The Korean Ministry of Finance and Economics announced on Saturday that it has agreed upon measures designed to attract more foreign investment to the country.
The South Korean government's long-term plan is to turn the territory into a business hub for the Northeast Asian region by 2020.
In order to facilitate this plan: 'We'll have to provide wide-ranging tax benefits to foreign investors in order to help promote their business operations by easing tax burdens,' a Ministry Spokesman told the Korea Times at the weekend.
Following calls from groups such as the American Chamber of Commerce in Korea (Amcham), and the European Union Chamber of Commerce in Korea (EUCCK) to reduce the tax burden on foreign enterprises and their expatriate employees, the Ministry of Finance unveiled its new tax incentive scheme.
Under the investment programme, foreign firms doing business in planned special economic zones will be allowed 100% exemptions on income and corporate tax for the first seven years, and 50% for the three years thereafter. Capital goods imports by foreign invested companies located in the designated zones will not be subject to customs duties, special excise tax or VAT for the first three years of the company's existence.
According to the Finance Ministry, foreign invested firms will also be able to take advantage of 100% exemptions on acquisition, registration, property and land taxes for their first five years, and 50% exemptions for the next three years.
However, in order to take advantage of the tax incentive scheme, foreign manufacturing firms must invest 50 million won or more, while distribution companies will only be obliged to invest 30 million won.
The investment requirements for tourism and resort or entertainment complex investors will be 20 million won and 30 million won respectively.
According to the Korea Times report, the tax exemptions will not be available to foreign invested financial institutions or the regional headquarters of multinational corporations.
The Finance Ministry explained at the weekend that this is due to stringent OECD rules on 'harmful tax regimes'.
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