The Korean government provides incentives in the form of reductions and exemptions on taxes including acquisition tax, property tax, customs duty, and value-added tax for foreign investors to promote investment and national economic development through the transfer of advanced technologies. Tax reductions or special provisions on taxation are also provided to foreign engineers and workers.
Eligibility and Procedure
Businesses eligible for tax reduction and the exemption
Businesses eligible for tax reduction and exemption are defined in Article 121-2 of the Restriction of Special Taxation Act and 116-2 of the Enforcement Decree of the Act.
A foreign-invested company that intends to obtain tax reductions or exemptions or to alter the details of its business subject to a decision on tax reduction or exemption shall file an application for tax reduction and exemption with the Minister of Strategy and Finance (with the administrative authorities of Free Trade Zones when the company is in the FTZ)
The International Economic Policy Division of the Ministry of Economy and Finance accepts applications for tax reduction and exemption. A foreign investor who wishes to apply for tax exemption and FDI notification at the same time may apply with a foreign investment notification at the same time at foreign exchange banks (delegated agencies) or KOTRA.
In the case of new investment, an application for tax reduction and exemption shall be filed by the end of the taxable year in which the date its business commences. Where the details of the business granted tax reduction or exemption are altered, an application for change shall be filed by no later than two years from the date the grounds for the relevant alteration arose.
1. Prior verification of eligibility for tax reduction and the exemption
A foreign investor may request to verify whether a business he/she or it intends to operate is eligible for tax reductions or exemptions before he/she/it notifies FDI. Since the verification confirms simply whether the technology is subject to tax reductions or exemptions and the effect of the decision is invalid, an application for tax reductions or exemption shall be required additionally after notifying FDI.
2. Decision and notification of tax reduction or exemption
The Minister of Economy and Finance shall examine whether the relevant application meets the standards for tax reduction or exemption and make a decision on whether to grant the reduction or exemption or whether to make any revision to the particulars of reduction or exemption within 20 days, following the relevant negotiations with the Minister and the head of the local government. He/she shall notify thereof to the applicant, the director of the National Tax Service, the commissioner of Customs, and the head of the local government. However, an extension of the review period by up to 20 days is allowed in inevitable cases.
3. Preliminary notice of ineligible business for tax reduction or exemption
The Minister of Economy and Finance shall, when intending to determine a business as ineligible for tax reduction or exemption upon receiving an application for tax reduction or exemption, give preliminary notice of such determination within 20 days of the application date. The applicant may file a request in writing for a review of the appropriateness of the determination thus notified within 20 days of the date on which the notice has been delivered, with supporting materials attached thereto. The Minister shall decide whether to grant the reduction or exemption or whether to make any revisions to the particulars of reduction or exemption within 20 days of the date which the request is delivered and notify the applicant of the result thereof.