The Foreign Investment Promotion Act(FIPA) and the Restriction of Special Taxation Act (RSTA) provide the basis for various kinds of special tax incentives for foreign investors. Tax incentives are granted to manufacturing businesses with high technology and certain types of industries in Foreign Economic Zones (FEZ), Free Trade Zones (FTZ), Free Investment Zones (FIZ), Saemangeum project Area, and Enterprise city development zones approved by related committees.
The amount of tax incentives granted to each business varies depending on its type, size, and location. However, general qualifications can be summed up as follows.
-If the type of intended business qualifies for “New Growth Engine and Source Technology” category, the foreign entrepreneur must invest more than USD $ 2 million. For more information on the category, refer to FAQs section on the topic.
-If a foreign entrepreneur wants to invest in the area of his or her choosing outside the predesignated free economic zones, he or she must get approval and have local governments to designate a new Free Investment Zone. In this case, the minimum investment amount is USD $ 30 million for manufacturing, $ 20 million for tourism-related businesses, $ 10 million for logistics, and $ 2 million for R&D activities.
-If a foreign investor wants to have occupancy in Free Economic Zones or Saemangeum Project Area, the minimum investment amount is USD $ 10 million for manufacturing and tourism business, $ 5 million for logistics and distribution business, $ 5 million for medical institutions, and $1 million for R&D operations.
For businesses that qualify for the conditions listed above, in general, the following tax incentives are granted.
1. 5 years of 100% tax exemption
2. Additional 2 years of 50% tax exemption
In addition to 5 to 7 years of tax exemption, there are also deductions for acquisition tax, registration tax, property tax, composite land tax, excise tax, VAT, and tariffs. Also, subsidies are provided for investment, employment, and training. For companies with a minimum investment amount of USD $ 30 million, up to 100 years of a free lease of land is granted. For such tax exemptions, companies need to obtain approval from the Ministry of Strategy and Finance (MOSF).
For more information about tax incentives and exemptions for establishing a company in Free Trade Zones in Korea, contact Pearson & Partners.