Tax incentives in Asia-Pacific

South Korea

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The South Korean Government has introduced various incentives aimed at attracting FDI since the financial crisis in 1997. Foreign-invested companies are now one of the major players participating in the national economy, accounting for 20% of exports and 6% of employment.

The South Korean Government is redirecting its efforts to develop economic policies that will strengthen the competitiveness of South Korea’s industry in the long run for sustainable growth. Examples of activities that are favored by the Government which will warrant greater chances of being awarded incentives include establishment of a global hub, R&D center or regional headquarters.

South Korea incentive regime overview

A large percentage of FDI incentives comes in the form of tax incentives in Korea, as compared to other incentives such as cash grant and industrial site support.

Name of the incentive program

Tax incentive

Incentive administering body

  • High-tech tax incentive:
    • MOTIE (Ministry of Trade, Industry, and Energy)
    • MOSF (Ministry of Strategy and Finance)
  • Free Economic Zone (FEZ) tax incentive: MOTIE and FEZ committee
  • Foreign Investment Zone-tax incentive: Local government, MOTIE, and FIZ committee

General application process

High-tech - Application needs be submitted to MOSF by the end of fiscal year in which applicant begins operation

FEZ – Application needs to be submitted to relevant FEZ committee before making initial investment

FIZ – Application needs to be submitted to the local government before making initial investment

Incentive application timeline

High tech – 20 days to get an approval from the application submission date (with extension available)

FEZ and FIZ – no specific timeline

Things to note

  • High-tech tax incentive:
    • A 100% corporate income tax (CIT) exemption for five years and 50% reduction for subsequent two years
  • FEZ:
    • Minimum investment amount varying by industry (i.e., US$10m for manufacturing)
    • A 100% CIT exemption for three years and 50% reduction for subsequent two years
    • Exemption or reduction period can be extended to five (plus two) years depending on the investment amount
  • FIZ:
    • Minimum investment amount varying by industry (i.e., US$30m for manufacturing)
    • A 100% CIT exemption for five years and 50% for the following two years

Name of the incentive program

Cash grant

Incentive administering body

MOTIE

General application process

  • Application form along with business plan submitted to MOTIE
  • Negotiation with MOTIE
  • Approval granted by the Foreign Investment Review Board

Incentive application timeline

Often takes several months and sometimes two to three years to get final approval

Things to note

  • Applicant enters into contract with the MOTIE and local governments after it is selected
  • Cash grant may be paid either in lump sum or in instalments
  • Compliance report required on a regular basis
  • Cash grant can be clawed back in case of breach of contract

Tax incentive is available to all applicants that can fulfil criteria defined in the relevant tax law. In contrast, cash grant program is rather discretionary incentive available through negotiations with the relevant government agencies

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