages that are not periodically paid
once or more in each month (bonuses, allowance for regular attendance, etc.), (ii) wages
for services other than prescribed (overtime allowance, night duty allowance, etc.), and
(iii) various fringe benefit remunerations (family allowance, commutation allowance, food
expenses, etc.) must be equal to or exceed the minimum wages.

Fifty percent or more of the ordinary wages must be additionally paid for overtime duties,
night duties (duties performed during hours between 10 p.m. and 6 a.m.) and holiday
duties. If the operation is suspended due to any cause attributable to the employer, 70
percent or more of the average wages must be paid to all affected workers during the
period of the suspension.

▶Restrictions on and Prior Notice of Dismissal


No employee may be subject to dismissal, layoffs, suspension, punitive wage cuts or any
other punitive actions without just cause. No employee may be dismissed during days off
taken for recuperation from an injury or disease arising out of duty or 30 days thereafter.
No female prior to or after childbirth may be dismissed during days off taken under the
provisions of the law or 30 days thereafter.

Dismissal of any worker (including dismissal for managerial reasons) requires a prior
notice given at least 30 days in advance. Failure to give a 30-day prior notice results in an
obligation to pay ordinary wages for 30 days or more.

▶Employee Retirement
If an employment contract for a fixed term has been entered into, then the expiration of the
employment contract term alone, in principle, results in termination of the employment
with no other dismissal actions, where the parties to such employment contract may
extend or renew the contracted term of their own volition. Any employer ordinarily
employing five or more workers must pay to any retiring employee as severance benefits
ordinary wages for 30 days or more for each year of consecutive service. In other words:

72 73
The amount of the severance benefits = the number of years of consecutive service (i.e. the
number of days of service/365) the average wages for 30 days.

Any employer who has served for less than a year, however, is not entitled to severance
benefits.

3) Dismissal of Employee
▶Dismissal Requirements
No employee may be subject to dismissal, layoffs, suspension, punitive wage cuts or any
other punitive actions without just cause. Legitimate dismissal validly terminates the
employment contract. Since expiration of the contracted term, resignation, and extinction
of a party do not constitute dismissal, the restrictions on dismissal are not applicable, in
principle. In certain circumstances, however, refusal to renew a termed contract that has
been repeatedly renewed, recommended resignation against the employee’s will, disguised
cessation of business, and other similar acts may be deemed as dismissal.

In general, dismissal has to be based on just cause, i.e., the worker’s fault severe and
unacceptable enough not to be able to continue the employment contract. In other words,
absence without leave, bad conduct, malfeasance, falsification of career records, and any
other acts or behaviors against good-faith performance of the employment contract or
disciplines of the operation fall under such faults.
Further, since dismissal requires not only substantial justification but also procedural
justification, violation of any procedures provided for under a collective agreement or staff
regulations may constitute unjust dismissal.

▶Requirements of Dismissal for Managerial Reasons


Dismissal of workers for managerial reasons requires (i) urgent managerial necessity, (ii)
efforts made to avoid dismissal, (iii) reasonable and fair criteria for dismissal, and (iv),
selection of the affected in accordance with such criteria. The management must notify
the labor union comprising the majority of the workers or any other person representing
such majority, if such union does not exist, of the possible measures to avoid dismissal and
the dismissal criteria at least 60 days prior to the intended date of dismissal, and must
confer with such union or person in good faith.
< Requirements and Procedures of Dismissal for Managerial Reasons >
(Articles 31 and 31-2 of the Labor Standards Act)

Urgent managerial necessity arises


- Continually aggravated management resulting in the company facing managerial crises
- Transfer, acquisition, merger or consolidation of business to prevent further aggravation


Efforts to avoid dismissal Labor union
- Limit on overtime work, simultaneous taking of leaves or
- Reduction of working hours (wages) and Good-faith deliberation representative
other labor cost reductions (The representative of workers of workers
- No more new employment must be notified at least 60 days
- No renewal of temporary employment contracts in advance of possible
- Re-stationing, dispatch to other companies measures to avoid dismissal
- Temporary suspension (temporary retirement) and the dismissal criteria)
- Receiving application for voluntary retirements, etc.


Reasonable and fair selection of dismissible employees Alternatives to
- Made by the labor and the management in sufficient dismissal, opinions
consideration of the other party’s standpoint, no on and alternatives
Good-faith deliberation
gender discrimination to the selection criteria


Notification with the MOL 30 days prior to dismissal
- If 10 or more persons are dismissed in premises employing 99 persons or less, or if 10% or more
persons are dismissed in premises employing 100 up to 999 persons, or if 100 or more persons are
dismissed in premises employing 1000 persons or more


Dismissal for managerial reasons
- 30-day prior notice or allowance (ordinary wages for 30 days)


Efforts to reemploy dismissed employees
- At the time of new employment within 2 years of the dismissal for managerial reasons

▶Restrictions on Dismissal
No employee should be dismissed during his/her leave and the following 30 days for
his/her medical treatment for a disease or an injury out of his duty and maternity leave. No
employee should be dismissed for reasons of joining, establishing or performing duties for
a labor union. No discriminatory treatment in dismissal should be given for reasons of
marriage, gender, religion, nationality or social status. No dismissal or other unfavorable
treatment should be determined or given on the ground that the employee has informed a
labor inspector of any violation of the law.

74 75
4) Labor Unions and Direct Actions
▶Labor Unions
Workers may voluntarily and independently organize a labor union in a bid to maintain
and improve working conditions and the social and economic status of workers. No legal
restrictions are placed on the organizational form of a labor union. Although multiple labor
unions are, in principle, allowed, yet if a business or a premise has an existing union, no
other labor union targeted for the same group of workers may be organized until Dec. 31st
2006.

The labor union is entitled to collective bargaining with the management. The matters for
which the collective bargaining may be made must be (i) those regarding working
conditions, (ii) those of a collective nature, and (iii) those at the disposal of the employer.
The effective period of any collective agreement may not exceed two years.

▶Labor Disputes
Labor disputes typically arise from disagreements between the labor union and the
employer or a group of employers regarding decisions on wages, working hours, fringe
benefits, and working conditions, where a “disagreement between the arguments” refers to
cases where no further attempt to reach an agreement between the parties leaves any room
for agreement through independent bargaining.

▶Direct Actions
Direct actions refer to strikes, slowdowns, lockouts, and any other actions taken by any
party in favor of or against certain intentions in a labor/management relationship,
hindering normal operation.

A legitimate direct action must be (i) taken by a legal labor union, (ii) targeted to maintain
and improve working conditions and improve the social and economic status of workers,
and (iii) in accordance with the procedures provided for by the law.

However, any collective action involving the following cases is not regarded as a direct
action or as legitimate. (i) a temporary worker organization (ii) individual acts of refusal to
provide service, (iii) political struggles irrelevant to working conditions, (iv) any attempt
to interfere or do harm to management, (v) any sympathy strikes, or (vi) collective action
with no possibility of impeding the normal operation of the company. Any illegitimate
direct action, which is not exempted from civil and criminal liabilities and is not subject to
arbitration under the Labor Union Act, may result in liability for interference in the
execution of duties under the Penal Code, and may create liability resulting in dismissal or
other disciplinary actions to the related workers.
▶Reactions by Employer
For the sake of business as usual, the employer can use any non-union members and union
members who do not participate in the strike and wish to work, or workers from other
business premises, if applicable, to continue their duties without interruption.

Employer, however, may not employ or contract outside workers (“scabs”) to substitute
for those participating in a labor stoppage.

A lockout is an act by employer that prevents workers from returning to their jobs.
Employer may only lockout its workers in retaliation for direct actions taken by a labor
union. Employer is exempted from the obligation to pay wages and allowed to deny
workers’ access to the work place, if it can show its actions are justifiable.

5) Unfair Labor Practice


▶Types of Unfair Labor Practices Prohibited
First, any act of dismissing or taking unfavorable actions against any employee on the
grounds that such employee has joined or attempted to join or organize a labor union
or performed a legitimate act for the affairs of the labor union.

Second, any act of dismissing or taking unfavorable actions against any employee on
the grounds that such employee has participated in a legitimate collective action, or
reported to the district labor relations commission or testified against the employer, or
submitted exhibits to other administrative agencies evidencing any violation of laws
by the employer.

Third, any act of inserting in the terms and conditions of employment a provision
conditioning that worker not join, or withdraw from, or join a specific labor union
except when it is conditioned as a part of a collective bargaining agreement entered
into with a union representing at least two-thirds of the entire workers employed at a
specific work site.

Fourth, any act of refusing or prohibiting without just cause the entry into a collective
bargaining agreement or the collective bargaining with the representative of or any
person authorized by the labor union.

Fifth, any act of interfering with the operation of a labor union, or attempting to suborn
financially staff exclusively engaged in the union’s affairs or its finances. Employer
may, however, donate funds for the overall welfare of its employees or provide
minimal office space for the union. The employer may also allow workers to engage in
deliberation or bargaining during working hours.

76 77
▶Remedies for Unfair Labor Practices
Certain remedies for unfair labor practices are available to prevent unfair acts in violation
of fundamental labor rights and to protect individual workers and the labor union. Any
worker or labor union whose rights are violated by the employer may file for remedies
with the district labor relations commission. Any worker or labor union dissatisfied with
the decisions rendered by a district labor relations commission may appeal directly to the
National Labor Relations Commission.

6) Amendments to Labor Standards Act(LSA)

Provisions Prior Amended

Statutory working ▶ 8 hours per day, 44 hours per week (or 7


▶ 40 hours per week (also for minors)
hours hours per day, 42 hours per week for minors)

▶ For each 2-week unit: staff regulations, up


▶ Each period is up to 3 months
to 48 hours per week
Flexible working -Agreement between the labor and the
▶ For each 1-month unit: agreement between
hours management in writing, up to 12 hours per
the labor and the management in writing,
day and 52 hours per week
up to 12 hours per day and 56 hours per week

▶ Monthly leave: 1 day per month ▶ Monthly leave: abolished


▶ Yearly leave: ▶ Yearly leave: 15 to 25 days
- 10 days for 1 year of service, to which 1 day - 15 days for 1 year of service, to which 1 day
Measures to
for each year of service is added for each 2 years of service is added
promote use of
yearly leaves - Monetary compensation in excess of 20 days - 1 day for each month of service for any
- Not granted to any person having served person having served for less than 1 year
for less than 1 year ▶ Measures to promote use of leaves
are introduced

▶ Provided for ground on which selective


Selective compensatory leaves may be introduced
compensatory ▶ Not applicable
upon agreement between the labor and the
leave management.

Menstrual leave ▶ Menstrual leave: 1 day per month, paid ▶ Unpaid

Ceiling on overtime ▶ Up to 12 hours per week (or 1 hour per day ▶ Up to 16 hours per week, temporarily for
work and 6 hours per week for minors) 3 years

Overtime premium ▶ 25% for the first 4 hours, temporarily for


rate ▶ Additional wages at 50% 3 years
Modification of ▶ An addendum provides for obligation to make
collective bargaining ▶ Not applicable
and employment efforts to revise existing collective agreement(s)
regulations and staff regulations

▶ Finance, insurance, public sectors, 1000


employees or more: July 1, 2004
▶ Not applicable ▶ 300 employees or more: July 1, 2005
※Reduction from 48 hours to 44 hours ▶ 100 employees or more: July 1, 2006
March 1989: 48 hours→46 hours for all ▶ 50 employees or more: July 1, 2007
Entry into force premises ▶ 20 employees or more: July 1, 2008
Oct. 1990: 46 hours→44 hours for financial ▶ Less than 20 employees: delegated to a
and insurance businesses presidential decree but no later than 2011.
Oct. 1991: 44 hours for all premises
※May be introduced upon labor/
management agreement prior to the
entry of the Act into force
7) Social Insurance Programs

Program Employment Workmen's National pension Health insurance


insurance compensation
insurance

Objective Unemployment Remedies for injuries, Payment of pension for Prevention, diagnosis
prevention, promotion diseases, physical aging, incurable and treatment of
of employment, disabilities, deaths and diseases and deaths of diseases and injuries
development of other accidents on duty citizens
workers’ vocational
skills

Entry into force July 1995 July 1964 Jan. 1988 July 1977

Applicable 1 full-time employee or 1 full-time employee or 1 full-time employee or 1 full-time employee or


Employment Size more more more more

Eligibility Any person employed All employees Any person at 18 or All employees
at 60 or younger and employed in applicable older and under 60 employed in applicable
remaining in premises premises
employment until 65

Ineligibility Business owner, Business owner (may Any person having Any person having
foreigner be covered in limited served for less than a served for less than a
cases) month month

Availability for May be covered if Covered Covered in principle Covered


Foreigners whished ※Depending on
nationality

Date of eligibility Date of employment Date of employment Date of employment Date of employment

Date of The day immediately The day immediately The day immediately The day immediately
ineligibility following retirement following retirement following retirement following retirement

Total wages None Standard monthly Standard monthly


0.45% Payroll remuneration 4.5% remuneration 1.97%
Payment of Worker
(Unemployment 0.005 - 0.011
Premium
payment) (depending on duties)

Unemployment Recuperation payment Standard monthly Standard monthly


payment: 0.45% Off-duty payment remuneration 4.5% remuneration 1.97%
Employment Disability payment
Employer stabilization: 0.15% Survivorship payment
Development of
vocational skills: 0.5%
(150 to 999 employees)

Coverage Unemployment Age pension Recuperation expenses


payment Disability pension Medical checkup
Employment Survivor’s pension Funeral expenses
stabilization programs
Vocational skills
development programs

Supervising Ministry of Labor Ministry of Health and Ministry of Health and


government (Korea Labor Welfare Corporation) Welfare Welfare
office (National Pension (National Health
Corporation) Insurance Corporation)

78 79
5. TAX SYSTEM
1) Tax System of Korea
In Korea, taxes are classified according to tax-imposer, the use of tax revenues and the
incomes on which the tax amount is based.

National Taxes Internal Taxes Direct Taxes


Income Tax, Corporate Tax, Inheritance Tax, Gift Tax, Excess
Profits Tax (Unjust Profits Tax)

Indirect Taxes Value-added tax, Special Excise Tax, Liquor Tax, Transportation
Tax, Securities Transactions Tax

Customs Duty Customs Duty

Surtaxes Education Tax

Local Taxes Acquisition Tax, Registration Tax, Residence Tax, Property Tax,
Ordinary Taxes
Aggregate Land Tax, Auto Tax

City Planning Tax, Business Office Tax, Community Facility Tax,


Earmarked Taxes
Regional Development Tax, Local Education Tax

2) Introduction on General Taxation

▶Corporate Tax
The tax payer and the extent of his or her liability

Type of Corporation Income for each Gain from Property Liquidation Income
Business Year Capital Transfer

Domestic For-Profit Domestic & foreign o o


Corporation Corporation sourced Income

Income generated from


for-profit businesses
Non-Profit o x
generated from both
Corporation
domestic & foreign
sourced income

Foreign For-Profit Domestic sourced o x


Corporation Corporation income

Income generated from


Non-Profit for-profit businesses
Corporation mentioned generated o x
from domestic sources.

Country, etc. Tax-exempt Corporation

Taxation method
The National Tax Service levies Corporate Taxes annually on both income and the
resulting residuals if a corporation liquidates.
Calculation Method Net income + total gains - total losses + donation limit surplus

Income and profit from transactions that increase the net value
of the assets of a corporation
Gains Excluding paid-in capital and other items described in the
Corporation Tax Law as exclusion from gross income
Income of
Business Year Losses and expenses from transactions that reduce the net value
of the assets of a corporation
Losses Excluding refund of capital or shares, disposal of surplus and other
items described in the Corporation Tax Law as non-deductible item

Dissolution Residual value of assets > Total amount of equity capital (paid-in
capital + surplus)

Liquidation Merger Value of stock received as a result of merger + merger grant > total
Income amount of equity capital

Tax rate
Korea’s corporate tax rate uses a two-step progressive approach. Beginning in Business
Year 2005, tax rates are set at either 13 percent or 25 percent. To promote business
activities, the government set these rates at 2 percent lower respectively compared to
previous rates.

Tax Base Tax Rate

100 million won or less 15% of tax base


More than 100 million won 15 million won + 27% of the amount in excess
of 100 million won

▶Income Tax
Tax payers
Tax Payers Taxable Income Tax Payment

Resident tax payer Income generated from domestic Report and payment of final return of
and foreign sources the global income tax by May 31st of
Income from domestic source the following year

Non-Resident tax payer Income from domestic source

Income tax rate


The Income tax rate applies four-phase progressive tax rate.
Tax Base Tax Rate

10 million won or less 9% of the tax base

More than 10 million won 900,000 won + 18% of the amount exceeding 10
million won

More than 40 million won 6.3 million won + 27% of the amount exceeding 40
million won

More than 80 million won 17.1 million won + 36% of the amount exceeding 80
million won

80 81
Taxes levied on resident and non-resident foreign tax payers including
withholding rates
The income tax is calculated according to the following table. In the case where there is a
tax treaty between Korea and another country, the tax treaty comes prior to local income
tax stipulations.

Korean Laws
Tax Treaty
Taxable Items Resident Non-Resident
Individual Corporate Individual, Individual,
Corporate Corporate
Interest 15%, 25%, 30% → 15%, 25% 25% 10~5%
global taxation corporate income

Dividend 15% global Corporate income 25% 5~15%


taxation

Global taxation Corporate Income Withholding


General
global taxation
Real Estate
Aircraft, etc. Global taxation Corporate Income 2%

General Global taxation Corporate Income 2%

Liberal 3%,
profession, 5% → global - 20% (personal 10~15%
Business
etc. taxation service)

Rental 20% → global Corporate Income 25% (Full


fee taxation Payment)

Withholding
Wage and salary taxation → global - -
taxation

Temporary Global taxation Corporate Income 25% (Other


Property Income)

Withholding - 25% (Other


Pension taxation → global Income)
taxation

20% → global Corporate Income 25% (Other


Others taxation (partially Income)
excluded)

Retirement Separate taxation - Same as resident

Timber Separate taxation Corporate income Same as resident

Real Estate etc. Separate taxation Corporate income Same as Resident

Capital gains Separate taxation Corporate Income Lessor of 25% of


Stocks capital gain or
10% of sales price
▶Capital gains Tax
Where property is transferred with compensation such as sale, exchange and payment in
kind to a corporation, the Capital Gains Tax applies. Corporations will be taxed on this as
corporate income tax.

Real estate and property of its kind


If land, real estate or other properties are transferred, the capital gains tax shall be prorated
according to the period of possession. For example, 50 percent for less than one year, 40
percent for one year to less than two years, and 9 percent to 36 percent for more than 2
years. In case the property is transferred before owner’s registration, the tax rate will be 70
percent. For specific share transfers, the holdings of a corporation that possesses excessive
real property, such rights to use specific facilities (golf club membership, etc.), and
business rights, a tax rate of 9 percent to 36 percent shall be applied regardless of the
period of possession.

Specific Shares Value of real property is more than 50% of a corporation’s total
asset value
Majority shareholder owns 50% or more of the total interest and
The stock transfer ratio is more than 50%

The equity securities of a corporation that The value of real property accounts for more than 80% of the total
possesses real property excessively asset value
The shares of a corporation that built or acquired and is operating
or renting one or more of the following: golf courses, ski resorts,
condominiums and specialized resort facilities

Equity securities
In case of unlisted shares, if a major stockholder of a large corporation transfers them after
retaining less than a year, a tax rate of 30 percent shall be applied. If such stocks are
retained for more than a year, a tax rate of 20 percent is applied. Minority stockholders of
large corporations transferring unlisted stocks, shall be liable to a 20 percent rate,
regardless of the period retained. If a small and medium corporation transfers its unlisted
stocks, they will be liable to 20 percent tax, regardless of its period retained.

Listed stockholders, in principle, are normally not subject to tax. If, however, a majority
shareholder of a large business transfers the shares after holding on to them for less than a
year, he or she will be liable to a 30 percent rater of tax. If he or she retains the stocks for
more than a year, the tax will be 20 percent.

▶Value Added Tax


On the value added in the course of supplying goods or services, a 10 percent value added
tax shall be levied.

82 83
Business registration
Business Registration for paying value added tax shall be filed within 20 days of the
commencement of the business. Required filing documents for a foreign-invested
corporation are a notification form of Foreign-Investment Report, Certificate of Foreign
Currency Purchase, Certificate of Foreigner Registration Certificate, and Report of
Designated Tax Payment Manager etc.

Tax refund system


The following goods and services are zero-rated and the related input taxes incurred are
refundable. They are goods for export; services rendered outside Korea; and other goods
or services supplied for foreign exchange earnings.

▶Local Taxes
Local taxes consist of provincial, city and county taxes.

Provincial taxes include acquisition tax, registration tax, race tax, horse race tax, license
tax, community facility tax, regional development tax and local education tax.

City or county taxes include inhabitant tax, property tax, mileage tax, automobile tax,
agricultural income tax, butchery tax, aggregate land tax, urban planning tax, and business
place tax.

At the same time, local education tax is added to taxes such as registration tax, property
tax and aggregate land tax.

Reasons of Korean Laws


Acquisition
Registration Tax Acquisition Tax Education Tax

Tax Base Acquisition Price Acquisition Price Registration Tax


Amount
Purchase 3%
Building 0.8%
Inheritance 0.8% 2% 20%
Gift 1.5%
Exchange 3%

Acquisition tax
Persons acquiring the following are liable to pay taxes within 30 days of acquisition:
Real estate (land, buildings),
Motor vehicles, heavy equipment (heavy equipment for construction/cargo handling
gears and mining equipment under the Construction Machinery Management Act)
Standing trees
Aircrafts and vessels
Mining rights and fishery rights
Golf club, condominium, and sports complex memberships
Generally, the tax base is 2 percent of the acquisition price. However, a heavy tax is levied
for acquisition of following types of properties:

Taxable Cases Taxation Rate

▶ Luxurious properties: villas, golf courses, luxury amusement places, high


class residences, luxury boats,
10%
※Luxury amusement places: Casinos (excluding foreigners-only casinos), (2% x 5 times)
automatic game machines, steam bath houses, luxury beauty parlors,
entertainment bars (excluding tourist restaurants)

▶ Acquiring taxable items (except urban-type factories) for business


purposes located in the Overpopulation Control Zone (except areas 6%
designated for industrial complexes and industrial zones) to newly build or (2% x 3 times)
extend factories whose factory site is larger than 500 m2.
※Applicable to individuals as well

▶ Real estates acquired by a corporation for business use as a main office in


the Overpopulation Control Zone.
(Including building and extending a main office building and the land
6%
attached to the building (2% x 3 times)
※Real estate for business use as a main office means the real estate used
as the office of the main office and the real estate for the accessory
facilities. Facilities for employee welfare are not included

Registration tax
A Registration tax is levied when registering particulars concerning acquisition, transfer,
alteration, or lapse of property rights or other titles in the official registry book. It should
be paid before business registration and the tax rate is as follows.

Classification Tax Base Tax Rate

Inheritance 0.8 % (Farm Land: 0.3 %)

Acquisition without 1.5 %


compensation
Real Estate Value
Acquisition for Value
Proprietary (Acquisition with 3 % (Farm Land: 0.1 %)
Rights compensation)

Preservation of
0.8 %
Proprietary Rights

Partition of Common Real Estate Value


0.3 %
Property etc. received by partition

Others, Superficies, Mortgage, Real Estate Value,


except Right of Lease, Credit Amount,
0.2 %
Proprietary Provisional Deposit Amount (for a
Right Registration etc. real estate lease), Real
Estate Value

84 85
Classification Tax Base Tax Rate

For-profit Corporation Contributed Capital 0.4 %


Amount, Capital
Increase Amount

Total Amount of
Registration Non-profit Corporation 0.2 %
Investment
of a
Corporation Per case
Relocation of MainOffice 75,000Won

Establishment of Branch Per case 23,000Won


Office
Passenger Value of a car 5 % (micro car: 2 %)
Non-Business Use
Car
Other Business Use Value of 3 % (micro car: 2 %)
Automobiles and Non-business Use Automobiles

Registration tax rates for corporations moving into the Overpopulation Control Zone from
a Non- Overpopulation Control Zone shall be levied three times the rates given above.
However, for the following lines of business whose cause is justifiable that such location is
inevitable, heavy taxation shall not be applied.

Lines of Urban Type Business for High-Taxation Exemption

SOC Facility, Banking, Construction for Foreign Market and Housing Construction, Electric Communication,
The State-of-the-Art Technology Industry under the Industry Development Act and Act on Activation of
Industrial Cluster and Factory Establishment, distribution, Transportation, Freight Terminal, Ware House,
Government-Invested Corporation (over 20 percent of total shares), Recycling, Medical Service, Software
Industry, Performance Facility (incl. Theatres), (Combined) Cable Broadcasting Station, Urban Type Factory,
Hire-Purchase Financing, Object Business etc. of Restructuring Company

Property tax
Property tax is levied based on the property’s current standard value as in the following
table. In the case where a non-urban type factory is newly built or extended in the
Metropolitan Overpopulation Control Zone, five-fold heavy tax shall be levied for five
years from the first taxation base date. (0.3 percent x 5 times = 1.5 percent)

Property Tax Rate

▶ Buildings 0.3 % - 7 % (graduated progressive rate)


Houses 0.6 %
Golf Courses, Villas, Luxury amusement facilities 0.3 %
Factory Buildings in the residence zone of
Special municipality, Megalopolis, City Area,
except Eup (town), and Myon (area)
Other Buildings

▶ Vessels 0.3 % (5 % for high-class vessels)

▶ Aircraft 0.3 %
Aggregate land tax
Tax base for all types of land are classified into General Combined Tax Base, Special
Combined Tax Base and Separate Tax Base. The taxation method for each tax type is as
follows.
Tax Base Taxation

Calculated by adding values of all land (except the land


General Combined Tax Base applied to Special Combined Tax Base or Separate Tax
Base) and applying a progressive rate to it.

Calculated by adding value of specific land and applying


Special Combined Tax Base a progressive rate to it

Formed by the addition of the values of concerned land


Separate Tax Base only, instead of adding the values of all land, and
applying then applying a regressive tax rate on it

※Value of Land = Publicly Announced Individual Land Price x Applied Ratio of Tax Base Value

Taxable land for Aggregate Land Tax is classified as follows.


Land Type Low Rate Special Taxation General High Rate
Separate Combined Separate
Taxation Taxation Taxation

Farmland (dry 0.1 % Farmland tilled 0.2-5 % farmland,


fields, rice by the owner, pasture lots exceeding
paddies, Pasture lots within standard size, other
orchards), the standard size, forest and field owned
pasture lots and Conservation forest by a corporation and
forests and fields etc. absentee landlord

Factory lot and 0.3 % : Within the 0.3-2 % 0.2-5 %


Retained Land standard size/ : Located in the city : Exceeding the
for Supply Industrial Complex, level or above and standard size
Industrial Zone / within the standard
owned by the Korea scope
National Housing
Corporation or the
Korea Land
Corporation.

Land for Golf 5%


courses, Villas
and Luxury
amusement
facilities

Land attached 0.2-5 % 5 %(except farm


to residential houses)
buildings except : Portion
the above exceeding 993m2
(For special
municipality) or
662m2
(For Megalopolis)
Land attached 0.3-2 % 0.2-5 %
to the general Land within the Land exceeding the
building except scope of standard standard size
above size

Other Land 0.2-5 %

86 87
Resident tax
Resident Tax is levied based both in proportion to income and on a per capita rate. In case
of pro rata income, tax amount is 10 percent of corporate tax, income tax and farmland
tax. In case of per capita rate, individuals should pay less than 10,000 won (provided by
the ordinances). Corporations should pay from 50,000 won to 500,000 won according to
the capital size.

Business place tax


Business Place Tax is levied in a pro rata fashion according the size of the business place,
and levied in a pro rata fashion according the size of the payroll.

In regard to property, tax is levied at the rate of 250 won per square meter. For the sizes of
less than 300 square meters, the tax is exempted. For a pollutant discharging business
place, a higher tax rate of 500 won per square meter is levied.

In regard to employees, 0.5 percent of payroll is levied monthly. For a business place with
less than 50 employees, the tax is exempted. However, the business place tax rate is a
standard tax rate. Therefore the actual tax rate can vary according to the regulations of
different cities and counties.

▶Customs Duties

Tariff assessment
All goods being imported from foreign countries cannot be brought into Korea unless their
customs duties are prepaid. Customs duties are calculated by multiplying tax base of the
tariff tax base by the tariff rate. The tariff tax base is either the value or the quantity of the
imported goods. The tariff rate is provided on the tariff rate table by group of items. As the
tax rate applies to each HS Number corresponding to an item or a group of items, the tariff
is affected by the decision on which value should be regarded as the taxable value or how
the taxable value is decided.

If the value is the tax base of the tariff, it is called an “ad valorem duty”and if the quantity
is tax based, “specific duty.”The value that is the tax base of the ad valorem duty is called
the “taxable value.”Korean customs valuations on taxable values reflect the relevant
provisions of the WTO Valuation Agreement and have the same principals of the
international tariff valuation.
Taxable value
Taxable values on imported goods are assessed by various methods. The first stage is its
transaction value. The valuation method, which decides taxable value by transaction value,
is called the first method. However, for cases other than sales, the transaction value cannot
be used as the base for taxable value. In these cases, the taxable value is determined by
reviewing the following methods successively.

Taxable Value Decision Method Base for Taxable Value

The first method Transaction value

The 2nd method Transaction value of the item of the same kind and quality

The 3rd method Transaction value of similar items

The 4th method Local sales value

The 5th method Calculated value

The 6th method Various reasonable standards

Cases not recognized as sales

▶ Goods imported free of charge


▶ Goods imported for consignment sale where sale prices are determined by auctions etc.
▶ Goods imported to be sold in the local market under the exporter’s responsibility
▶ Goods imported by legally dependent entities such as branch offices etc.
▶ Goods imported under a lease agreement
▶ Imported goods for gratuitous lease
▶ Goods imported to be destroyed within Korea at the consignor exporter’s
(such as industrial waste etc.)
▶ Imported goods with restriction on their use and dealings

Customs duties refund


A customs duties refund means that the Korean government returns certain customs duties
to the payer(s) under certain conditions. It is part of the export support system that aims to
enhance the international price competitiveness of Korean export goods. Under the system
the Korean government returns to the exporters or the manufacturers of export goods the
customs duties they paid when they imported raw material for export goods.

To be eligible for a customs duty refund,


The exporter or the export good manufacturer should have the Certificate of Import
Declaration,
The customs duties for the goods have been paid or the goods have been granted for
lump-sum payment of customs duties,
The goods must be produced and supplied for exporting within two years after the
import declaration and application for customs duties refund must be filed within two
years after the goods were submitted for export.

88 89
▶Other Taxes

Education tax
Education tax is a tax levied upon the income of persons engaged in the banking and
insurance businesses and various taxes as surtax. The tax base and the tax rate are as
follows.

Tax Base Tax Rate

Income of persons engaged in banking and insurance businesses 0.5 % (payable in each quarter)

Special Excise Tax (except petroleum and its kind), Automobile Tax 30 % (15 % for kerosene)
Education
Tax Transportation Tax 15 %

Liquor Tax 10 %

Registration Tax, Aggregate Land Tax, Property Tax 20 %

Per Capita Rate Inhabitant Tax 10 % (for population over 500,000


persons: 25 %)
Local
Education Automobile Tax (Non-Business Use Only) 30 %
Tax
Race Tax, Horse Race Tax 60 %

Tobacco Consumption Tax 50 %

Securities transaction tax


The Securities Transaction Tax(STT)is levied when the securities are transferred. The
basic tax rate of STT is 0.5 percent and elasticity tax rates of STT are 0.15 percent to 0.3
percent. In case of listed stocks, the taxpayers are securities settlement corporations and
securities companies. In case of unlisted stocks, the taxpayer is the transferor. However, in
the case that a non-resident foreign corporation whose business place is not within the
country transfers securities outside the market, the transferee becomes the taxpayer and the
location of the issuer’s main office becomes the place for tax payment.
3) Foreign-investment Related Tax Support System
▶Tax Reduction and Exemption for Foreign Investment Companies or Corporations
Details can be found in the Foreign Investment Promotion Act.

▶Tax Support for Foreign Investors’ Dividends


For dividends taken by foreign investors from a foreign-invested corporation that is
engaged in businesses eligible for tax reduction or tax exemption, tax will be reduced or
exempted reflecting the percentage of dividends such businesses withdrew out of the total
dividend income accrued during the tax reduction or exemption period.

The initial date in reckoning for tax reduction or tax exemption of dividends generated
from new investments and capital increase through paying actual money, actual shares and
dividends is same as that of the corporate tax. During the period when the corporate tax
gets full exemption, the dividend income tax will also be exempted 100 percent. During
the period that the corporate tax gets 50 percent reduction, the dividend income tax will
also be reduced by 50 percent.

In the case where a foreign investor takes over the shares of a foreign-invested company
from a local individual or a local corporation, it is regarded as acquisition of existing
shares. Therefore, it is not eligible for the tax reduction or tax exemption. However, in the
case where a foreigner or a foreign corporation takes over the shares from another
foreigner or foreign corporation, the original period and rate of tax reduction and tax
exemption remain effective.

▶Tax Exemption on Advanced Foreign Technology


In case highly advanced technology, which is judged critical for enhancing Korea’s global
competitiveness, is introduced pursuant to an agreement, the provider’s (individual,
corporation, international organization) corporate tax and income tax will be exempted for
five years from the date which the initial compensation for introducing the technology is to
be made.

90 91
▶Tax Support for Foreign Technicians
Earned income tax will be fully exempt for the income that a certain foreign technician
earned in return for his/her service provided to Korean individual or corporation in Korea
for five years from the initial date-provided that the initial date is before December 31,
2006-to the month of fifth-year-date from the initial service date.
A foreign technician will be exempted from earned income tax if he/she renders his/her
service to Koreans in Korea pursuant to the technology introduction agreement stipulated
in the FIPA. However, the privilege shall remain effective only for five years to the month
of fifth-year-date from the issuing date of certificate of report for the technology
introduction agreement under the condition that the agreement is observed.

▶Expansion of Scope for Tax Exemption on Foreign Workers’ Overseas Allowance


The recipient of this benefit can choose either tax exemption on 17 percent of his/her gross
salary or application of equal terms with those for Koreans after a tax exemption on 30
percent of his/her gross salary.
The Invest KOREA global network is at your service
■ HEAD OFFICE ■ EUROPE Vienna, AUSTRIA
Tel: (43-1) 586-3876
Seoul, KOREA Frankfurt, GERMANY Fax: (43-1) 586-3979
300-9, Yomgok-dong, Tel: (49-69) 242-9920
Seocho-gu, Seoul, Korea Fax: (49-69) 25-3589
Tel: (82-2) 3460-7543/7545 Helsinki, FINLAND
Fax: (82-2) 3460-7946/7 Tel: (358-9) 638122
www.investkorea.org Berlin, GERMANY Fax: (358-9) 638611
Tel: (49-30) 2096-2637
Fax: (49-30) 2096-2635
■ NORTH AMERICA ■ ASIA & OCEANIA

New York, U.S.A Hamburg, GERMANY Singapore


Tel: (1-212) 826-0900 Tel: (49-40) 23-2235/2638 Tel: (65) 6221-3055
Fax: (1-212) 888-4930 Fax: (49-40) 23-3998 Fax: (65) 6223-5850

Los Angeles, U.S.A Munich, GERMANY Sydney , AUSTRALIA


Tel: (1-323) 954-9500 Tel: (49-89) 2424-2630 Tel: (61-2) 9299-1790
Fax: (1-323) 954-1707 Fax: (49-89) 2424-2639 Fax: (61-2) 9299-1792

Chicago, U.S.A Paris, FRANCE Melbourne, AUSTRALIA


Tel: (1-312) 644-4323 Tel: (33-1) 55-35-88-88 Tel: (61-3) 9699-3833
Fax: (1-312) 644-4879 Fax: (33-1) 55-35-88-89 Fax: (61-3) 9699-3811

Dallas, U.S.A London, U.K.


■ JAPAN
Tel: (1-972) 243-9300 Tel: (44-20) 7491-8057
Fax: (1-972) 243-9301 Fax: (44-20) 7491-7913
Tokyo
Tel: (81-3) 3214-6951
Fax: (81-3) 3214-6950
Washington D.C. , U.S.A Brussels, BELGIUM
Tel: (1-202) 857-7919 Tel: (32-2) 203-2142
Fax: (1-202) 857-7923 Fax: (32-2) 203-0751
Osaka
Tel: (81-6) 6262-3831
Fax: (81-6) 6262-4607
San Francisco, U.S.A Milano, ITALY
Tel: (1-650) 571-8483 Tel: (39-02) 795147, 795813
Fax: (1-650) 571-8065 Fax: (39-02) 798235
Nagoya
Tel: (81-52) 561-3936
Fax: (81-52) 561-3945
Atlanta, U.S.A Zurich, SWITZERLAND
Tel: (1-770) 508-0808 Tel: (41-1) 202-1232
Fax: (1-770) 508-0801 Fax: (41-1) 202-4318
Fukuoka
Tel: (81-92) 473-2005
Fax: (81-92) 473-2007
Miami, U.S.A Oslo, NORWAY
Tel: (1-305) 374-4648 Tel: (47) 23 32 76 50/3
Fax: (1-305) 375-9332 Fax: (47) 22 11 02 70
■ CHINA

Detroit, U.S.A Stockholm, SWEDEN Shanghai


Tel: (1-248) 355-4911 Tel: (46-8) 30-80-90 Tel: (86-21) 6219-7592
Fax: (1-248) 355-9002 Fax: (46-8) 30-61-90 Fax: (86-21) 6219-6015

Toronto, CANADA Copenhagen, DENMARK Hong Kong


Tel: (1-416) 368-3399 Tel: (45) 3312-6658 Tel: (85-2) 2545-9500
Fax: (1-416) 368-2893 Fax: (45) 3332-6654 Fax: (85-2) 2815-0487

Vancouver, CANADA Amsterdam, NETHERLANDS Taipei, TAIWAN


Tel: (1-604) 683-1820 Tel: (31-20) 673-0555 Tel: (886-2) 2725-2324
Fax: (1-604) 687-6249 Fax: (31-20) 673-6918 Fax: (886-2) 2757-7240

92 93
How to Invest in Korea
Incentives & Procedures
www.investkorea.org

The investment promotion arm of KOTRA

November 2004