Beruflich Dokumente
Kultur Dokumente
Contents
Ⅰ. Laws and Regulations Related to Foreign Investment
1. INTRODUCTION 04
2. FOREIGN INVESTMENT PROMOTION ACT 04
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
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.
▶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.
04 05
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.
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.
▶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;
▶ 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
06 07
3) Protection and Liberalization of Foreign Investment
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.
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.
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.
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.
08 09
< 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
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.
10 11
< 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
▶ 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.
12 13
▶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.
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:
Industrial support ▶ Any high value added service business rendering substantial
service businesses development support for manufacturing and other businesses
▼
▼
14 15
▼
▼
< Business Sectors Restricted to FDI >
Eligibility Requirements
Occupants of Jeju
Advanced Science & ▶ Bio-engineering, information technology, culture and
Technology Complex advanced technology
Reduction /
Period of Relief Requirements
exemption
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.
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.
16 17
Reduction /
exemption Period of Relief Requirements
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:
※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.
18 19
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.
▶ 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.
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.
Verification of Registration of
Foreign Foreign-invested
payment of the incorporation and
investment company
investment in business
registration registration
cash or kind registration
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 >
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)
24 25
※Registration of changes in foreign-
invested company (Within 30 days
from the date changes occured)
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.
▶ 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
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.
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.
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.
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)
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.
▶Business Registration
See the “Business Registration” paragraph below.
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.
▶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:
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.
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
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
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 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
Purchase of urban rail bond: 0.1 percent of the paid-in capital 50,000 Won
▶ 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)
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.
▶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)
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
▶Establishment Notification
Principle
Notification must be made to the head of designated foreign exchange bank.
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 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.
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.
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.
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.
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).
▶ 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
Classification Definition
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
▶ 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
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.
Factory establishment
location approval
Individual location
Business establishment
plan approval location
(Art. 21 of the SMBEESA)
Types
of National industrial complex
location
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 >
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
▼
▼
▼
▼
Phase Permits assumed by legal fiction
▶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
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)
▶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.
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%
Application
Consultation
Issuance of
occupancy permit
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
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.
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)
<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.
< Classification by Premises Size under Clean Air Conservation Act >
Class Description
Premises generating air pollutants of 10 tons and above but less than 20 tons
Class 4 per year
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
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.
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 Congestion Control Region Growth Management Region Nature Preservation 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:
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:
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:
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.
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.
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
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.
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.
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.
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.
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.
▶ By Invest KOREA
Incorporation for and on behalf
of the applicant
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)
▶ 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
▶ 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
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.
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 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.
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
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.
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.
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.
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.
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.
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
Relief
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
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.
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.
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.
▼
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.
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.
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
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
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
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
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.
Indirect Taxes Value-added tax, Special Excise Tax, Liquor Tax, Transportation
Tax, Securities Transactions Tax
Local Taxes Acquisition Tax, Registration Tax, Residence Tax, Property Tax,
Ordinary Taxes
Aggregate Land Tax, Auto Tax
▶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
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.
▶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
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
Liberal 3%,
profession, 5% → global - 20% (personal 10~15%
Business
etc. taxation service)
Withholding
Wage and salary taxation → global - -
taxation
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.
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.
▶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.
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:
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.
Preservation of
0.8 %
Proprietary Rights
84 85
Classification Tax Base Tax Rate
Total Amount of
Registration Non-profit Corporation 0.2 %
Investment
of a
Corporation Per case
Relocation of MainOffice 75,000Won
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.
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)
▶ 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
※Value of Land = Publicly Announced Individual Land Price x Applied Ratio of Tax Base Value
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.
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.
The 2nd method Transaction value of the item of the same kind and quality
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.
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 %
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.
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.
92 93
How to Invest in Korea
Incentives & Procedures
www.investkorea.org
November 2004