- Regular requirement of Foreign investment is regulated by the special tax treatment control law to be reduced in tariff by business income, dividend income, technology payment, earned income and others according to introduction of corporate tax, income, and capital goods. The acquisition tax, registration tax, and property tax will be reduced by the ordinance of local government of the special treatment control law to acquire and possess property of reduction business management.
- Reduction of corporate tax
- The corporate tax reduction for Foreign investment business will be applied by the foreign investment ratio as the income earned from reduction object business by the special treatment control law. However for stocks with voting rights in foreign corporate law or foreign business of reduction object business possessing more than 10% directly or indirectly by Korean citizens (law), the investment which suitable for possession of stock will not be considered as a target for tax reduction. In other words, the tax reduction is excluded for foreign investment (round trip) by the local residents.
- The reduction date is applied from the occurring year of taxation or 5 years since the opening of business.
Calculation method of reduced tax amount
||Calculation method |
||• Reduced tax amount =(Calculated tax amount ×Reduction scoreboard of reduction object business/Standard of total tax)×Reduction ratio |
|Reduction ratio (Investment ratio elapsed ratio )
||•In general (only for initial investment) |
(Capital fund of foreign investor of reduction object/Total capital)×Reduction ratio of the relevant business year (100,50%)
|•Reduction ratio calculation of capital increase in cash and dividend |
(Capital fund of foreign investor before capital increase × Reduction ratio of the relevant business year ) + (Capital fund of foreign investor × Number of days from capital increase to the end of relevant business year /Number of days in relevant business year × Reduction ratio )
|Total capital fund before increase+ (capital fund × Number of days from capital increase to the end of relevant business year /Number of days in relevant business year) |
(Capital fund of foreign investor before capital increase × Reduction ratio of the relevant business year ) + (Capital fund of foreign investor in capital increase × Reduction ratio )
※ In case of capital increase for Foreign investment business leading non-reduction business, with the standard of reduction business of dong, application of foreign investment ratio, reduction income, reduction ratio, reduced tax and reduced tax amount can be additionally calculated for accounting classification of new installed property, debt, profit and loss of reduction business of dong.
- Reduction of local taxes (acquisition tax, registration tax, property tax)
- The acquisition and possessing property for leading reduction object business of Foreign investment business, the tax reduction or the standard assessment is deducted 100% or 50% of acquisition tax, registration tax, and property tax for the same period of reduction of corporate tax.
- For the property acquisition after the opening of business, the acquisition tax, registration tax, property tax will all be calculated tax amount for 3~5 years from the opening date. 100% of foreign investment ratio is then multiplied, and for the next 2 years following, 50% will be deducted. However, even if assessment property is acquired after the opening date of business, in case of acquisition before receiving assessment deduction, refund for the paid acquisition tax and registration tax will not be given.
- On the other hand, property acquisition of acquisition tax and registration tax before opening of business will be deducted 100% of reduced tax after the day of tax reduction decision. The property tax will be 100% of reduced tax for 3~5 years from the day of property acquisition. The next 2 years following, 50% will be deducted for amount deducted.
- Also, the reduction period of local taxes can be extended within 15 years according to ordinance, or increase the ratio of deduction.
- Tariff and exemption
- As the following capital goods used for business of reducing corporate tax or income tax, if new stock acquisition for foreign investment report is introduced, the tax will be exempt according to the special tax treatment control law .
- Introduction of capital goods from foreign or domestic payment invested from Foreign investment business
- Introduction of capital goods as a investment target of foreign investors
- Local taxes and exemption is applied for capital goods that have been completed in import report within 3 years from the report of Foreign investment. However if construction establishment approval is delayed or other unavoidable reasons occur for completion of import report to the dong within the period, exemption can be attained in additional 3 years from Economy minister.
- For industry support service and professional technology involve in strengthening national economy of national business or foreign investment business leading individual foreign investment promotion in foreign investment area, the local taxes, individual consumption tax, and VAT are all exempt. The Foreign business in a foreign investment area of complex, special business of free trade area, foreign business in free economy area, foreign investment business relevant to free economy development business, foreign investment business relevant to development enforcement of jeju investment promotion area, and others are exempt from local taxes.
Registering institution : Customs clearance
- - Registration of tax exemption
- - Copy of capital goods introduction statement
- - Document confirming introduction of capital goods with investment in kind or cash
- - Document confirming target business of exemption of corporate tax (Certificate of tax reduction and exemption)
- - Invoice, B/L or AWB, price report, Packing List, certificate of origin, etc
- Tax support on dividend
- The dividend given to foreign investors from foreign investment corporate body leading tax exemption business is reduced in the amount of income ratio of tax exemption business with the standards of dividend income within the period of exemption.
- The initial date in reckoning exemption of dividend for capital increase of new investment, cash, investment, and dividend is the same date of exemption. During period of reduction of 100% in corporate tax, income tax is 100%, and if corporate tax is 50% the income tax is 50%. On the other hand, for earned surplus reserve, reevaluation reserve find, and reserve fund, the dividend relevant to capital received from capital increase according to reserve transfer will be applied for original stock of occurrence and reduction ratio. In other words, it is not reduction of 100% of the new for 5 years, and not a reduction of 50% for 2 years. If foreign investor takes over foreign investment business of local resident or local corporate, it is relevant to the existing stock acquisition, there fore it is not targeted for tax exemption. However, original exemption ratio and exemption period will be maintained for buyout of foreigner and foreign corporate share for other foreigner and foreign corporate.
※ When calculating withholding tax of dividend tax, after reduction ratio application of withholding tax ratio (including local tax 22%) of corporate tax and foreign investment tax reduction, select from withholding tax ratio and limited tax by tax treaty to classify by each different shares and receive application (apply of principle of profit and distribution).
- Tax exemption of loyalty payments in technology licensing
- In case of applying technology contract of important professional strengthening of national economy in Korean business, the foreigner providing that technology will be exempt for 5 years from corporate tax and income tax of loyalty payments in technology licensing. Not only does this apply for Foreign investment business, but it is also applied in the national business.
- The technical range receiving this tax exemption is the announcing technology (high-degree of technological products and its technology) from economy minister with deliberation from foreign investment committee which is the standard relevant technology.
- Great ripple effect of technology for economy or national economy and high-degree of strengthening important industrial economy and industrial structure.
- Technology within 3 years from the first national application (reporting date of technology application contract), or technology passing 3 years which has been applied as great effect on economy or great technological
- performance and technology mostly processed in Korea.
- For Tax exemption of loyalty payments in technology licensing, exemption registration should be done within 1 year from technology application contract or first payment of technology application to a competent minister. If exemption confirmation is received after the deadline of exemption registration, the tax will be exempt with no refund of paid tax according to registered tax year and remaining exemption period.
||Tax reduction and exemption of foreign investment business
||Tax exemption of loyalty payments in technology licensing|
||• Foreign investment business, foreign investor
||•Foreigner (corporate) providing high technology |
||• corporate taxㆍincome tax of foreign business, dividend income tax of investor
||• loyalty payments of high technology (using fee, loyalty, etc) |
||• year of income tax (within 5 years)
||• 100%for 5 years |
|Initial date of reduction
||• year of income tax (within 5 years)
||• First day of payment |
|Provision of related regulation
||• Item 2, Article 121 of the special tax treatment control law
||• Article 25, 26 of act of foreigner investment promotion/Item 6, Article 121 of the special tax treatment control law |
||• national economy, high technology, not passing 3 years of national application, etc
||• national economy, high technology, not passing 3 years of national application, etc |
|Period of registration
||• registration until last day of tax year in opening of business to economy minister (advance confirmation registration is possible)
||• report technology application to a competent minister and within 1 year from technology application contract or first payment of technology application|
||• Within 20 days of registration
||• Within 20 days of registration |
|Form of registration
||• Tax reduction registration (Form no. 80 enclosure)
||• Tax exemption of loyalty payments in technology licensing (Form no. 84 enclosure)|
- the person in charge
- Local Economy Division Tel.02-3423-5492