TITLE : FAQ on FDI in Korea 2023 (Q136~Q142)
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■ FAQ on FDI in Korea 2023 (Q136~Q142)
Factory Establishment and Location
Q136 | Is a tenant company of a service-type foreign investment zone (FIZ) eligible for tax reduction or exemption? |
No tax reduction or exemption benefits are provided forservice-type FIZ tenant companies under the Restriction ofSpecial Taxation Act.
- The Restriction of Special Taxation Act defines individual-type FIZ andcomplex-type FIZ tenant companies as eligible for tax reduction orexemption under Article 121-2 (1) 2 and Article 121-2 (1) 2-5. Servicetype FIZ tenant companies are not included.
Q137 | Can a company that moves in and benefits from rent reduction in a foreign investment zone (FIZ) also apply for a cash grant? |
An FIZ tenant company that is provided a leased site mayapply for cash grant. However, calculation of the cash grantceiling shall be based on the Operation Guidelines for theCash Grant System, and the amount of reduced or exemptedrent that the FIZ tenant company has received until the cashgrant contract is signed shall be included in the cash grantceiling, resulting in a reduced cash grant amount.
- ※ Related regulations: Article 10 of the Operation Guidelines for the Cash Grant System
Q138 | Are there specific restrictions on the business category for tenant companies of a complex- type foreign investment zone (FIZ)? |
There are restrictions, but they are limited to restriction ofpermitted business categories, which are also applied ingeneral industrial complexes.
- The following business categories are eligible for occupancy in a complex type FIZ. Business categories allowed to move into each FIZ are determinedby the basic management plan for each complex-type FIZ, under Article 10of the Guidelines for Operation of Foreign Investment Zones.
- Businesses involving technologies for new growth engine industriesprescribed under Article 121-2 (1) 1 of the Restriction of SpecialTaxation Act
- Businesses applying or manufacturing advanced technologiesor advanced products defined under Article 5 of the IndustrialDevelopment Act
- Research institutes affiliated with enterprises under subparagraph 3 (c)of Article 2 of the Special Act on Support of Scientists and Engineersfor Strengthening National Science and Technology Competitivenessand research and development businesses under subparagraph 4 (a)of Article 2 of the same Act
- Businesses prescribed by Articles 25 (1) 3 (a) and 25 (1) 3 (b) of theEnforcement Decree of the Foreign Investment Promotion Act
- Other business categories that a management agency determines,taking account of the industrial characteristics of the relevant region
- Before signing the tenancy contract, a company shall review the basicmanagement plan of the FIZ that it wishes to move into and check whichbusiness categories are permitted.
Q139 | US investor A invested USD 15 million to establish foreign-invested company AK to operate a manufacturing business, and Japanese investor J also invested USD 15 million to establish foreign-invested company JK for manufacturing. In this case, is it possible to combine the business sites of AK and JK and designate an individual-type foreign investment zone (FIZ)? |
It is possible. In the case of a manufacturing business, a foreigninvested company has to invest a minimum of USD 30 millionto be designated as an individual FIZ. However, providedcertain requirements are met, two or more foreign-investedcompanies can combine their invested amounts to meet therequirements for an individual-type FIZ designation.
- TArticle 18 (2) of the Foreign Investment Promotion Act stipulates thedesignation of an individual-type FIZ by two ore more foreign investors.Article 25 (5) of the Enforcement Decree of the same Act definesspecific requirements as follows:
- The total amount invested by two or more foreign investors shall be noless than the amount of foreign investment for the business categoryin the individual-type FIZ.
- The business operated shall be a business subject to designation as aan individual-type FIZ.
- The facilities shall be placed adjacent to each other.
Q140 | If a foreign-invested company acquires an existing factory, removes all the production facilities inside, and installs new manufacturing facilities in the existing factory building to manufacture different products, can this be recognized as "installation of a new factory facility" and can the company apply for designation as a foreign investment zone (FIZ)? (The foreign investment amounts is USD 50 million and the business category is manufacturing.) |
Yes, but only when recognition of the foreign investmentcommittee it is obtained. Article 23(3) of the Guidelines forOperation of Foreign Investment Zones defines the case ofinstalling new factory facilities and the case of installingnew facilities as follows:
- Where factory facilities (referring to a place of business in the case of abusiness other than manufacturing business categorized in the KoreanStandard Industrial Classification) are newly installed or where anymachinery or installations, equipment are newly installed in an existingbuilding
- Where the same corporation installs any factory facilities, or anymachinery, installations or equipment, which are recorded on a separateaccounting book from that of the existing factory facilities
- Where business activities are conducted after obtaining an approvalto use a building under the Building Act after acquiring a building theconstruction of which is incomplete (However, the Foreign InvestmentCommittee may choose not to acknowledge it depending on the stage ofprogress of the construction work.)
Q141 | Is it possible for a purely domestic corporation to move in a foreign investment zone (FIZ)? |
It is possible if an FIZ tenant company with a foreign investmentratio of 30% or higher requests that its contractor without any foreigninvestment be permitted to use a part of the tenant company'sfactory facilities in order to shorten the process and cut costs, andobtains the agreement of the Minister of Trade, Industry and Energy.At the request of the tenant company, the FIZ management agencymay sign a contract with the tenant company's contractor permittedto move in. The contract should be renewed every five years, and itsperiod should be within the remaining period of the contract withthe tenant company. The contractor is allowed to occupy up to 30%of the total factory area of the tenant company.
Q142 | A foreign-invested company that moved into an individual-type foreign investment zone (FIZ) acquired its FIZ status based on the commitment of a USD 100 million foreign investment for operating a construction materials manufacturing business. However, the foreign investment amount was reduced to USD 50 million due to inevitable circumstances. What procedures should the individual-type FIZ tenant follow? |
A reduction in the foreign investment amount by more than 30%is a significant change, not a minor one. In this regard, the foreigninvested company and the local government should hold a preliminarymeeting with the Ministry of Trade, Industry and Energy to revise theproject plan and submit the amended project plan to the Ministry ofTrade, Industry and Energy for the foreign investment committee’sdeliberation. The mayor/provincial governor should subsequently putup a notice of change in FIZ designation. The foreign-invested companyshould attach the notice of change and report a change in tax reductionor exemption and then attach the notice of change and report changeof tax reduction or exemption to the Minister of Economy and Finance.