Korea Announces Further Tax Breaks For Foreign Investors

by Mary Swire, Tax-News.com, Hong Kong

25 September 2003

The South Korean Minister of Finance and the Economy Kim Jin-pyo announced further txa incentives for foreign investors this week as the government continues to wrestle with a sharp fall in foreign direct investment.

The latest round of tax breaks is aimed at foreign firms investing in 36 types of social overhead capital (SOC) such as road construction and water resources, and they will receive tax exemption for a five year period and a 50% reduction in corporate taxes for a further two years.

Announcing the measures during the IMF and World Bank annual meeting in Dubai, Kim commented that the lack of SOC investment "is leading to rising logistics costs, dragging down overall national competitiveness." Under current rules, such tax incentives are only available for logistics and capital investment worth over $30 million.

The new measures are expected to be in place by early 2004, and will augment further tax breaks announced for foreign investors in the manufacturing sector which will see the minimum investment required to receive tax breaks reduced from $50 million to $30 million. The threshold will also be reduced for companies operating in the logistics sector to a $10 million minimum investment.

It was also reported recently that the South Korean government is considering a move that will simplify the tax system for foreigners, which could result in a uniform tax rate of 17% on net income regardless of salary levels. Other measures might include an increase in the tax deductions rate for corporate investment from 10% to 15%; and the minimum tax rate for small and medium sized firms could be reduced from 10% from 12%.

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