Korean Finance Ministry Announces Tax Breaks For Foreign Firms

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

14 July 2003

The Korean Ministry of Finance confirmed last week that a package of special tax breaks for foreign firms in the technology and cultural sectors came into effect on July 10.

The measures are specifically aimed at firms in non-manufacturing arenas such as the media, movies, computer games and virtual reality product sectors. Under the terms of the new proposals, foreign firms - regardless of size - wishing to set up new operations in Korea will pay no local or national taxes for a period of seven years, and will pay half the standard tax rate for the subsequent three years. The plan will exempt foreign companies from paying both income and corporate taxes at the national level, and corporate registration, property and land taxes at the local level, according to the Korea Herald.

Foreign firms must invest at least 50 million won ($43,000) or hold a minimum of 10% in equity stocks (which must have voting rights) in order to be eligible for the scheme.

It is hoped the measures will increase foreign direct investment to Korea, which has seen a steady decline in recent times. According to the Korea Herald, FDI dropped by over 40% year on year in the second quarter of 2003. Foreign investment is also substantially lower in Korea than in its regional competitors, such as Malaysia and Indonesia.

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