South Korea Announces Service Sector Tax Incentives

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

24 March 2004

The South Korean government last week announced a series of tax and other financial incentives aimed at boosting the country’s international competitiveness in the services sector.

The plans include a 50% corporate tax cut for start-up firms across several different categories, including film, advertising and the international convention business. In addition, foreign employees of firms in the logistics, market research, management consulting and science & technology sectors will be exempt from paying income tax for their first five years of working in the country.

Other measures unveiled included a ‘partnership taxation system’ for firms in the information technology and research and development industries, allowing tax to be paid on individuals rather than corporations. Also, enterprises in the service sector will be exempt from acquisition and land taxes, and they will receive a 50% reduction on aggregate land taxes if they locate in a designated industrial zone.

The measures follow a number of earlier announcements by the Korean government, which wants to make the nation’s tax system more attractive for foreign firms.

Last month, the National Tax Service (NTS) announced plans to reduce the number of transfer pricing investigations that it carries out on foreign companies, which are be merged into the standard corporate audit procedure from August this year to make the system more user-friendly.

In addition, the length of such investigations will be reduced from five fiscal years to three years.

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