How To Invest In Korea

How to Invest in Korea Incentives & Procedures

How to Invest in Korea

Incentives & Procedures

Contents Ⅰ. Laws and Regulations Related to Foreign Investment 1. INTRODUCTION 2. FOREIGN INVESTMENT PROMOTION ACT

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Ⅱ. Foreign Investment Support Programs 1. TAX RELIEF 2. RENT SUPPORT FOR GOVERNMENT-OWNED PROPERTY AND FAVORABLE CONDITIONS OF LOCATION 3. CASH GRANT 4. FOREIGN INVESTMENT SUPPORT AGENCIES

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Ⅲ. Investment Procedures 1. OVERVIEW AND NOTIFICATION OF FOREIGN DIRECT INVESTMENT 2. ACQUISITION OF NEW SHARES 3. ACQUISITION OF ISSUED AND OUTSTANDING SHARES 4. ACQUISITION OF SHARES BY MERGER OR CONSOLIDATION 5. FOREIGN INVESTMENT THROUGH LONG-TERM LOAN

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Ⅳ. Detailed Explanation of Investment Procedures 1. BUSINESS ESTABLISHMENT 2. FACTORY ESTABLISHMENT 3. LAND ACQUISITION BY FOREIGN NATIONALS 4. EMPLOYMENT PRACTICES 5. TAX SYSTEM

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Ⅰ. Laws and Regulations Related to Foreign Investment 1. INTRODUCTION The Foreign Investment Promotion Act shall be the fundamental law governing the granting of incentives to foreign investors. These incentives shall include Expedited processing of foreign investment applications Reduced taxes for foreign investors, and Prompt resolution of complaints. Laws and regulations related to Foreign Investment Promotion Act shall be: Enforcement Ordinances and Enforcement Regulations of Foreign Investment Promotion Act, that prescribe particulars authorized by Foreign Investment Promotion Act and mandatory subjects for their enforcement; Foreign Exchange Transaction Regulations, dealing cases for foreign exchange and foreign transactions; Regulations on Foreign Investment and Introduction of Technology, which state business areas where foreign investment is not permitted or permitted with certain limitations; and Special Taxation Restriction Act and its Enforcement Ordinances and Enforcement Regulations, which include tax reduction for foreign investment.

2. FOREIGN INVESTMENT PROMOTION ACT 1) Definition of Foreign Direct Investment ▶Foreigners The term "foreigners” refers to individuals of foreign nationality; corporations established in accordance with any relevant foreign Act (hereinafter referred to as a "foreign corporation") or international economic cooperation organizations. International economic cooperation organizations are; Organizations carrying out international economic cooperation activities for a relevant foreign government as its agency; International development financing organizations such as International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC) and Asian Development Bank (ADB); and International organizations engaged in foreign investment both as a concerned party and as an agency.

▶Foreign Investment "Foreign Investment" largely consists of two types: Where foreigners purchase stocks or interest in a Korean corporation or a company; Where foreigners grant a long-term loan to a Korean corporation or a company.

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The term "purchase of stocks or interest in a Korean corporation or a company” refers to: Where foreigners purchase stocks or interest in a Korean corporation (including a Korean corporation in the process of being established) or in a company operated by a national of the Republic of Korea, for the purpose of establishing a continuous economic relationship with the said Korean corporation or company by means such as participating in the management, etc. In this case, "purchase of stocks or interest in a Korean corporation or a company” means: Where foreigners possess 10 percent or more of the total voting stocks or of the total amount of capital contribution to a Korean corporation or company; Or, otherwise, foreigners possess less than 10 percent of the total voting stocks or of the total amount of capital contribution to a Korean corporation or company, but at the same time; a) enter into an agreement whereby they are given the authority/responsibility for dispatching and appointing board members; b) enter into an agreement for supplying/purchasing raw materials/products for more than one year, or; c) enter into an agreement for the purposes of technical assistance/introduction or joint research and development projects. The amount of foreign direct investment (the amount of direct investment per person in the case of a joint investment by two foreign nationals or more) shall be a minimum of KRW 50 million. “Long-term loan” refers to a loan with maturity of five years or more, extended to a foreigncapital invested company by its overseas parent company or by a company that has capital affiliation with the parent company in any of the following manners; a) A company that owns 50 percent or more of the total stocks issued, or the total amount of capital contribution of the overseas parent company; b) A third company that has 10% or more of the total stocks issued(or the tota amount of capital contribution) of the overseas parent company extends the loan to a foreign-capital invested company whose overseas parent company has 50% or more of the total stocks issued (or the total amount of its capital contribution); or, c) Another third company, 50 percent or more of whose total stocks issued (or the total amount of its capital contribution) are owned by the overseas parent company or the company mentioned in the subparagraph b) hereof.

2) Foreign Investors and Objects of Investment ▶Foreign Investors The term "foreign investors" shall refer to foreigners who are in possession of stocks and interest under the conditions prescribed by the Foreign Investment Promotion Act.

▶Foreign-capital Invested Company The term "foreign-capital invested company" shall refer to companies that foreign investors have financed under the conditions prescribed in the Foreign Investment Promotion Act.

▶Operators of Facilities that Enhance the Foreign Investment Environment The term "operators of facilities for the promotion of foreign investment environment" shall refer to individuals running facilities to provide an improved environment for foreign investors such as schools, hospitals and clinics, pharmacies, residential buildings and business incubation centers.

▶Objects of Investment The term "objects of investment" shall refer to items such as stocks that foreign investors finance in order to possess pursuant to Foreign Investment Promotion Act and which falls under any of the followings;

Categories of Objects of Investment ▶ International means of payment approved under the Foreign Exchange Transaction Regulations or domestic means of payment incurred by exchange of the international means of payment ▶ Capital goods ▶ Proceeds (dividends) accruing from stocks and others purchased as foreign direct investment ▶ Industrial property rights; copyrights used for industrial activities, rights to Layout Designs of Semiconductor Integrated Circuits, technologies corresponding thereto, or any other rights pertaining to the use of such rights or technologies ▶ Residual assets resulting from the liquidation of foreign-owned branch offices, offices or corporations in Korea ▶ Amount of redemption of either loans as prescribed above or other loans from foreign countries ▶ Stocks of foreign corporations listed or registered on foreign securities markets ▶ Stocks owned by foreigners according to the Foreign Investment Promotion Act and the Foreign Exchange Transaction Regulations ▶ Immovables located in the Republic of Korea ▶ Proceeds from liquidation of stocks and immovables of foreign-owned companies

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3) Protection and Liberalization of Foreign Investment ▶Protection of Foreign Investment and National Treatment The Korean government extends a greater level of protection to foreign direct investment than for foreign investment such as portfolio investment in stocks and bonds. With respect to the proceeds of foreign direct investment, the Foreign Investment Promotion Act guarantees remittances by foreign investors to foreign countries in accordance with the contents of the contract for foreign investment or for the introduction of technology, at the time of the said remittance. Also, except as otherwise prescribed by specific laws and regulations of the Republic of Korea, foreign investors and foreign-capital invested companies and corporations shall be treated equally as Korean nationals and Korean companies and corporations in all their business operations. Rules and regulations on tax benefits that apply to Korean nationals and Korean companies and corporations shall be applied equally to foreign investors and foreigncapital invested companies and corporations, except as otherwise prescribed by specific laws and regulations.

Foreign Investment Protection items permitted for foreign remittance ▶ Income incurred by acquired stocks, etc. ▶ Proceeds from sale of stocks, etc. ▶ Principal, interest and commission paid according to relevant loan agreement(s) ▶ Royalties on technology introduction

▶Liberalization of Foreign Investment Except as otherwise set by specific laws and the regulations of the Republic of Korea, foreigners may engage in, without restraint, various activities of foreign direct investment in the Republic of Korea. However, subject to restriction are foreign investment activities that threaten national security and public order; or would have a harmful effect on public health or the preservation of the environment; or are markedly contrary to commonly accepted Korean standards of decency and morality, or violate any Korean laws and regulations. The categories of business in which foreign investment is restricted are the business categories where it is difficult to apply the Foreign Investment Promotion Act rather than prohibits foreign investment.

Business Categories where Foreign Investment is Restricted ▶ Postal service, central bank, individual-business mutual aid, pension, stock and future exchange, other financial market management, clearing house ▶ Legislative, administrative, judiciary, foreign diplomatic missions to Korea, and other international and foreign organizations. ▶ Research and development of economics, other research and development on cultural and social science ▶ Educational organizations (infant school, primary and secondary educational institutions, special educational institutions) ▶ Artist; religious organizations; organizations of industries, experts, environment movement, politics, labor movement, etc.

The Korean government enforces, if applicable, the restrictions on foreign investment by capping the number of stocks that foreigners can acquire. To enhance transparency in foreign investment restriction, the Korean government enforces the Consolidated Public Notice for Foreign Investment. This system is to help foreigners easily understand changes made in the laws and regulations relevant to foreign investment as the Korean government consolidates such changes and place public notification every year. Foreigners are not allowed to invest in the companies that are engaged, in any way, in businesses where foreign investment is prohibited and/or partially permitted. In the case where a foreigner intends to invest in a company that is engaged in more than two businesses where foreign investment is limitedly permitted, the foreigner cannot invest exceeding the investment ratio prescribed for the business with the lowest ratio for foreign investment permission. However, a foreigner can invest in a company engaged in foreign-investment restricted business if only the sales revenues of the restricted business are less than 1 percent of its total sales amount. Nevertheless, in case the company’s revenues from the restricted business exceed 1 percent of its total sales amount after the foreigner purchases its stocks, the foreigner should transfer his/her stocks in the company to a Korean national or a Korean corporation within six months from the settlement of its account. If the transfer, for any unavoidable reason, can not be performed within the given period, it can be postponed within the limit of an additional six months after obtaining permission from the Ministry of Commerce, Industry, and Energy.

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< Foreign-Investment Restricted Business Categories > Restricted business categories

Criteria for approval for foreign investment

Grain and other food crop cultivation business

Rice and barley are excluded

Beef cattle breeding

Foreign-investment percentage: less than 50 percent of total investment amount

Coast water fishery

Foreign-investment percentage: less than 50 percent of total investment amount

Publication of newspapers, magazines and other periodicals

Foreign-investment percentage for newspapers: less than 30 percent of total investment amount. Others: less than 50 percent of total investment amount

Nuclear fuel processing

Permitted except manufacturing and supplying fuel for atomic power generation

Electric power generation

Excluding atomic power generation

Power transmission, distribution and sales business

A foreigner should not be the largest share holder; Foreign-investment percentage: less than 50 percent of total investment amount.

Wholesaling of meat

Foreign-investment percentage: less than 50 percent of total investment amount.

Passenger and freight transportation service within home waters

Transportation between South and North Korea; a joint venture with Korean company is mandatory; Foreign-investment percentage: less than 50 percent of total investment amount.

Scheduled and non-scheduled transportation by air

Foreign-investment percentage: less than 50 percent of total investment amount

Telecommunication circuit facility leasing, wired and wireless telephone service, wireless paging and other wireless communication service, and other telecommunication services

Foreign-investment percentage: less than 49 percent of total investment amount. (For KT, foreigners can be a majority owner only when the FDI ratio is 5% or less)

Local banks

Permitted for commercial banks and provincial banks. (Special banks and agricultural, fishery and livestock cooperatives are not open yet to FDI)

Radio and television broadcasting

Not permitted

Cable networks

Foreign-investment percentage: less than 33 percent of the total investment amount; News program supply business is not open.

Cable and other program distribution

Foreign-investment percentage: Less than 33 percent of the total investment amount; relaying cable broadcasting is not open to FDI.

Satellite broadcasting

Foreign-investment percentage: less than 33 percent of the total investment amount

News agency activities

Foreign-investment percentage: less than 25 percent

Permitted except radioactive waste management Radioactive waste collection, transportation and service pursuant to Article 82 of Electrical processing service Construction Business Act

4) Investment Procedures Refer to “3. Investment Procedures”

5) Foreign Investment Zone ▶Definition of Foreign Investment Zone The Foreign Investment Zone is a client-oriented support program designed to induce large-scale foreign investment under which a mayor or a governor designates a specific zone where a foreign investor wishes to build a plant and where the company in question can qualify for a generous range of benefits. In other words, it is an arrangement, which enables investor-selected zone to be designated as a Foreign Investment Zone, and different from the supplier-oriented approach where foreign investment is induced through a certain industrial zone established beforehand.

▶Designation and Development of Foreign Investment Zone Each mayor and governor shall designate and supervise a zone, in which a foreign investor desires to invest, as a Foreign Investment Zone after deliberation by the Foreign Investment Committee, if necessary for promoting foreign investment with following specifications. However, if all or part of a National Industrial Complex has been designated as a Foreign Investment Zone and already is run by a coordinating government organization, the organization will continue to manage the zone. In the case where constructing a new site is necessary to build a plant, etc., in a Foreign Investment Zone, it can be developed as a provincial industrial complex, which requires a development plan. On the other hand, an area where more than two foreign investors invest can be designated as the Foreign Investment Zone, provided that The total foreign investment is over US$30 million Both of their business categories fall under the following criteria (see below), and The site where their plants or research facilities are located is in the same National Industrial Complex or Provincial Industrial Complex or is adjacent to either one. In case where the area is designated as a Foreign Investment Zone, the investors should fulfill the following criteria within 5 years of the designation notification.

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< Criteria for Foreign Investment Zone Designation > Criteria for Business Categories

Criteria for Designation

Manufacturing, industry support service, hi-tech business

Foreign investment amount should be more than US$30 million

Tourist hotel business, floating tourist hotel business, general recreation service, general resort facility provider, international convention facility

Foreign investment amount should be more than US$20 million

Complex cargo terminal business, establishing and operating site for public pick-up/delivery center, Business operating harbor facilities, Business operating airport facilities, logistics industry, SOC facilities establishment business

Foreign investment amount should be more than US$10 million

Research facilities

▶ Foreign investment amount should be more than US$5 million ▶ Regular employment of more than 10 full-time researchers with 3 years or above research experience holding master’s degrees or higher.

▶Support for Foreign Investment Zones The Korean government supports foreign-invested companies operating in Foreign Investment Zones with tax reductions or exemptions and privileges such as construction costs and basic facility support and exemption of the traffic generation charge. Details of the available tax benefits are as follows:

Corporate Tax, Income Tax ▶ Until the end of 2004, if a foreign-invested company reports and applies for a tax reduction/exemption from the Korean government, a 100-percent exemption for the initial 7 years and a 50-percent exemption for the following 3 years will be available. ▶ From Jan. 1st 2005, if a foreign-invested company reports and applies for a tax reduction/exemption from the Korean government, a 100-percent exemption for the initial 5 years and a 50 percent exemption for the following 2 years will be available.

Property Tax, Acquisition Tax, Aggregate Land Tax, Registration Tax ▶ Until the end of 2004, if a foreigninvested company reports and applies for a tax reduction/exemption from the Korean government, a 100-percent exemption for the initial 7 years and 50percent exemption for the following 3 years will be available. ▶ From Jan. 1st 2005, if a foreign-invested company reports and applies for a tax reduction/exemption from the Korean government, a 100-percent exemption for the initial 5 years and a 50- percent exemption for the following 2 years will be available. ▶ A provincial government can increase the reduction/ exemption period and percentage within 15 years.

If designated as the Foreign-Investment Zone, support for infrastructures such as harbors, roads, water supplies, railroads, communications and electrical power supplies will be provided plus rentals for national properties will be 100-percent exempted. The traffic generation fee caused by necessary construction work will also be exempted. At the same time, restrictions on the invested companies’ exporting and importing will be alleviated.

6) Post-Investment Actions for Foreign Investors ▶Foreign-Invested Company Registration When a foreign investor or a foreign-invested company has paid in full its contribution to the required capitalization and acquires outstanding shares, or converts or subscribes to, or exchanges any depository receipts or any other convertible bonds or exchangeable bonds or securities into or for equity securities, then such foreign investor must file for foreigninvested company registration or modification to the registration within 30 days from such event. In addition, if a foreign investor or a foreign-invested company files a notification of the acquisition of equity securities arising due to merger or otherwise, completes transfer or reduction of equity securities, or changes its corporate name, designation, investment amount or business objectives, then such foreign investor or foreign-invested company must file for modification to its foreign-invested company registration within 30 days of such event.

▶Restrictions on Disposal of Capital Goods A foreign investor or a foreign-invested company must report to the Ministry of Commerce, Industry and Energy (MOCIE) in advance if it intends to transfer, lease, or use for any other purposes than reported within five years from the date of import notification of any capital goods imported under customs exemption.

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▶Conduct of Other Business of Foreign-Invested Company Any registered foreign-invested company must not engage in any lines of business with respect to which foreign investment is restricted beyond the extent permitted (unless the foreign investment ratio is less than 10 percent). It is also prohibited to acquire, beyond the extent permitted, equity securities in another domestic company that is engaged in any lines of business with respect to which foreign investment is restricted; provided, however, that such prohibition does not apply if foreign investment ratio of the acquirer is less than 50 percent and the largest shareholder of the acquirer is not a foreign investor (including any affiliates), a foreign-invested company engaged in financial or insurance business whose business objectives include acquisition of equity securities in other companies acquires equity securities in other companies in accordance with the provisions of other laws, or the acquired equity securities are not more than 10 percent of the aggregate number of the issued and outstanding shares or the aggregate equity investment. Besides, a foreign investor or a foreign-invested company must not use the capital contributions for any other purposes than reported or permitted.

▶Notification of Transfer of Shares and Capital Reduction A foreign investor must file a notification with the MOCIE within 30 days of the entry into a transfer agreement if it transfers the acquired shares to another person or within 30 days of the expiration of the notice period for creditors if it intends to reduce the shares held by it through capital reduction. If the license or registration of a foreign investor is revoked or cancelled, such foreign investor must transfer the equity securities held by itself to a Korean national or corporation within six months of such revocation or cancellation. Besides, if any unregistered foreign investor receives and fails to comply with a correction order, then such foreign investor must transfer the equity securities held by itself to a Korean national or corporation within six months of the expiration of the period within which such correction order must be complied with. However, if unavoidable circumstances prevent such transfer in the above two cases, then the period within which such transfer must be performed may be extended for up to six months with the approval of the MOCIE.

Ⅱ. Foreign Investment Support Programs 1. TAX RELIEF 1) Reduction and Exemption of Corporate and Individual Income Tax, Acquisition Tax, Registration Tax, Property Tax, and Aggregate Land Tax With respect to foreign investment, the corporate income tax and individual income tax imposed on, among others the active business income, dividend income, technology capital gains and earned income, and the acquisition tax, registration tax, property tax and aggregate land tax imposed on the acquired and owned property are reduced and/or exempted in accordance with the provisions of the Special Tax Treatment Control Law.

▶Eligibility Those eligible are the foreign-invested companies under the Foreign Investment Promotion Act that are engaged in the following lines of business: < Business Sectors Restricted to FDI > Eligibility

Requirements

Industrial support service businesses

▶ Any high value added service business rendering substantial development support for manufacturing and other businesses

High-tech businesses

Any business involving the following technologies that are domestically underdeveloped or undeveloped: ▶ Any technology judged likely to have far-reaching economic or technological impact upon the national economy and considered essential for the advancement of the industrial structure and the strengthening of industrial competitiveness ▶ Any technology whose date of the initial introduction to the country (dates of foreign investment notification) has not exceeded 3 years, or any technology that have more economic impact or better technological performance than do those previously introduced notwithstanding that it has been more than 3 years since its initial introduction ▶ any technology required by processes employed mostly within the nation

Foreign investors establishing a new plant or new facilities in a Foreign Investment Zone

▶ The amount of foreign investment in a manufacturing business is US$30 million or more ▶ The amount of foreign investment in a tourist hotel business, a comprehensive recreation business, a comprehensive amusement park business, or an international conference facility business is US$20 million or more ▶ The amount of foreign investment in a logistics (or distribution) business or an SOC business is US$10 million or more ▶ The amount of foreign investment in a high-tech research facility is US$5 million or more where such facility employees 10 or more researchers holding master’s degrees or higher ▶ The aggregate amount of investment made by 2 or more foreign investors in a business is US$30 million or more.

▼ ▼

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< Business Sectors Restricted to FDI > Eligibility

Occupants of a Free Trade Zone

▼ ▼ Requirements

▶ The amount of foreign investment in a logistics business is US$ 5 million or more ▶ The amount of foreign investment in a manufacturing business is US$10 million or more

Occupants of a Free Economic Zone

▶ The amount of foreign investment in a manufacturing or tourist business is US$10 million or more ▶ The amount of foreign investment in a logistics business is US$5 million or more

Developers of a Free Economic Zone

▶ The total development costs amount to US$500 million or more, where the amount of foreign investment is US$30 million or more or the foreign investment ratio is 50 percent or more

Developers of the Jeju Investment Promotion Zone

▶ The total development costs amount to US$100 million or more, where the amount of foreign investment is US$10 million or more or the foreign investment ratio is 50 percent or more

Occupants of Jeju Advanced Science & Technology Complex

▶ Bio-engineering, information technology, culture and advanced technology ▶ Tourist, cultural, elderly citizen welfare facility, youth training

Jeju Investment Promotion Zone Jeju Area

facility, track facility, alternative energy, Korean traditional hotel, specialized recreation, sightseeing boat and live-performance theater, and comprehensive amusement park businesses

▶ The amount of foreign investment is US$10 million or more

Occupants of Jeju Free Trade Zone

▶ The amount of foreign investment in a manufacturing business is US$10 million or more and the number of full-time employees is 100 or more ▶ The amount of foreign investment in a logistics business is US$ 10 million or more

▶Reduction and Exemption Establishment and/or operation of new plants or a place of business is eligible for full exemption. Foreign investment by way of purchase and assumption of pre-established businesses is eligible for a 50 percent reduction for the first three years and 30 percent for the subsequent two years.

Reduction / exemption

Corporate and individual income tax

Period of Relief

▶ Industrial support service businesses ▶ 10 years up until Dec. 31, 2004 (100 percent for the first 7 years and ▶ High-tech businesses 50 percent for the subsequent 3 years) ▶ Designated businesses in a Foreign ▶ 7 years from Jan. 1, 2005 Investment Zone (100 percent for the first 5 years and 50 percent for the subsequent 2 years)

▶ 5 years in total(100 percent for the first 3 years and 50 percent for the subsequent 2 years)

Property tax, acquisition tax, aggregate land tax and registration tax

Requirements

▶ Occupants of a Free Trade Zone ▶ Occupants of a Free Economic Zone ▶ Foreign-invested developers of a Free Economic Zone or the Jeju Investment Promotion Zone ▶ Occupants of the Jeju Advanced Science & Technology Complex, Jeju Investment Promotion Zone, and Jeju Free Trade Zone

▶ Industrial support service businesses ▶ 8 years up until Dec. 31, 2004 (100 percent for the first 5 years and 50 ▶ High-tech businesses percent for the subsequent 3 years) ▶ Designated businesses in a Foreign ▶ 7 years from Jan. 1, 2005 Investment Zone (100 percent for the first 5 years and 50 percent for the subsequent 2 years) ▶ 5 years in total ▶ Occupants of a Free Trade Zone (100 percent for the first 3 years and 50 ▶ Occupants of a Free Economic Zone percent for the subsequent 2 years) ▶ Foreign-invested developers of a Free Economic Zone or the Jeju Investment Promotion Zone ▶ Occupants of the Jeju Advanced Science & Technology Complex, Jeju Investment Promotion Zone, and Jeju Free Trade Zone

Note : With respect to the property tax, acquisition tax, aggregate land tax, and registration tax, the local government may, by ordinance, extend the tax relief period to a maximum of 15 years or increase the reduction rate.

2) Customs, Special Excise, and Value-added Tax Exemption Customs duties, special excise tax and value-added tax are exempted on Any capital goods that a foreign-invested company imports as international or domestic means of payment contributed by its foreign investors and Any capital goods that a foreign investor imports as its contribution to the capital. Eligible capital goods must be used directly for the eligible business, and the import notification must be completed within 3 years from the date of the filing of the foreign investment notification.

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Reduction / exemption

Customs duties

Period of Relief

100 percent for the first 3 years

Requirements

▶ ▶ ▶ ▶ ▶ ▶

Industrial support service businesses High-tech businesses Designated businesses in a Foreign Investment Zone Occupants of a Free Trade Zone Occupants of a Free Economic Zone Foreign-invested developers of a Free Economic Zone or the Jeju Investment Promotion Zone

▶ Occupants of the Jeju Advanced Science & Technology Complex, Jeju Investment Promotion Zone, and Jeju Free Trade Zone Special excise and VAT

100 percent for the first 3 years

▶ Industrial support service businesses ▶ High-tech businesses ▶ Designated businesses in a Foreign Investment Zone

2. RENT SUPPORT FOR GOVERNMENT-OWNED PROPERTY AND FAVORABLE CONDITIONS OF LOCATION ▶Rent Period and Rate A foreign-invested company or an operator of a foreign investment environment improvement facility may rent or purchase, by means of a negotiated contract, the land, factories or other properties owned by the central government, local governments, and state or local government enterprises. The rent period may be renewed within the extent of 50 years. The rental fee is the total value of the land, factories, and other properties multiplied by a rate of 1 percent or more. The rental fee for any land, factories, and other properties located within a Foreign Exclusive Industrial Complex, however, is determined in consultation with the MOCIE and the MOFE if the central government owns the property or the applicable local government if the local government owns the property. If it is deemed difficult for a foreign-invested company to pay the purchase price in a lump sum for land, factories or other properties, then such company may make the payment by the extended due date or in multiple installments at interest of 4 percent per year or less in the following manner: Any property owned by the state may be paid for by a due date extended for 1 year or less, or on an installment plan within the extent of 20 years. Any property owned by the local government may be paid for by an extended due date or on an installment plan in accordance with the provisions of its ordinances.

▶Rent Reduction Eligible for rent reduction are the foreign-invested companies that rents land located in a Foreign Investment Zone, a Foreign Exclusive Industrial Complex, a national industrial complex, a general local industrial complex, a municipal high tech industrial complex, or an agro-industrial complex and establishes, for its conduct of business, a new factory or new place of business thereon.

The eligibility requirements and rate of reduction are as follows: Requirements

Reduction Rate

▶ A foreign-invested company occupant of a Foreign Investment Zone ▶ An industrial support service business or high-tech business that is determined to be eligible for tax relief and has foreign investment amounting to US$1 million or more ▶ An operator of a foreign investment environment improvement facility who rents the property owned by the government

Up to 100 percent

▶ A manufacturing business having foreign investment amounting to US$ 5 million or more ▶ A business substantially contributing to the expansion of SOC, restructuring of the industry or financial independence of the local government

Up to 75 percent

▶ An occupant of a state industrial complex, a general local industrial complex, a municipal high tech industrial complex, or an agro-industrial complex

Up to 50 percent

※Further details can be found in a separate book, “Creating Condition for Success”.

3. CASH GRANT 1) Eligibility In 2004, a cash grant program was introduced for investing companies whose foreign investment ratio is 30 percent or more. The amount of cash grant is determined through negotiations with the foreign investor and deliberation by the Foreign Investment Committee. With respect to the parts industry and basic materials industry, eligible businesses must: make substantial contribution to the added high value of the final products, involve advanced technology or essential high technology and have a potentially farreaching technological impact or substantial impact on the addition of high value to the final products, or play an infrastructural role within an industry or have significant inter-industry effects. Any foreign investor intending to apply to the cash grant program must file with the MOCIE an investment plan and an application for a cash grant, stating the projected total investment amount and details, number of employees, technological impact, and contribution to the local economy. Any cash grant from the central government and the purchase price paid by the government for any land rented to the company will be accounted for in determination of the total amount of the cash grant.

2) Payment of Cash Grant A cash grant is paid either in a lump sum or in 10 or less installments within the period of years or less. With respect to the installment plan, the amount of each installment or the date of payment will be adjusted in consideration of any changes in the investment plan or any actual disbursement from the paid amount. A land purchase price will be paid in installments depending on the specific payment of interim and final payments after the entry into a land purchase contract. The rental fee will

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be paid in accordance with the lease contract between the applicant and the owner or the trustee of the land. Training grants and employment grants will be paid in a lump sum at the beginning of the year following actual disbursement, for duration of five years after the registration of the foreign-invested company. With respect to the training grants, KRW 1 million or less will be paid up to six months for each trainee in a training course for 20 or more Korean nationals. With respect to the employment grants, KRW 1 million or less will be paid up to six months for each new employee in excess of 20; provided, however, that KRW 500 thousand or less will be paid up to 12 months for each newly employed member of the technical staff having a bachelor’s degree or higher in science or engineering. Payment of construction costs together with the purchase price of equipment and installation costs of infrastructure will be based on the actual record of execution of the investment and disbursement plan.

3) Cancellation, Revocation, and Reduction of Cash Grants Any falsification or undue means employed in applying for cash grants, any nonperformance of the obligation under a cash grant agreement, or any inability to conduct the business arising due to insolvency or cessation of business during the period of the agreement may result in cancellation or revocation of the cash grant agreement, or reduction or recovery of the cash grant. Considerations

Requirements

▶ Involvement of high ▶ Foreign investment that amounts to US$10 million or more and involves technology and establishment or expansion of plant technology transfer facilities or places of business for the ▶ Number of jobs created purpose of conducting an industrial ▶ Investment overlaps with support service business or domestic investment high-tech business ▶ Adequacy of location ▶ Foreign investment that amounts to US$10 million or more and involves Impact on local and establishment or expansion of plant national economy facilities for the purpose of producing ▶ Investment viability parts and/or materials that have substantial impact on the addition of high value to the final products or involve advanced or essential technology. ▶ Establishment or expansion of research facilities for an industrial support service business or hightech business; provided that the foreign investment amounts to US$5 million or more, and the company employs 20 or more fulltime researchers having master’s degree or higher and research experience of 3 years or more

Cash grant ▶ The purchase price of or rental fee for the land used for establishment of plant or research facilities ▶ Construction costs of plant or research facilities ▶ Capital goods and research equipment to be used for business or research purposes in plant or research facilities ▶ Installation costs of power, communication and other infrastructure required for the construction of new plant or research facilities ▶ Employment and training grants

4. FOREIGN INVESTMENT SUPPORT AGENCIES 1) Invest KOREA: “Premier One-Stop Service” Invest KOREA is established to provide comprehensive services in counseling, market surveys, paper works and administrative filing, business start-up nurturing and other supports for foreign-invested companies. Government officials from relevant administrative agencies and officers and employees of other foreign-investment related agencies are seconded to Invest KOREA. In addition, a project manager is designated for each foreign investor or a foreign-invested company to facilitate effective support for investment-related tasks of foreign-invested companies. Duties performed by a project manager include, among other things, collection and provision of materials and information and arrangement of meetings upon the request of a foreign investor or a foreign-invested company, advising on tax relief, rent and sale of property owned by the central or local governments, local government activities to attract and support foreign investment, and the qualifications for receiving foreign-investment related cash grant, administrative support and agency service for foreign investment, and provision of information on renting, housing and school admission and other settlement support for the officers, employees and their family members of a foreign investor or a foreign-invested company.

2) Investment Ombudsman Investment Ombudsmen collects information on difficulties faced by foreign-invested companies, and prepares, and recommends to relevant administrative agencies the means to improve foreign investment programs, and perform any other activities as may be necessary to support resolution of such difficulties. Additionally, a grievance system has been established to resolve the grievances of foreign-invested companies, whereby a home doctor is designated for each region and each foreign-invested company.

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Ⅲ. Investment Procedures 1. OVERVIEW AND NOTIFICATION OF FOREIGN DIRECT INVESTMENT The procedures for establishment of a foreign-invested company largely consist of foreign investment notification, corporation or sole proprietorship registration, and foreigninvested company registration. The certificate to be issued attesting to foreign-invested company registration is used as an attachment when filing for overseas remittance of investment proceeds, extended-stay visa (D-8), etc. Procedures to register a plant include selection of the location, approval of establishment of the plant or entry into an occupancy agreement, obtaining of a building permit, and the final registration of the plant.

▶Procedures for Foreign Direct Investment Those eligible are the foreign-invested companies under the Foreign Investment Promotion Act that are engaged in the following lines of business: < Procedures Applicable to All Lines of Business >

Foreign investment registration

Verification of payment of the investment in cash or kind

Registration of incorporation and business registration

Invest KOREA / designated foreign exchange bank

Designated foreign exchange bank/ Invest KOREA

Court/Invest KOREA

Foreign-invested company registration

Invest KOREA/ designated foreign exchange bank

< Procedures Applicable to Manufacturing Business >

Selection of location

Approval of establishment of the plant (individual establishment) or entry into an occupancy agreement (planned establishment)

Invest KOREA / applicable municipal office

Applicable municipal office or industrial complex

Building permit

Applicable municipal office

Registration of plant

Applicable municipal office

Foreign investment can be made through either investment via stocks in three ways acquisition of newly issued shares, acquisition of issued and outstanding shares, and merger or consolidation, or Investment via long-term loan. Each type of investment entails a different set of procedures.

2. ACQUISITION OF NEW SHARES Any foreigner who intends to undertake a foreign investment by acquisition of equity securities newly issued by a Korean corporation (including those going through incorporation procedures) or a company operated by a Korean national must file a notification in advance with any branch of a designated foreign exchange bank or a designated foreign bank, or Invest KOREA. Newly issued shares can be acquired in two ways: Establishment of a new corporation and Participation in the capital increase of an existing domestic company or a foreigninvested company. The notifying party may be either the foreign investor himself or any other person having a power of attorney. The documents to be submitted are a foreign investment notification by acquisition of new equity securities (or of ‘new shares etc.’) as well as a certificate of nationality of the foreign purchaser and any other documents related to the investment in kind, if applicable. If the notifying party is another person acting for and on behalf of the investor, a power of attorney is required as well. The notification procedures are identical if there are any changes in the previous notification statement, i.e. the corporate name or designation or nationality of the foreign investor, the amount of the foreign investment, foreign investment ratio (the percentage of the shares to be owned by foreign investors in the equity securities of the foreign-invested company), means of investment, business objectives, share transferor, the lender, the amount of the loan, and the terms and conditions of the loan. The modification must be filed with the previously notified agency.

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< Flow Chart of FDI through Acquisition of Newly Issued Shares >

Invest KOREA (IK)

FDI Consulting

Preparation of FDI Notification

Invest KOREA, KOTRA Foreign Networks, Local banks, Domestic Branches of Foreign Banks

Submission of FDI Notification

Issue Certificate (immediately)

▶ Consulting foreign investors(real estate, M&A, factory establishment/moving into industrial complex, small-and-medium companies, environment, Constructionengineering & transportation, national taxes/customs) ▶ Tax benefits & guide to regional investment conditions ▶ Administrative works on factory site selection & factory building ▶ Administrative supports like customs clearance,business registration, confirmation on completion of FDI in kind

▶ Notification by Foreign invesotr in person or by an agent with power of attorney ▶ Required documents - Notification form of FDI through acquisition of Newly-issued stocks (two copies) - A copy of a certificate of nationality of the foreign purchaser - Other documents, if applicable(a copy of each) Appraisal statement of industrial property rights by a technology assessment agency Proof of residual assets arised from liquidation of a branch or corpoation Proof of redemption of a overseas borrwoings Proof of proceeds from disposal of stocks or real estates, etc.

▶ Application for tax reduction can be filed concurrently with FDI notificatio - Foreign investors may check whether or not their intended business is eligible for tax reduction before filing a separate application for tax reduction or FDI notification with Economic Cooperation Division at Ministry of Finance and Economy (MOFE) at ☎+82-2-2110-2183 ▶ Application Period - New FDI: before the last day of the tax year in which the business is started - Capital increase: within 2 years from the filing date of FDI notification ※If application filed in after the period, tax reductions will be granted only for the rest applicable period

▶ A certificate of FDI notification shall be issued afterchecking if there is missiong one, whether it is eligibleand if it is intending a restricted business(es)

FDI Capital

▶ Capital in kind - Verification on the detailed statement of imported items by either KOTRA president or president of the foreign exchange bank is required (file with IK or foreign exchange bank) - Confirmation on the completion of contribution in kindupon completion of importing the capital in question (Customs officer seconded to IK) ▶ In cash - Remitted in foreign currency via domestic foreign exchange bank - Carrying in through customs clearance

Invest KOREA

Incorporation

▶ Required Documents (New establishment) - Application form & Articles of incorporation (notarized) - Certificate of underwriting & written subscription - Reports and attendant documents by director(s), auditor and inspector - Minutes of the inaugural meeting & Minutes of the board of directors meeting or shareholders’ meeting - Acceptance receipt of FDI notification form & custody cerfiticate of paid-in capital - Inspector’s deposit receipt or investment in kind confirmation

Institution where FDI notification was filed

FDI Company Registration (Within 30 days from capital payment)

▶ Required Documents - Foreign-invested company registry application - A transcript of corporation register (In case of sole proprietorship, business registration certificate or a copy of ID number certificate) - Certificate of deposit/purchase of foreign currency (In case of capital, a certificate prving copletion of contribution in kind)

Permission & approval of factory building & business commencement

IK

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Factory Building

▶ Survey on location ·Site selection ▶ Factory Establish-ment ·Business plan

▶ Handlig civil appeals en bloc (10) - Approval of factory building, Building permission, approval of business plan by small-and- midsize businesses, etc. ▶ Individual handling (97) - Authorization of allowed business field ※All application forms are available and can be submitted at the IK office

※Registration of changes in foreigninvested company (Within 30 days from the date changes occured)

Foreigninvested company established (in operation)

▶ When notification of acquisition of existing stocks of a company through mergers is made; ▶ When notification of transfer/ reduction in stocks is made; ▶ When the name of a foreigninvested company is changed; ▶ When change(s) is made to the name of the company, nationality of the investor, FDI amount, type, ratio or business operated; ▶ When change(s) is made to the stock transferor, loan provider and others;

3. ACQUISITION OF ISSUED AND OUTSTANDING SHARES Any foreigner who intends to undertake a foreign investment by acquisition of outstanding shares issued by a Korean corporation (including those going through incorporation procedures) or a company operated by a Korean national must file a notification in advance with any branch of a designated foreign exchange bank or a designated foreign bank, or Invest KOREA. Any foreigner who intends to undertake a foreign investment by acquisition of outstanding shares issued by a corporation operating a defense-industry business, however, must obtain the approval of the MOCIE in advance. The notification and approval procedures are identical if there are any changes in previously approved statement in which notification was made, i.e. the amount of the foreign investment, foreign investment ratio, and other details as set forth in the aforementioned case of new shares. Any person who has acquired issued and outstanding shares in violation of the approved terms and conditions may not exercise his/her voting rights, and the MOCIE may order such person to transfer his/her holding to another person.

4. ACQUISITION OF SHARES BY MERGER OR CONSOLIDATION Any foreigner who undertakes a foreign investment by acquisition of shares by merger or consolidation must file a notification with any branch of a designated foreign exchange bank or a designated foreign bank, or Invest KOREA. The most distinctive difference between the procedures required for acquisition of shares by merger or consolidation and those for acquisition of new or outstanding shares is that the notification must be filed within 30 days after the acquisition. This preferential treatment is in the consideration of the fact that it is difficult to file a notification of any investment by merger or consolidation in advance before the foreign capital contribution is imported into the country. The requirements of the notifying party, notified agency, and documents attached hardly differ, though.

Mergers or Consolidations Requiring Notification ▶ Acquisition of any shares issued due to capital transfer of any reserve, revaluation reserve, or any other surpluses of the foreign-invested company under the provisions of any law ▶ Merger or consolidation of the foreign-invested company with or into any other company, merger or consolidation through the shares owned at the time of any share swap, any transfer of shares or company-split, or acquisition of the shares in a corporation surviving or consolidated after such share swap, transfer of shares or company-split ▶ Acquisition by purchase, inheritance, bequest or gift of shares in a registered foreign-invested company from a foreign investor ▶ Acquisition of shares by investing the proceeds from the shares under conditions prescribed by law ▶ Conversion of, subscription to or exchange of any convertible bonds, exchangeable bonds, depositary receipts or any other convertible, subscribable or exchangeable bonds or securities into or for equity securities

5. FOREIGN INVESTMENT THROUGH LONG-TERM LOAN If a loan with a maturity of not less than five years is extended to a foreign- invested company by its overseas holding company or by a company in a relationship with the said holding company of a capital investment meeting certain requirements, then the foreign investor must file a notification in advance with any branch of a designated foreign exchange bank or a designated foreign bank, or Invest KOREA. The requirements of the notifying party and notified agency are identical to those in other cases of share acquisition but differ in that the documents to be submitted include loan agreements and other documents related thereto. Any modification of the amount or terms and conditions of the loan under the Presidential Decree requires a notification of modification.

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Ⅳ. Detailed Explanation of Investment Procedures 1. BUSINESS ESTABLISHMENT 1) Establishment of Presence for Foreigners A foreigner may establish a domestic business presence in the following four ways: through establishment of a local corporation or a sole proprietorship, to either of which the Foreign Investment Promotion Act (FIPA) is applicable, or through establishment of a branch or an office under the procedures as set forth in the Foreign Exchange Transactions Act (FETA). A foreign corporation, however, may not be registered as a domestic sole proprietorship. < Establishment of Presence for Foreigners >

Local Corporation FIPA applicable Sole proprietorship Domestic business presence Branch FETA applicable Office

▶Local Corporation The provisions of the FIPA and the Commercial Law are applicable to foreign investment through establishment of a local corporation by a foreigner or a foreign company. A local corporation is treated equally as a domestic corporation. Establishment of a local corporation requires a foreigner to invest KRW 50 million or more, whereas such minimum capital requirement is not applicable in the case of a branch or an office.

▶Sole Proprietorship Investment in the form of sole proprietorship is classified as direct foreign investment as well if the amount of the investment is KRW 50 million or more. Although such form is no different from a local corporation in its ability to conduct business, yet it is simpler and easier to open, suspend, and close a business and has less social responsibilities and requirements than a local corporation does. The down side, however, is that the poor creditworthiness inherent in this form makes it more difficult to finance the business and secure quality labor. Thus, sole proprietorship is more often utilized for small businesses. < Differences between a Sole Proprietor and a Corporation > Type

Characteristics

Adequacy Registration Capital contributor Investment

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Sole proprietorship ▶ ▶ ▶ ▶ ▶

All profit taken by the sole proprietor Easier to establish an enterprise Faster decision-makings Unlimited liability of the owner Limited financing

Corporation ▶ ▶ ▶ ▶ ▶

Easier financing Non-trivial procedures for incorporation Time-consuming decision-makings Liability limited within the capital invested Ownership and management separable

Small businesses

Medium and large businesses

Not required

Required

Sole proprietor

One promoter or more

KRW 50 million or more

KRW 50 million or more

▶Branch Conduct by a foreign company of ordinary business activities in Korea requires appointment of a representative of a domestic branch, undertaking procedures to establish a branch under the FETA and registration with the court. In addition, a branch is classified as a permanent establishment of business under tax law. To the income generated from the domestic business, the same corporate income tax rate is applicable as to those from domestic corporations.

< Differences Between a Foreign-invested Company and Domestic Branch > Type Governing law Nature

Legal entity

Notification and permits

Foreign-invested company

Domestic branch of foreign company

FIPA

FETA

Domestic corporation

Foreign corporation

The foreign investor and the foreign- The head office and the branch office invested company are separate entities are the same entity (independent accounting and closing) (in accounting and closing) Invest KOREA, or designated foreign exchange bank

Minimum (maximum) Minimum: KRW 50 million per investment amount of investment Maximum: N/A

Taxability

All income generated within or outside the country is taxable: at 15 percent and 27 percent (13 percent and 25 percent from 2005)

Designated foreign exchange bank (notification),The Ministry of Finance and Economy (“MOFE”) (financial business license and other permits)

N/A

Only the income generated within the country is taxable: at 15 percent and 27 percent (13 percent and 25 percent from 2005)

▶Office An office is fundamentally different from a branch. An office is allowed to perform nonbusiness activities only while a branch may conduct business activities. Accordingly, an office requires a serial number issued by the competent tax office similar to that in business registration, but no registration with the court.

2) Procedures to Establish Local Corporation The procedures to establish a local corporation largely consist of three steps: foreign investment notification; corporation or sole proprietorship registration; and finally foreigninvested company registration. The business-establishing procedure by a foreign investor/foreign-invested company is essentially identical with those by a Korean national, except that advance notification of foreign investment and registration of a foreigninvested company are required in addition.

▶Foreign Investment Notification Notification can be made by either the foreign investor himself/herself or any other person presenting a power of attorney signed by the investor. The notification must be filed with designated foreign exchange bank or Invest KOREA and will be processed immediately upon filing. The documents to be submitted are a foreign investment notification form, a certificate of nationality, and a power of attorney, if applicable.

▶Import of Foreign Capital Contributions Foreign capital contributions may be either remitted to a remittance account or carried in through customs. If remitted, the contributions are exchanged within the country and deposited in a capital contribution account (or a securities margin account), then, against which the bank issues a custody certificate of paid-in capital.

▶Business Establishment Registration with Court See the “Procedures to Register Business Establishment” paragraph below.

▶Business Registration See the “Business Registration” paragraph below.

▶Transfer of Paid-in Capital to Corporation’s Account Completion of the court registration and business registration makes the newly incorporated company lawful and valid and allows the paid-in capital in the custody of the bank to be transferred to the account of the company.

▶Foreign-Invested Company Registration A foreign-invested company must register, within 30 days from the date the payment of the capital was completed, to the agency that was earlier notified of the foreign investment. The documents to be submitted are one copy of an application for foreigninvested company registration, one copy of a corporate registry extract, and one copy of a foreign exchange purchase receipt / deposit certificate. The foreign-invested company registration certificate is attached to filing for overseas remittance of investment proceeds and is required when the investor applies for extendedstay visa (D-8).

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3) Procedures to Register Business Establishment The Commercial Law allows four types of companies: unlimited partnership companies; limited partnership companies; corporations; and limited companies. As corporation is the most popular form of business, the following explanation is focused on corporation. It is highly recommended to entrust a lawyer, a judicial scrivener or Invest KOREA with business establishment registration than to undertake it by oneself. Any foreign-invested company whose head office is in Seoul can get help from Invest KOREA as long as the representative director of the local corporation is present at the time of the filing.

▶Types of Business Establishment There are two ways to establish business(es) in Korea: by promotion and by public offering. By promotion, the promoters subscribe for all shares issued at the time of establishment. By public offering, on the other hand, promoters subscribe for part of the shares issued at the time of incorporation and the remaining shares publicly offered.

▶Procedures for Establishment of a Corporation Promoters promoters’ general meeting and keeping minutes of the meeting preparation and notarization of Corporate Statute decision on the number and class of subscription by the promoters for the shares (business the shares to be issued establishment by promotion), or subscription by the promoters for the shares, offering of the shares to the public and allotment of the shares (business establishment by public investment in cash or in kind made the progress of business establishment offering) inaugural meeting (by examined and reported by directors and a statutory auditor board of director’s meeting business establishment registration public offering) notification of business establishment and business registration

▶Registration Period of registration The new business established by promotion must be registered within two weeks of the completion of the investigation of the establishment progress, and as for establishment by public offering, within two weeks of the closing day of the inaugural meeting.

Pre-registration decisions The promoters and any similar corporate names are subject to review. A corporation requires one or more promoters, who must subscribe for shares in writing and thereby become shareholders of the newly incorporated company. Any corporate name that is identical to or not clearly differentiated from another name registered by another person for the same line of business in the same municipality may not be registered.

Documents required for registration The list of the documents required for registration is as follows:

Prepared by applican 1. Foreign investment notification form 2. Power of attorney: ▶If applied for by the representative director: The representative director must be the appointee in all powers of attorney. ▶If applied for by a judicial scrivener: The scrivener must be the appointee in the powers of attorney regardless of promoters or officers 3. Acceptance of appointment of officer ▶Korean nationals: Each acceptance must be sealed, to which a seal impression certificate and a resident registration certificate must be attached. ▶Foreign nationals: Each acceptance must be signed, to which an original copy of signature notarization and a photocopy of the passport must be attached. 4. Custody certificate of paid-in capital 5. Common seal of the company

Prepared with the aid of Invest KOREA 6. Urban rail bond 7. Supreme Court revenue stamp 8. Registration tax receipt: issued by the ward office exercising jurisdiction over the head office 9. Seal of each officer and promoter (including foreign nationals) 10. Corporate Statute: notarized 11. Share subscription certificate 12. Application for shares 13. Organizational report 14. Consent to shortening the inaugural meeting period 15. Minutes of the inaugural meeting: notarized 16. Minutes of the board of directors’ meeting: notarized 17. Common seal notification and application for common seal card 18. Register of shareholders 19. Consent to issuance of shares

The list of the documents prepared by the investor in his/her own country depends on whether the investor is an individual or a corporation and as to a Japanese investor, a separate rule will be applied. In the case of a corporate investor, the applicant must bring a copy of the resident registration certificate or driver’s license of the representative, and seals of all shareholders and officers (including foreign nationals) listed in documents. All powers of attorney or acceptance of appointee to officer(s) must be notarized if given by foreign nationals (with the exception of Japanese nationals). The list of the promoters is not required to be identical to that of the officers.

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< Documents Prepared by Individual Investor >

Power of attorney (1)

▶ Given by investors, officers and any other persons listed in documents - Korean/Japanese: sealed and with a seal impression certificate attached thereto - Foreign national: signed and notarized

Acceptance of appointment (1)

▶ Prepared by all persons listed as officers - Korean/Japanese: sealed and with a seal impression certificate and a resident registry extract attached thereto - Foreign national: signed and notarized

Seal impression certificate (2) ▶ To be attached to the powers of attorney and acceptances Resident registry extract (1) of appointment Photo copies of passport (1)

▶ All foreign nationals

< Documents Prepared by Corporate Investors > Power of attorney (1)

▶ Given by investors, officers and any other persons listed in documents - Korean/Japanese: sealed and with a seal impression certificate attached thereto - Foreign national: signed and notarized

Acceptance of appointment (1)

▶ Prepared by all persons listed as officers - Korean/Japanese: sealed and with a seal impression certificate and a resident registry extract attached thereto - Foreign national: signed and notarized

Seal impression certificate (2) ▶ To be attached to the powers of attorney and acceptances of appointment Resident registry extract (1)

Corporate registry extract, power of attorney given by the corporation

▶ Korean/Japanese corporation: with the common seal affixed, and a common seal impression certificate and a corporate registry extract attached thereto ▶ Foreign corporation: notarized and given by the representative director of the foreign investor corporation to the representative director of the Korean corporation, together with a corporate registry extract notarized and attached thereto

Photo copies of passport (1)

▶ All foreign nationals

Business establishing expenses The costs and expenses for setting up companies include, among other things, the registration tax, education tax, and urban rail bond and registration application fee. < Business Establishing Expenses Exemplified (capital of KRW 50 million, in a large city) > Registration tax: 0.4percent of the paid-in capital (3 times as much if the company is to locate in a large city)

600,000 Won

Local education tax: 20 percent of the registration tax

120,000 Won

Purchase of urban rail bond: 0.1 percent of the paid-in capital Supreme Court revenue stamp (registration application fee)

50,000 Won 15,000 Won

Notarization fee (Corporate Statute, etc.)

Approx. 150,000 Won

Total

Approx. 935,000 Won

4) Notifying Business Establishment and Business Registration ▶Notification and Business Registration Done at the Same Time In general, notification of setting up a company and business registration application may be filed at the same time at the tax office-exercising jurisdiction over the head office or at Invest KOREA. The business registration must be filed for within 20 days of the commencement of business, and the notification be filed within two months of the registration of business establishment. The list of the required documents is as follows:

▶ FDI notification and business registration application forms (available at Invest Korea and the tax office) ▶ Corporate Statute (as well as the specification of contributions in case of contributions in kind) ▶ List of shareholders ▶ Business license (if it falls on the category of the line of businesses requiring license, approval or notification) ▶ Copy of the lease agreement (if the place of business is rented) ※If part of a building is rented, the applicable floor plan must be attached (Only if the key money deposit is equal to or less than 240 million won in Seoul, 190 million won in the Metropolitan Overpopulation Control District, 150 million won in other metropolises, or 140 million won in any other area) ▶ Miscellaneous - Tax payment manager notification (unless there is an employee to handle tax matters) - Copy of foreign exchange purchase receipt / deposit certificate - Copy of foreign exchange purchase certificate - Copy of foreign national registration or passport (if the representative director is a non-resident)

▶Business Registration to Be Done Beforehand When a foreign investor wishes to set up a company through contributions in kind, business registration must be completed before the capital contribution in kind is imported because business registration certificate is required to get refund of the VAT imposed during the customs clearance upon the contribution. Required documents include the resident registry extracts of the promoters, copies of lease agreements, and a copy of the application for business license (if applicable) or a business plan. Others must also be filed after the business setup as well.

5) Sole Proprietorship Registration ▶Registration Flow Chart

Foreign investment notification

Capital contributions deposited (designated foreign exchange bank)

Business registration

Foreign-invested company registration

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▶Foreign Investment Notification Notification can be made by either the foreign investor himself/herself or any other person presenting a power of attorney signed by the investor (notarization not required). Notification must be filed as foreign investment by acquisition of newly issued equity securities with designated foreign exchange bank or Invest KOREA and will be processed immediately upon filing.

▶Remittance of Capital Contributions Funds of domestic origin are not allowed to be remitted as capital contributions to a foreign-invested company. In principle, remittance by third party in lieu of the investor is not allowed either. Against remittance of capital contributions, the bank issues a foreign exchange purchase receipt or deposit certificate, which is required when filing for business registration and foreign-invested company registration.

▶Business Registration The application must be filed by, in principle, the applicant in person, but other person can do the job if only the person presents a notarized power of attorney. The filing must be done at the tax office that exercises jurisdiction over the place of business or at Invest KOREA within 20 days of the commencement of business. The required documents are as follows:

▶Business registration application form (available at Invest KOREA or the tax office) ▶Copy of business license (if it falls on the category of the line of business requiring license, approval or notification) ▶Copy of the lease agreement (if the place of business is rented) ※ If part of a building is rented then the applicable floor plan must also be attached. (Only if the rental deposit is equal to or less than 240 million won in Seoul, 190 million won in the Metropolitan Overpopulation Control District, 150 million won in other metropolises, or 140 million won in any other area) ▶Miscellaneous - Tax payment manager notification (if the sole proprietor stays outside the country for 6 months or more or is not ordinarily stationed at the place of business) - Joint venture agreement, if applicable (notarized) - Copy of foreign investment notification - Copy of foreign exchange purchase receipt / deposit certificate - Copy of foreign national registration or passport (if the sole proprietor is a non-resident)

▶Foreign-Invested Company Registration The registration must be filed, within 30 days of the completion of the payment of the capital contributions, with the same agency where FDI notification was made. Required documents include an application for foreign-invested company registration, a certificate of business registration, and a foreign exchange purchase receipt / deposit certificate.

6) Domestic Branch of Foreign Company ▶Establishment Flow Chart Designated foreign exchange bank Application for establishment of branch MOFE

Deliberation by relevant government agencies

Acceptance & Authorization of branch establishment notification Court registration and business registration: branch Procedures under individual laws Serial no. issued: office

▶Classification of a Branch Classification

Activities

Branch office

Engaged in business activities that generate income within the country

Liaison office

Nonprofit-making activities like liaison works, market research, research and development are allowed, Quality control, market research, advertising, and other activities of preliminary and supplementary nature may be allowed, but maintaining an inventory of products for the purposes of direct sales or sales on behalf of the head office are not allowed.

▶Establishment Notification Principle Notification must be made to the head of designated foreign exchange bank.

Notification must be made to the Minister of Finance and Economy in case of business(es) as follows (both branch offices and liaison offices); Extension of loans, overseas financial brokerage and mediation, credit card services, installment financing and other non-banking financial services Services related to securities and/or insurance Any other services not allowed as prescribed in the provisions of the FIPA or any other law Any other services deemed to threaten public order and standards of decency

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Documents to be submitted when applying for permits or filing notification with a designated foreign exchange bank Notification form of establishment of domestic branch by foreign company Corporate statute of the head office (notarized in the region where the head office is located) Letter of appointment of the head of the domestic branch Power of attorney if applicable (notarized in the region where the head office is located) Corporate registry extract or business license of the head office (a copy notarized in the region where the head office is located can substitute the original)

▶Registration of Establishment of Branch Concept under commercial law The Commercial Law does not have a classification for branches and merely defines a branch as a place of business, which is required to be registered if engaged in profitgenerating business activities. According to registration practice, an office is not engaged in revenue-generating business activities but is only allowed to conduct routine exchange of information and similar activities under foreign exchange regulations and thus may not be registered as a place of business. Only a branch may be registered as a place of business.

Registration procedure Registration Applicant: Representative of the Korean Branch Registration Period: Within three weeks since the establishment of the place of business Matters Required to be Registered - Matters identical to those of a branch of other corporation in the same business category or the most similar corporation - Governing law for the corporation establishment - Name, Address, Resident Registration No. or Date of Birth of the Representative of the Korean Branch Matters to be included in the application form - Place of Business, Date of Decision, Period, etc. Matters to be included in the application form - Law governing f the Company’s Establishment - Name, Address, Resident Registration No. or Date of - Birth of the Representative of the Korea Branch Matters to be included in the application form - Name of the company in Korean letters and classification of it (unlimited partnership, limited partnership, corporate or limited company) - Head office: place where the headquarters located overseas - Business place in Korea

- Purpose of registration: place of business - Reasons for registration: establishment of business place, resolution date and period, etc. - Matters Required to be Registered: Law governing the company’s Eestablishment Name, address, resident registration No. or date of Bbirth of the representative of the Korean branch Date of Establishment of the company, purpose in establishing the place of business and its establishment date. - Date of arrival of the necessary written Permits - Registered Tax Amount, etc. - Date of Application - Foreign company’s name, head office, name and address of the representative for Korean branch - If applied by an agent or attorney, the name and address of the agent or attorney - Mention of concerned registration office Supporting Documents - Certificate (certificate of company establishment Matters): government’s certificate or attested copy of register - Document(s) verifying the status of the representative: minutes of the genera l meeting of stockholders; or letter of resolution from the board of director’s meeting;or letter of appointment - Corporate statute of the company or any other document identifying the nature of the company: as certified by the competent office of the foreign company’s home government or by the consul of the country stationed in Korea Letters of permit, if necessary Translations of each of the above documents or written permits by the consul of the country stationed in Korea Notice of all concerned tax receipts and confirmations, and registration filing fees Power of attorney A registered seal of the Representative: or a signature affixed to the power of attorney given for registration purposes and certified by a government office or a notary public in the company's home country. Letter of acceptance of appointment (Representative) A document verifying the foreigner’s address or certification of address of the foreigner Registration costs Registration tax: KRW 23,000 (or 3 times as much in Seoul and other large cities in its vicinity) Education tax: 20% of the registration tax (KRW 4,600 or KRW 13,800 if levied 3 times as much)

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▶Withdrawal of Residual Assets from Closure and Liquidation Notification If any person having obtained a permit for establishment, etc. under Korean law intends to close a domestic branch or to withdraw the fund from disposal of his domestic assets after the closure, such person must file a notification with the president of a designated foreign exchange bank.

Limit of withdrawal amount The withdrawable amount is limited within the sum of the initial operating capital imported from abroad, retained earnings and other reserves (deducting deficits, if any)

Application form for withdrawal of liquidation income Letter of Application: to be filed under the name of the liquidator if an applicant is appointed Background to the application Liquidation report audited by a CPA (including a balance sheet and a statement of income as of the date of closure or liquidation) Certificates of tax clearance (one copy each for national and local taxes) A statement of the operating capital remitted from abroad, retained earnings and other reserves A certificate of deposit balance (must be consistent with the remittable amount as stated on the liquidation report) A certified copy of liquidation registration, if the branch has been engaged in business activities Or the following documents if a certified copy of liquidation registration is not available - A closure notification certificate (issued by the competent tax office) - A document evidencing appointment of a liquidator - A document evidencing that notification has been made to liquidation creditors (photocopies of public notices in newspapers) - A confirmation of wage arrears clearance for Korean workers (issued by the competent labor office) An original copy of the closure notification

2. FACTORY ESTABLISHMENT 1) Legal System Relevant to Factory Establishment The Industrial Cluster Development and Factory Establishment Act (as well as its Enforcement Decree and Enforcement Regulations) plus the Factory Establishment Administration Guidelines serve as the fundamental law governing the establishment of individual factories and management of industrial complexes. Meanwhile, the Industrial Location and Development Act (as well as the Enforcement Decree and Enforcement Regulations) and the Industrial Site Development Guidelines form the law and regulations

governing development of planned industrial sites. In addition, the National Land Planning and Utilization Act (NLPUA), the Farmland Act, the Highlands Act, the Building Act, the Clean Air Conservation Act (CACA), as well as the National Land Construction Master Plan, the Metropolitan Area Readjustment Plan, and various other pieces of land use legislation may be relevant, depending upon land use, construction methods and environmental matters.

2) Factory Establishment Procedures by Different Types ▶Planned Location Planned location refers to a set of procedures to establish a factory in an industrial complex, whereby the state, a municipality or a private developer: (i) develops an industrial site, (ii) issues a public notice beforehand of the business category, occupancy requirements, occupancy procedures, etc. that are in conformance with the purpose of the development, and (iii) sells or leases the lots to qualified companies. An occupancy contract between the company and the managing agency eliminates the need to obtain factory establishment approval from the municipality. In other words, conclusion of the occupancy contract is regarded as issuance of factory establishment approval. Application for Occupancy, Conclusion of Occupancy Contract Building permit Notification of Factory Establishment Completion (Factory Registration)

Occupancy permit

▶Individual Location Factory establishment approval procedures under the Industrial Cluster Development and Factory Establishment Act (ICDFEA) The following is the procedure whereby a person who intends to engage in a manufacturing business freely selects a location for his/her factory and establishes it accordingly. Factory Establishment Approval ( Building Permit) Establishment Completion (Factory Registration)

Occupancy permit

Notification of Factory

Business establishment approval procedures under the Small and Medium Business Enterprise Establishment Support Act (SMBEESA) The above Act is applicable to small and medium start-up businesses that have been operating less than five years since their establishment. In most cases, such companies choose to freely select their location. Business Establishment Plan Approval Building Permit Factory Establishment Completion (Factory Registration)

40 41

Occupancy permit

Notification of

3) Definition of a Factory Although the definition of “factory” varies slightly in each statute, “factory,” in general, refers to a “building or premises” placed in a certain area (a factory site) “for the purpose of manufacturing, processing or repairing of goods.” The Industrial Cluster Development and Factory Establishment Act defines the concept of a “factory” as a business place for conducting a manufacturing business, equipped with a building or structures, manufacturing facility (including processing, assembly, repairing and test-production facilities) such as machinery and equipment and its accessory facilities. The category of manufacturing business is more precisely, “manufacturing and coal processing” as classified under the Korea Standard Industry Code (KSIC). Scope of Accessory Facilities ▶ Offices, warehouses, guardhouses, observatories, parking lots, restrooms, and bicycle racks ▶ Water cisterns, oil tanks, silos, storage spaces and other outdoor structures for storage purposes ▶ Oil pipelines, outdoor fueling facilities, water supply and drainage facilities, substations, machine rooms and pump rooms ▶ Waste processing facilities and environmental pollution prevention facilities ▶ Test and research facilities and other facilities intended to increase energy efficiency ▶ Public industrial safety facilities and health management facilities ▶ Cafeterias, game rooms, bathrooms, laundries, medical facilities, outdoor physical training facilities, and other facilities such as dorms, for promoting the welfare of employees ▶ Product exhibition and sales site, hoists installed for loading and unloading raw materials and finished products ▶ Other facilities recognized by the Minister of Commerce, Industry and Energy to be necessary for the management and support of the manufacturing plant and the welfare of employees

4) Factory Foundation, Extension and Transfer The definitions given in the ICDFEA are as follows: Classification

Definition

Factory Foundation

Constructing a new building (or a structure) or converting the use of an existing building to manufacturing use and installing manufacturing facilities Installation of manufacturing facilities in an existing factory building is not a foundation of a factory

Factory Extension

Increasing the factory building area or factory site area of a registered factory

Factory Transfer

Closing down a registered factory and building a new factory of the sam e business category in a different location

Change of Factory Business Category

Changing the business category of a registered factory or a factory that obtained approval for establishment into one under a different business category (as classified in the Factory Location Standard Notice) or adding another business category to an existing factory

5) Factory Establishment Procedures ▶Business Plan Establishment Prior to establishment of a factory through foundation, extension or transfer to another location, a careful review of the following considerations in the planning phase and during the establishment procedures in accordance with the applicable law may reduce unnecessary errors.

Considerations in factory establishment

▶ Whether the business falls under manufacturing as classified under the KSIC, the name of the business category, the class number, and the standard factory area ratio ▶ Size of the factory to be established: factory building area and lot area ▶ Whether any environmental discharge facilities under environmental law need to be installed ▶ Whether the founder falls under the category of a small/medium enterprise founder (or whether the company qualifies a venture business under the Act on the Special Measures for the Promotion of Small and Venture Businesses) ▶ Whether the company is eligible for tax relief or financial support ▶ Whether the establishment falls under the FIPA ▶ Whether the business falls under the category of a high-tech business: A business involving advanced technology is eligible for tax relief, while businesses that fall under the high-tech business category are eligible for location support ▶ Whether the business is eligible to receive permits under relevant laws

▶Selection of an Adequate Location and Confirmation of Location Requirements Establishment of a business plan would entail selection of an adequate location, made in consideration of the business category, size, labor force demand and end-market of the factory to be established.

Planned location (e.g. industrial complexes, etc.) versus individual location With respect to the sale of lots in industrial complexes and occupancy schedule, the relevant department of the Korea Industrial Complex Corporation is available to answer questions (at +82-2-6300-5613/4), while individual municipalities may also advise on the current status of lot availability and sales requirements. Type

Merits

Individual location ▶ Selecting desired location at the desired time is possible ▶ Easy expansion ▶ Relatively inexpensive land

▶ Complicated procedures in location selection and development Demerits ▶ Difficulties in changing the land use ▶ Possible friction with local residents ▶ Difficulties in purchasing the land

42 43

Planned location ▶ ▶ ▶ ▶

Simple establishment procedures (occupancy contract) Sharing Industrial infrastructure Tax relief and various incentives Typical economic benefits of industrial clustering (mutual exchange of information, technology etc.)

▶ Selecting desired location at the desired time is impossible (purchase prior to development) ▶ Length of time involved in building industrial complex ▶ High purchase prices ▶ Limited business category eligible for occupancy

Establishment in metropolitan area(Review compliance with ICDFEA) Establishment of factories in the Metropolitan area (Seoul, Incheon and Gyeonggi-do) is strictly limited to control industrial concentration and foster balanced regional development. Since the ICDFEA, in particular, has detailed provisions for the location of individual factories, selection of a location requires review of such provisions.

Zoning district by usage of land(Review compliance with Building Act and National Land Planning and Utilization Act(NLPUA)) With respect to land use, the National Land Planning and Utilization Act(NLPUA) is applicable to each zoning district. Each industrial complex has its own management (and development) master plan governing occupancy requirements and grouped placement for different business categories. Each municipality operates a Location Standard Confirmation System and inquiries regarding location requirements are answered within 10 days. Factory establishment location approval Individual location Business establishment plan approval location (Art. 21 of the SMBEESA) Types of location

National industrial complex

Provincial industrial complex

Planned location

Agro-industrial complex

Cooperation project complex (Arts. 18 through 25 of the Promotion of Small and Medium Enterprises and Encouragement of Purchase of Their Products Act)

6) Factory Establishment Approval Procedures ▶Overview Any person intending to establish a factory of a building size of 500 square meters or larger must obtain an establishment approval from the competent municipality. The building size of a factory refers to the combined horizontal plane of projection of each floor of any building built for the installation of machinery or equipment used for manufacturing and of each outdoor structure used for manufacturing. Additionally, any person intending to establish a factory must obtain permits under individual laws if the zoning district of the land restricts certain acts. For instance, a factory in farmland or forested land requires permission to convert farmland or forested land under the Farmland Act or the Management of Mountainous Districts Act, in which case, simultaneous filing of applications for the permits under each law applicable to the intended land use at the time of applying for factory establishment approval allows for batch processing. Upon the application for factory establishment approval, the municipality decides upon the level of compliance with applicable law and grants approval within seven days if no processing of a legal fiction is required, or 30 days if a conversion of land use is involved. If permits under other laws were required, then stating the required processing by legal fiction and filing relevant documents would require the applicable municipality to consult with other applicable government agencies and consider issuance of the approval, which issuance would be deemed to constitute obtainment of such other permits. If issuance of all such permits is under the authority of the applicable municipality, then the Comprehensive Working Review Committee (CWRC) may make a direct decision (within a statutory period of 14 days). If any of the relevant permits, however, are to be issued under the authority of any other government agencies (e.g. other municipalities, a regional construction management office, and the Korea Forest Service), then consultation is required and such consultation takes a period of up to 30 days. The NLPUA sections the national territory into four types of zoning districts, where only certain acts are permitted. Thus, any factory not suitable for the zoning district (e.g. a factory of 30,000 square meters or larger in a managed area), in principle, may not be established, yet the national territory use plan may be changed so that the zoning district may be converted and the factory established.

44 45

< Permits Assumed by Legal Fiction for Each Phase of Factory Establishment > Phase

Factory establish ment approval

Building Permit

Use

Permits assumed by legal fiction 1. Permission to convert farmland, notification of farmland conversion, and use conversion approval 2. Permission to convert forested land, notification of forested land conversion, use conversion approval, deforestation permits, etc. 3. Permission to convert grassland 4. Bamboo deforestation permits in erosion control areas, and cancellation of the designation as erosioncontrol areas 5. Permission to alter the form and nature of the land or to partition the land, designation of the undertaker of an urban planning facility project, and permission for land transaction contract 6. Permission to undertake river-related works, and permission to occupy and use a river area 7. Permission to occupy and use public waters 8. Permission to relocate graves 9. Permission to open private roads 10. Permission to occupy and use roads 11. Licenses to reclaiming tidal flats in public waters 12. Approval to use agricultural infrastructure facilities for purposes other than designated 13. Permission to use and make profits from state-owned properties, and disuse of roads, rivers, ditches and river banks 14. Permission to use and make profits from administrative properties and preservation properties, and disuse of administrative properties and preservation properties 15. Permission to construct temporary structures, notification of construction of temporary structures, and notification of setup of such installations 1. Permission to occupy and use roads 2. Permission to install facilities or installations under the Sewerage Act, and notification of installation of drainage facilities 3. Authorization to install exclusive waterworks 4. Authorization for and notification of private-use electrical installation work plans 5. Notification of installation of fire fighting facilities, and permission to install hazardous material manufacturing facilities 6. Permission to construct buildings or set up installations, and designation of the undertaker of an urban planning facility project and authorization for implementation program 7. Permission to construct temporary structures, and notification of setup of installations 8. Approval for and notification of installation of waste disposal facilities, 9. Notification and installation of wastewater treatment facilities, notification and installation of an exclusive septic tank, and permission to install or notification of installation of discharge facilities 10. Approval for and notification of installation of discharge facilities under atmosphere and water quality environmental laws and noise and vibration control laws 11. Notification of installation of specified soil-polluting facilities 12. Permission to install simple explosives warehouses 13. Permission to establish liquefied petroleum gas storehouses 14. Permission to establish high-pressure gas storehouses 1. Use inspection of private electrical facilities 2. Completion of inspection of fire fighting facilities, and completion inspection of hazardous material manufacturing facilities 3. Notification of commencement of use of waste disposal facilities 4. Completion of inspection of sewage treatment facilities and exclusive septic tanks 5. Notification of commencement of operation of discharge facilities under the Clean Air Conservation Act, the Water Quality Conservation Act (WQCA) and the Noise and Vibration Control Act 6. Completion inspection under the provisions of the Firearms, Swords and Explosives Control Act 7. Completion of inspection of liquefied petroleum gas storehouses and gas utensil manufacturing facilities 8. Completion of inspection of high-pressure gas storehouses and manufacturing factories, highpressure gas apparatuses, and specific high-pressure gas facilities 9. Completion of inspection under the NLPUA 10. Application for registration of land change under the Cadastral Act

▼ ▼

▼ ▼ Phase

Permits assumed by legal fiction

1. 2. 3. 4. 5. 6. 7. Factory 8. Registration 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19.

Registration of publishing companies and printing houses Registration of grain processing businesses Notification of ginseng manufacturing businesses Registration of livestock feed manufacturing businesses Registration of fertilizer production businesses Permission to conduct butchery businesses and livestock product processing businesses Registration of gauge and meter manufacturing businesses and repair businesses Permission to manufacture materials under the Industrial Safety and Health Act Notification of manufacturing of observation materials under the Toxic Chemicals Control Act Notification of recycling of livestock excreta or wastewater Notification of drinking fountain water manufacturing businesses, registration of water-treatment material manufacturing businesses and notification of water purifier manufacturing businesses Permission to conduct and notification of food and food additive manufacturing and processing businesses, and food container and packaging manufacturing businesses. Permission to conduct functional food manufacturing businesses Permission to conduct esthetics manufacturing businesses Permission to conduct aggregate collection businesses Notification of construction equipment repair businesses Registration of car scrapping businesses Registration and notification of fishery product processing businesses Permission to conduct gambling implement manufacturing businesses

▶Documents to be filed Application: An application for factory establishment approval in the Form No. 12 of the Enforcement Regulations of the Foreign Investment Promotion Act (ERFIPA) Cadastral map: Specifying the planned factory site and facility placement plans (issued by the municipality) Legal fiction specification: A legal fiction specification in the Form No. 12 of the ERFIPA Documents evidencing the rights to use the land and buildings: The filing does not require the land ownership of the planned factory site. The right to use the land would suffice (as evidenced by an occupancy permit, a lease contract, etc., issued or signed by the owner) Business plan Documents attesting the foreign investment ratio

▶Factory Establishment Approval Procedures The review period may be extended with respect to the comprehensive compliance review under the ICDFEA and other laws, and the review of the standard factory area ratio test covering the construction scheduled for a total of four years. The factory establishment approval involving any change in the national territory use plan requires the following considerations: Compliance with the requirements of zoning districts within the National Land Planning and Use Act (NLPUA) Propriety of the business plan and the size of location Impact upon environmental and cultural assets preservation Impact upon the protection of military facilities and military operations Nature of the waste management plan and measures to counter heightened traffic Whether the factory waste water flows into agricultural irrigation and drainage facilities and causes any hindrance to the use of agricultural water

46 47

Compliance with other industrial complex development plans, the National Land Construction Master Plan, the Industrial Block Master Plan, regional development plans, urban plans and any other relevant plans Amount of available groundwater and any impact upon water pollution levels if ground water is to be used as industrial water

Application for approval

Review by CWRC (Intra-agency consultation) (Inspection on the spot if necessary)

Founder

Municipality

Consultation (Inter-agency consultation)

Conclusion

Relevant agencies

Municipality

Issuance of approval

▶Revocation of Factory Establishment Approval Any of the following events may result in revocation of factory establishment approval, in which case it may be ordered to restore forestland or farmland to its original state. The construction of the factory has not commenced within three years of the obtainment of the approval (or two years if permission for, or notification of conversion of farmland is assumed by legal fiction). Revocation of the permission to alter the form and nature of the land renders it impossible to establish the proposed factory The land or buildings for which factory establishment approval was obtained are used for other purposes than as a factory The factory establishment approval requirements are not met

▶Building Permit Any person who obtains a factory establishment permit must obtain a building permit under the Building Act (unless such permit is assumed by legal fiction at the time of issuance of the approval) if the building size is 500 square meters or more; or, file a building notification if it is less than 500 square meters in size. The documents to be filed include an application for a building permit, documents evidencing the rights to the lot, master design drawings, a legal fiction specification, and documents evidencing the foreign investment ratio. Issuance of an approval takes from three to 30 days. Meanwhile, if one building permit is obtained with respect to two buildings or more located in the same factory site, a pre-use inspection may be conducted for each building as it is completed.

Application

Consultation or review

Applicant

Municipality Permit

Other administrative agencies and building committees

< Building Coverage and Floor Area Ratio in Zoning District > District

Building to land ratio

Residential

up to 50% up to 50% up to 60% up to 60% up to 50% up to 70%

up to 500% 50% through 100% 100% through 150% 100% through 200% 150% through 250% 200% through 300% 200% through 500%

up to 90%

up to 1,500%

up to 90% up to 80% up to 70% up to 80% up to 70%

400% through 1,500% 300% through 1,300% 200% through 900% 200% through 1,100% up to 400%

up to 70% up to 70% up to 70%

150% through 300% 200% through 350% 200% through 400%

Green

up to 20%

up to 100%

- Preservation - Production - Natural

up to 20% up to 20% up to 20%

- Class 1 Exclusive - Class 2 Exclusive - Class 1 General - Class 2 General - Class 3 General - Semi-residential Commercial - Central - General - Local - Retail

Urban

up to 70%

Total floor space to land ratio

Industrial - Exclusive - General - Semi-industrial

Managed

Preservation

up to 20%

50% through 80% 50% through 100% 50% through 100% up to 80% (50% through 80%)

Production

up to 20%

up to 80% (50% through 80% )

Planned

up to 40%

up to 100% (50% through 100% )

up to 20%

up to 80% (50% through 80% )

up to 20%

up to 80% (50% through 80% )

Agricultural and forested Environmental preservation

▶Factory Occupancy Permit Any person who obtains a building permit or files a building notification must obtain an occupancy permit for the factory; provided, however, that 11 permits including a preoccupancy permit for a private-use electrical installation may be assumed by legal fiction. Documents required include an application for occupancy permit and a final supervision report.

Application Applicant

Consultation

Municipality

Other agencies

Issuance of occupancy permit

▶Notification of Factory Establishment Completion If any person having obtained factory establishment permission and has completed construction of a factory, such person must then file a notification of factory establishment

48 49

completion with the municipality within two months; provided, however, that such person is an occupant in an industrial complex, then the notification may be filed with the managing agency. If any person, having obtained factory establishment permission has obtained a temporary occupancy permit, installed manufacturing facilities, and finally obtained the occupancy permit for the buildings, then the notification of factory establishment is deemed to have been filed. Notification Municipality or managing agency (verification visits)

Applicant Acceptance of notification (to be processed within 7 days)

If review of the notified factory establishment completion leads to the discovery of any standard excess area as calculated by reference to the standard factory area ratio applicable to the factory, then compliance with the conditions of the issued factory establishment approval is recommended.

Calculation of standard excess area If a single factory unit is engaged in a single business category:Standard excess area = factory lot size – (factory building size/standard factory area ratio. If a single factory unit is engaged in two or more lines of business (the standard factory area ratio applicable to the business category generating the most sales is applicable if the lines of business are not readily distinguishable):

Standard = Building excsee size area

Total floorage for the business category A

(

Standard factory area ratio for the business category A

Total floorage for the business category B

+

Standard factory area ratio for the business category B

)

Exceptional Area ▶ ▶ ▶ ▶ ▶ ▶ ▶

Any lot located in a Green District under the provisions of Art. 36 of the NLPUA Any lot having an airstrip, a railroad, or a road that is 6 meters wide or wider Any lot where roadside clear zones make it difficult to build a factory Any lot used as a large reservoir or settling pond for the purposes of production processes Any lot located in a green district under the ICDFEA A sloped lot having an incline of 30 degrees or more that is deemed unsuitable for the construction of factories Any other lot deemed by the municipality or the managing agency where construction in strict conformance with the standard factory area ratio may cause material hindrance to the operation of the factory ▶ Any lot where the lessee builds a factory

▶Factory Registration The municipality or managing agency in receipt of the factory establishment completion notification makes visits to verify completion of buildings and installation of machinery. If, in such cases, the progress of work during the verification visits is found consistent with the factory establishment approval, the responsible municipality or managing agency makes an entry in the factory registry and notifies the filing party of such registration within seven days of the filing of the factory establishment completion notification.

Filing party

Factory establishment completion notification

Municipality or the managing agency

Notice of registration (Within 7 days)

< Factory Establishment Procedure Flowchart > < Establishment of business plan > Decision on line of business and size, environmental impact assessment, etc. Review of various support programs (business establishment, high tech, financing, tax benefits, etc.) Misc. (Business licensing, foreign investment, etc.)

Establishment of small/medium business

< Selection of location > Planned (e.g. in an industrial complex) or individual location Metropolitan area or not (compliance with the ICDFEA) Zoning district review (compliance with the Building Act and the NLPUA)

Planned location (Industrial complex)

Individual location

Occupancy contract

Land-related permits by legal fiction

<Building permit> Building-related permits by legal fiction

Occupancy-related inspections by legal fiction

Verification visits

Within 7 days of commencement of operation

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Business establishment plan approval

7) Other Considerations in Factory Establishment ▶Business Category Business categories under the Korea Standard Industry Code The lines of business of a factory under the ICDFEA include manufacturing (Classes 15,000 through 37,000) and coal processing as classified under the Korea Standard Industry Code (KSIC). A manufacturing business as defined in the KSIC is any industrial activity applying physical and chemical actions to raw materials and thereby converting such raw materials to a new product of a different nature, which definition effectively excludes processing activities that do not change the inherent nature of the goods as in the case of selection, arrangement, partitioning, packaging and repackaging of goods.

Urban factory An urban factory is a high-tech factory, a low-pollution factory, or a factory closely related to the life of urban residents. The specific requirements are based on the amount of pollution generated. An urban factory is the criterion by which to determine (i) the acceptability of location in the Metropolitan area under the ICDFEA, (ii) the acceptability of establishment of factory buildings under the NLPUA, and (iii) the eligibility of tax relief under the Local Tax Act. Urban type factory

Non-urban type factory

▶ Premises of Atmospheric Classes 4 through 5 that do not have a factory with certain air pollutant discharge facilities

▶ Premises of Atmospheric Classes 1 through 3 or the premises that have a factory with certain air pollutant discharge facilities

▶ Premises of Water Quality Class 5 that do not have a factory with certain water pollutant discharge facilities

▶ Premises of Water Quality Classes 1 through 4 or the premises that have a factory with certain water pollutant discharge facilities

< Classification by Premises Size under Clean Air Conservation Act > Class

Description

Classes 1 thru 3

Premises generating air pollutants of up to 80 tons per year

Class 4

Premises generating air pollutants of 10 tons and above but less than 20 tons per year

Class 5

Any other premises not falling under Classes 1 through 4

< Classification by Premises Size under Clean Air Conservation Act > Class Class 1

Requirements Premises generating waste water of no less than 2,000㎥ per day

Class 2

Premises generating waste water of no less than 700㎥ but less than 2,000㎥ per day

Class 3

Premises generating waste water of no less than 200㎥ but less than 700㎥ per day

Class 4

Premises generating waste water of no less than 50㎥ but less than 200㎥ per day

Class 5

Any other premises not falling under Classes 1 through 4

▶Land Use Management System in Korea The NLPUA is the fundamental law governing land use in Korea, which sections the national territory into four types of zoning district for the purpose of efficient land use, whereby only certain acts of use are permitted in compliance with the designated purposes of each zoning district. Under the NLPUA, an Urban District is subdivided into four zoning districts for efficient urban development, and each district is further subdivided into three or four classes, resulting in a maximum of 16 zoning district classes in total. The uses of land in each zoning district (acts of constructing buildings) are regulated in the Building Act. If the planned location for a factory to be established is in the Metropolitan area, the compliance with the Seoul Metropolitan Area Readjustment Planning Act (SMARPA) as well as the ICDFEA must be the first consideration. The SMARPA sets a ceiling on the total annual building size for factory establishment per year, over which no building permit is given. The ICDFEA sections the Metropolitan area into three regions in consideration of the special qualities of each region and provides for the extension of factories that can be established within the above ceiling in each region.

▶Details of Restrictions in Metropolitan Area Regions The SMARPA and the ICDFEA sections the Metropolitan area into three regions where different regulations are applicable: the Congestion Control Region, the Growth Management Region and the Nature Preservation Region. It is easier to establish a factory in the Growth Management Region than in the Congestion Control Region, more so than in the Nature Preservation Region, in that order. < Regions in the Metropolitan Area > Region

52 53

Congestion Control

Growth Management

Nature Preservation

Bounds

Seoul, Incheon, Suwon and other urban areas near Seoul

Southern and northern Gyeonggi-do

Han River basin in Eastern Gyeonggi-do

Criteria

Cities and provinces where the population growth rate is higher than that of Metropolitan average

Regions having direct or indirect impact on the Han River basin

Any region other than the Congestion Control and Nature Preservation regions

Seoul metropolitan area readjustment planning act(SMARPA) The SMARPA places a ceiling on permissible factory installations and restrictions on the permissible acts within each region. No building permit is given above a ceiling (for each municipality) on the total building size created by factory establishment per year. The acquisition tax, registration tax and property tax are levied upon a factory established in the Congestion Control Region, will be three to five times as much as upon one outside the region (2 percent of the acquisition price, 3 percent of the property price, and 0.6 percent of the property price, respectively). Further, a congestion levy is imposed at the rate of 5 percent of construction costs up to the standard lot size, and 10 percent of construction costs on any lot in excess of the standard size. < Acts Restricted in Each Region > Acts

Development of factory lots

Congestion Control Region Growth Management Region Nature Preservation Region

New designation prohibited

New designation limited

In principle: prohibited over 30 thousand ㎡ Exception: permitted under 60 thousand ㎡

Permitted below 1 million ㎡

Permitted below 1 million ㎡

In principle: prohibited over 30 thousand ㎡ Exception: permitted under 60 thousand ㎡

Development of housing lots

Development of tourist resort lots Permitted below 100 thousand ㎡ Permitted below 100 thousand ㎡

Retail buildings (e.g. dept. stores) Business buildings (office buildings) Congestion levy imposed for Gov. office buildings over 15 thousand ㎡ Training facilities

Colleges and universities

In principle: prohibited over 30 thousand ㎡ Exception: permitted under 60 thousand ㎡

Permitted

Permitted if the total floorage is 15 thousand ㎡

Congestion levy imposed for over 25 thousand ㎡

Permitted

Permitted if the total floorage is 25 thousand ㎡

Permission subject to review

Permission subject to review

Permission subject to review

Prohibited

Permission subject to review

Establishment or extension of training facilities of public institutions permitted

New establishment regulated (Move within the region is possible)

New establishment regulated (permission subject to review if the quota for new enrollment is 50 persons)

New establishment regulated (permission subject to review if the quota for new enrollment is 50 persons)

Industrial cluster development and factory establishment act(ICDFEA) The ICDFEA stipulates restrictions on the foundation and extension of factories. Factories of a large company are, in principle, prohibited, but factories of small/medium companies are differentially regulated for each region. First, in the Congestion Control Region, factories of large companies are prohibited but those of small/medium companies are permitted under the following conditions:

Industrial complex

Industrial districts

Other areas

▶ ▶ ▶ ▶

Foundation and extension of factories of small/medium companies Assumption of a closed factory and establishment of a factory of the same size Move of a factory within the same industrial complex Foundation and extension of factories for daily newspapers

▶ Foundation and extension of urban factories of small/medium companies ▶ Extension of an existing factory (within 3,000 m2) ▶ Move of a factory from another region or between Industrial Districts ▶ Foundation and extension of a factory engaged in a high-tech business category or one that meets the regular needs of people in adjacent residential areas (within 1,000 m2) ▶ Extension of an existing factory of a small/medium company

Second, in the Growth Management Region, no restrictions are placed on foundation and extension of a factory of a small/medium company, while factories of large companies are permitted under the following conditions:

Industrial complex

▶ Foundation and extension of a factory of a large company within Asan National Industrial Complex ▶ Move of a factory within the same industrial complex

Industrial Districts

▶ Foundation of a factory that is engaged in any of the following 8 lines of business and moved from the Congestion Control Region or Nature Preservation Region - Computers, electronic coils, transformers, other electronic inducers - Diodes, transistors, quasi-semiconductors, electronic capacitors - Cable telecommunication devices, broadcasting and radio telecommunication devices - Broadcasting receivers and other audio/visual devices - Aircraft, spacecraft and accessory devices

Other areas

54 55

▶ Foundation and extension of a factory engaged in a business category that meets the regular needs of people in adjacent residential areas or that produces construction materials (within 5,000m2) ▶ Extension of a factory engaged in a high-tech business category (within the extent of 50% of the existing factory size in the case of certain 10 lines of business, or 25% in the case of certain 4 lines of business) ※10 lines of business · Computers, diodes, transistors, quasi-semiconductors · Integrated circuits, electronic cards, LCD devices · Cable telecommunication devices, broadcasting and radio telecommunication devices · Broadcasting receivers and other audio/visual devices · Aircraft, spacecraft and accessory devices ※5 lines of business · Electronic coils, transformers, other electronic inducers · Electronic capacitors, passenger cars and vehicles · Freight trucks and other special-purpose vehicles ▶ Foundation and extension of a factory of a foreign-invested company (25 high-tech lines of business)

Third, in the Nature Preservation Region, factories of large companies are prohibited but those of small/medium companies are permitted on the following conditions: Industrial complex

Foundation and extension of factories of small/medium companies (no limit to the size)

Industrial districts

Foundation and extension of urban factories of small/medium companies (within 3,000 m2) Move of a factory from another region or between Industrial Districts

Other areas

Foundation and extension of a factory engaged in a high-tech business category or one that meets the regular needs of people in adjacent residential areas (within 1,000 m2) Foundation and extension of urban factories of small/medium companies (within 1,000 m2) Extension of an existing factory for the purpose of engaging in a business category that is eligible for establishment in the area

3. LAND ACQUISITION BY FOREIGN NATIONALS 1) Land Acquisition System for Foreigners The regulations on land acquisition and its use and development applied to Korean nationals apply equally to foreigners. If a foreigner intends to acquire any land in Korea, in principle, the foreigner can purchase it regardless of the target land’s zoning district. The foreigner only needs to report to the competent government office after the land acquisition. However, prior approval is required for acquisition of land in a military facility protection zone, cultural property protection zone, ecosystem conservation zone, or some islands that are used for military purposes. Meanwhile, a building site developer/supplier cannot undertake an enterprise independently but can take part in the business as one of the investors of a corporation by investing jointly with the central government, local government, the Korea Land Corporation or the Korea National Housing Corporation etc. In this case, the share of foreign investment should be less than 50 percent of the total investment.

▶Introduction to the System There are three main laws governing land acquisition by foreigners in Korea. Firstly, the Foreigner’s Land Acquisition Act prescribes general matters regarding foreigners’ local land acquisition. Secondly, the Foreign Investment Promotion Act deals incentives for foreign-investment Company such as simplified investment notification procedures, tax reductions or exemptions and favorable conditions on purchasing government properties if they register under the said law and acquire any land in Korea.

Thirdly, the Foreign Exchange Transaction Regulations stipulate matters regarding foreign exchange inflow and outflow related to foreigners’ acquisition of local immovables. In this way, if a foreigner acquires real estate in Korea, the governing law on the acquisition can be different according to the purpose of the acquisition or whether the foreigner resides in Korea or not. For example, if a foreign resident purchases a house as his/her residence, he/she needs only to notify the acquisition to the relevant government office prescribed in the Foreigner’s Land Acquisition Act. However, if a non-resident foreigner purchases real estate in Korea, he/she not only needs to make notification of the land acquisition according to the Foreigner’s Land Acquisition Act, but also needs to make notification of the land acquisition according to the Foreign Exchange Transaction Regulations due to the foreign exchange inflow the acquisition would create. In the case where a foreign-invested corporation is established for the purposes of profit making and purchases land in Korea, the corporation should acquire the land after notification of foreign investment and registering itself as a foreign-invested enterprise as prescribed in the Foreign Investment Promotion Act.

Applicable to

Provisions

Filing

Foreigner's Land Acquisition Act

Foreign Investment Promotion Act

Foreign Exchange Transactions Act (real estate)

Foreigners (any individual of foreign nationality, any foreign corporation, and any domestic corporation where 50% or more of its shares are owned by foreigners) ※ Not applicable to persons having permanentresidence in foreign countries

Foreigners (any individual of foreign nationality and any foreign corporation) ※Applicable to persons having permanent residence in foreign countries as well

Non-residents ※Persons having permanent residence in foreign countries are nonresidents, but not required to file real estate acquisition notifications.

Any foreigner acquiring lands in the country is required to file a notification in accordance with certain procedures (land acquisition notification)

Any foreign investment under the Act must be notified in accordance with certain procedures (Foreign investment notification)

Any nonresident acquiring domestic real estate or any rights thereto(chonsegwon, mortgage, etc.)must file a notification in accordance with certain procedures(real estate acquisition notification)

▶ Cadastral department of the municipal office where the lands is located ▶Within 60 days of the entry into a land purchasecontract

▶ Designated foreign exchange bank, or Invest KOREA ▶ Prior to inbound remittance of an investment

▶ Designated foreign exchange bank, or Invest KOREA ▶ At the time of withdrawal of the real estate purchase price from the bank

▶Foreigner's Land Acquisition Act (FLAA) Any foreigner may acquire domestic lands merely by filing a notification in accordance with certain procedures except in a limited number of cases where permission is required. There are two types of notifications: land acquisition notifications and notifications of continuous holding of land. The documents must be attached to a land acquisition notification vary depending on the cause of acquisition (acquisition by contract, inheritance, auction, exercise of the right of repurchase, acquisition by a final court judgment, etc.).

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In the case of permission as opposed to notification, the foreign purchaser must apply for and obtain a permit prior to the entry into any land purchase contract where the permission is required. If the lands are acquired for for-profit purposes, a foreign investment notification must be filed in addition to a land acquisition notification. If the foreigner acquiring the lands is a non-resident, a real estate acquisition notification under the Foreign Exchange Transactions Act (FETA) must be additionally filed.

Land acquisition through notification There are three types of notifications following land acquisition: land acquisition by contract, non-contracted land acquisition, and continuous holding of land.

Type

By contract

Other than contract

Land acquired by contract (except where permission is required)

Land acquired by inheritance, auction, a final court judgment, etc.

Where a Korean national or a corporation or organization established under the laws of Korea having lands in Korea has become a foreign entity and such foreign entity intends to maintain ownership of the lands.

Within 60 days of the entry into a contract (execution of the contract)

Within 6 months of acquisition of lands (arising of the non-contractual cause) ※Inheritance: inheritor’s date of decease Auction: the date of auction approval Final judgment: the date of judgment

Within 6 months of the day on which the domestic entity becomes a foreign one

Cadastral department of the municipal office where the lands are located

Cadastral department of the municipal office where the lands are located

Cadastral department of the municipal office where the lands are located

A land registry extract, a land purchase contract, and an ID, and ※If filed by proxy, a photocopy of the foreign purchaser’s ID and the ID of the person who files the notification by proxy

A land registry extract, documents evidencing the non-contracted cause, an ID ※Inheritance: Documents evidencing the status of the inheritor (a census registration extract of the inheritor, etc.) Auction: the auction approval Final judgment: the final judgment

A land registry extract, documents evidencing the change of nationality, and an ID

Immediately (3 hours or less)

Immediately (3 hours or less)

Immediately (3 hours or less)

Applicable to

Filing period

Filed with

Required attachments

Processing time

Continuous holding

Land acquisition through prior permission For the acquisition procedures for the lands requiring permission differ from those for the lands requiring notification, it is desirable for a foreigner acquiring domestic lands to check, in advance, whether the target lands require notification or prior permission prior to the entry into a contract. Any purchase contract on any lands in a permission-required zone entered into without permission will result in not only invalidity of the contract but also imprisonment and/or a fine. Permission-required zones may be verified by a land use plan verification issued by the municipal office or through a phone call to the cadastral department of the municipal office.

Requirement

Description

Permissionrequired zones

Military installation protection zones, naval base zones, military air base zones, cultural property reservation zones, ecosystem conservation zones, and insular zones necessary for military purposes

Application for permission

Prior to entry into a contract

Permission issued by

Cadastral department of the municipal office where the lands is located

Required attachments

A land registry extract, a pre-contract agreement between the parties, IDs

Processing time

Within 15 days of the filing of the application

Penal provisions Failure to notify land acquisition by contract may result in a fine for negligence of up to KRW 3 million. Failure to notify non-contracted land acquisition or continuous holding of lands may result in a fine for negligence of up to KRW 1 million. Any purchase contract relating to any lands in a permission-required zone entered into without permission may result in invalidity of the contract as well as imprisonment of up to two years and/or a fine of up to KRW 20 million.

▶Foreign Investment Promotion Act Acquisition of real estate for for-profit purposes (office buildings of the company, factory sites, rental housing, etc.) requires foreign investment registration under the FIPA and land acquisition notification as provided for under the FLAA. However, although any company where foreigners own 50 percent or more of the shares is categorized as foreign company under the FLAA and therefore requires land acquisition notification, a company where the foreign shareholding ratio is less than 50 percent is not categorized as foreign and therefore is treated as Korean and may acquire lands without notification. The above explanations of the FIPA provide more in-depth details.

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▶Foreign Exchange Transactions Act If a real estate transaction accompanies inbound or outbound remittance of foreign currency, the FETA is applicable, which stipulates procedures relevant to foreign currency. The explanations of inbound and outbound remittance of real estate purchase prices provide more details on the FETA provisions regarding real estate transactions.

▶General Restrictions on Domestic Lands The restrictions on lands in Korea that are applicable regardless of the purchaser’s nationality may be classified into acquisition restrictions, use restrictions, and development restrictions.

Land acquisition restrictions Although acquisition by a Korean national of lands in a land transaction permission zone requires a permit issued by the municipal office, such restriction is not applicable to foreigners. In addition, the Farmland Act does not allow any person to own farmland in excess of five hectares outside “Agriculture Promotion Zones”. The Act requires any farmland purchaser to obtain a farmland acquisition license. The Farmland Act, however, permits acquisition of farmland only when the owner can engage in farming business; therefore, it is practically impossible for a non-resident foreigner to acquire farmland in Korea.

Land use restrictions The national territory of Korea is divided into four zoning districts (urban, managed, agricultural and forested, and environmental preservation) under the National Land Planning and Utilization Act (NLPUA) and each zoning district places restrictions on certain acts. Furthermore, the Metropolitan area is sectioned into three regions (the Congestion Control Region, the Growth Management Region and the Nature Preservation Region), where various acts are restricted. Construction of, among other things, commercial office, retail, and government buildings requires payment of congestion levies. The Act also places gross ceilings on the size of factories and schools, establishment and extension of which are restricted. Restrictions on a given tract of land may be verified by a land use plan issued by the municipal office where the lands are located.

Land development restrictions On development projects for, among other, housing sites, industrial complexes and tourist resorts in the Metropolitan area, the Restitution of Development Gains Act had been imposing development levies at the rate of 25 percent of the development gains until the end of 2003, when the government halted the development levy program as part of a levy reduction program. The additional levy program for land development is not yet in effect.

2) Land Acquisition Procedures for Foreigners The laws and procedures applicable to a foreigner acquiring domestic lands vary depending on the purpose of acquisition, residence, and whether the foreigner is an individual or a corporation. The FLAA merely provides for the procedures to follow when a foreigner acquires lands in Korea (land acquisition notification, etc.). In addition to the land acquisition notification, acquisition of real estate for for-profit purposes (real estate lease, etc.) requires foreign investment notification, and acquisition by a non-resident under the FETA involves real estate acquisition notification.

▶Foreign-invested Company Where a foreigner incorporates a domestic corporation (foreign-invested company) under the FIPA to engage in profit-making activities in Korea and purchases real estate (office buildings, factory sites, etc.) in the name of such corporation, the applicable laws are the FLAA, the FIPA, and the Registration of Real Estate Act, which provide for the following acquisition procedures.

Procedure

Foreign investment notification

Incorporation

Business registration

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Relevant authority

Precautions

① ② ▶ Designated foreign exchange bank ③ ▶ Invest KOREA ④

Filing: prior to inbound remittance of the investment To be filed by: the foreign investor or any other person having a power of attorney Documents to be filed: a foreign investment notification (available at the filing office) Processing time: immediately (notification receipt issued)

▶ By Invest KOREA for and on behalf of the applicant

▶ Competent tax office ▶ Invest KOREA

① Filing: Business registration is ordinarily filed for at the time of incorporation in the case of a corporation or within 20 days of the commencement of business in the case of a sole proprietor. Yet if business property including buildings is newly constructed or purchased, refund of value added taxes requires business registration prior to construction or entry into a purchase contract. ② Required attachments: Corporation: a corporate registry extract, etc. Sole proprietor: a photocopy of the foreign investment notification, etc.

Foreign-invested company registration

▶ The authority ① with which the foreign investment ② registration was filed with

Registration: within 30 days of the payment of the capital contribution Required attachments: a foreign exchange purchase receipt / deposit certificate, and a corporate registry extract (or business registration in the case of a sole proprietor)

Entry into a real estate purchase contract and payment of the purchase price

▶ Cadastral Land acquisition notification

Real estate registration

① Filing: within 60 days of the entry into a land purchase contract

department of the ② Required attachments: a real estate purchase contract, municipal office and a real estate registration extract where the lands ※Applicable only if the foreign investment ratio is 50% ore more are located

▶ The competent registry office where the lands are located

① Registration: within 60 days of the entry into the contract (the payment of the balance) ② Required attachments: a corporate registry extract (or a photocopy of a resident foreign national registration in the case of a sole proprietor), a registration application, documents evidencing the cause of registration (contracts certified by the municipal office, etc.), a registration right deed, and a real estate registry extract ※Also, a power of attorney as signed by the registrant if the registration is filed for by any other person for and on behalf of the registrant

▶Resident Foreign National Where a resident foreign national purchases a residential apartment unit or a domestic branch of a foreign corporation acquires real estate, registration of transfer of ownership requires only filing of a notification with the competent municipal office within 60 days of the entry into the purchase contract and no notifications under the FETA (since only lands requires acquisition notification). The applicable laws are the FLAA and the Registration of Real Estate Act(RREA). Procedure

Relevant authority

Precautions

Entry into a real estate purchase contract and payment of the purchase price

Land acquisition notification (FLAA)

▶ Cadastral department ① Filing: within 60 days of the entry into a land purchase contract of the municipal office ② Required attachments: a real estate purchase contract and a real where the lands estate registry extract are located

Real estate registration

① Registration: within 60 days of the entry into the contract (payment of the balance) ▶ The competent ② Required attachments: a photocopy of a resident foreign national registration registry office (or a corporate registry extract in the case of a branch), a registration application, where the lands documents evidencing the cause of registration (contracts certified by the are located municipal office, etc.), and a real estate registry extract ※Also, a power of attorney as signed by the registrant if the registration is filed for by any other person for and on behalf of the registrant

▶Non-resident Foreign National A non-resident foreign national must, in principle, first file a “real estate acquisition notification” with the designated foreign exchange bank at the time of the inbound remittance of the purchase price, and then, if the property is land, file a “land acquisition notification” with the competent municipal office prior to going through transfer of ownership registration procedures. The applicable laws are the FLAA, the FETA, and the RREA. The real estate purchase price filed may be remitted overseas after filing of a payment notification with the designated foreign exchange bank. Any proceeds from the sale of real estate that was not filed must notify the Bank of Korea at the time of the outbound remittance. Procedure

Relevant authority

Precautions

Entry into a real estate purchase contract

① Filing: at the time of withdrawal of the real estate purchase price from the bank Real estate ▶ Designated ② Required attachments: a real estate purchase contract, a real estate appraisal acquisition foreign exchange report(or a government-appraised land value statement), and a real estate notification (FETA) bank registry extract

Payment of the purchase price

▶ Cadastral Land acquisition notification (FLAA)

① Filing: within 60 days of the entry into a land purchase contract

department of the ② Required attachments: a real estate purchase contract, and a real estate municipal office registration extract where the lands ※No land acquisition notification is required where any real estate other than are located lands (buildings) and rights thereto (chonsegwon, mortgage, etc.) is acquired

① Non-resident foreign individual - Application filed with: Seoul Immigration Office - Required attachments: a receipt for land acquisition notification, and a ▶ Individual: Seoul photocopy of the passport Immigration ② Non-resident foreign corporation Office - Application filed with: the cadastral department of the municipal office where the lands are located Application for real ▶ Corporation: Cadastral - Required attachments: a receipt for land acquisition notification, and estate registration department of documents evidencing the corporate registration, the identification of the number the municipal representative, the certification of the address of the representative as office where the issued by the company’s country of incorporation (or the embassy of lands is located such country to Korea), etc. ③ If applied for by proxy: an ID identifying the nationality of the attorney, and a power of attorney as notarized by a notary public in the company’s country of incorporation

Real estate registration

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① Registration: within 60 days of the entry into the contract (the payment of the balance) ② Required attachments: a document evidencing the address, a registration certificate issued for real estate registration purposes, a registration ▶ The competent application, documents evidencing the cause of registration (contracts registry office where certified by the municipal office, etc.), a registration right deed, and a real the lands are located estate registry extract ※Also, a power of attorney as notarized by a notary public in the company’s country of incorporation if the registration is filed for by any other person for and on behalf of the registrant

▶Korean Nationals with Permanent Residence in a Foreign Country Since any Korean national having permanent residence in a foreign country has Korean nationality and treated as a Korean residing in Korea, such person is not subject to the FLAA or land acquisition notification. Furthermore, such person is not subject to real estate acquisition under the FETA, either, regardless of domestic residence. The applicable law is the RREA. A Korean of foreign citizenship, however, as opposed to those of mere foreign permanent residence, is a foreigner under the FLAA, and is therefore required to file land acquisition notifications. Moreover, if such person is a non-resident in Korea, acquisition of domestic real estate requires notification under the provisions of the FETA. Procedure

Relevant authority

Precautions

Entry into a real estate purchase contract and payment of the purchase price

① Required attachments: documents evidencing the address or the Application for real ▶ Registration residence (may be substituted with a overseas Korean registration estate registration no. Department of certificate) (if the resident the District Court registration no. is of Seoul deregistered) (Tel.: 530-1892)

Real estate registration

① Registration: within 60 days of the entry into the contract (the payment of the balance payment) ② Required attachments: a document evidencing the address or residence, a registration application, documents evidencing the cause of ▶ The competent registration (contracts certified by the municipal office, etc.), a registry office registration right deed, and a real estate registry extract where the lands ※Document evidencing the address: an overseas Korean residence are located certificate as issued by the competent diplomatic establishment of Korea ※Also, a power of attorney as signed by the registrant if the registration is filed for by any other person for and on behalf of the registrant

3) Procedure for carry-in/carry-out of Real Estate Purchase/Sale fund The FETA classifies the fund involved in real estate transactions into three categories: those personally carried in, those remitted from abroad, and those domestically generated. Both resident and non-resident foreigners can freely carry in money or get remittance from abroad if it is used for real estate acquisition. In this case, outbound remittance of the sales proceeds of the relevant real estate is also guaranteed if the designated foreign exchange bank is notified). The outbound remittance of the proceeds from the sale of the real estate that was purchased with money domestically generated, however, requires permission of the Bank of Korea.

▶Foreign-invested Company and Korean Branch of a Foreign Company Inbound remittance As discussed in the above paragraphs describing the procedures for real estate acquisition by foreigners, a foreign investor planning for foreign-invested company registration may remit from abroad real estate purchase prices after filing a foreign investment notification, and then file for foreign-invested company registration after other preparations for real estate acquisition are made. A domestic branch of a foreign company may remit from abroad real estate purchase prices in the form of operating capital through the designated foreign exchange bank and then use them to purchase real estate.

Outbound remittance Ordinary purchase of real estate does not entail a separate inbound remittance for each transaction. Rather, either the paid-in capital of a foreign-invested company or the operating capital of a domestic branch allotted for the payment of the purchase price. Accordingly, the proceeds from the sale of real estate must be remitted abroad on the account of capital reduction or dividends in the case of a foreign-invested company or on the account of operating profit, in the case of a domestic branch of a foreign company, instead of separate outbound remittance for each transaction. In the case of a domestic branch, though, no reduction of operating capital is accepted except where the branch is closed and the liquidation income there from is remitted abroad. If a foreign-invested company has sold its business real estate, its outbound remittance is possible after it files a share transfer notification and files a payment notification to the designated foreign exchange bank. ※Notification of transfer of equity securities - Notification period: within 30 days of the transfer agreement on equity securities - Office for notification: foreign banks, or Invest KOREA - Documents to be submitted: a real estate purchase agreement and a copy of a tax payment receipt ※Cancellation of registration of foreign-invested company must be filed for if the business is liquidated ※Payment notification - Notification period: at the time of the outbound remittance of the proceeds from the real estate sale - Office for notification: designated foreign exchange bank - Documents to be submitted: a sales contract, a receipt for share transfer notification, a copy of passport and resident foreign national registration, foreign exchange purchase certificates (in the case of a non-resident or a resident foreign national who has resided in the country less than 5 years), a confirmation of taxes paid (to be paid)

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▶Resident Foreign Nationals Inbound remittance If a resident foreign national purchases real estate for residential or non-profit purpose, no separate notification procedures under the Foreign Exchange Transactions Act (FETA) are required at the time of the inbound remittance for the purchase.

Outbound remittance A foreign-invested company’s outbound remittance of income from sale of its domestic real estate, which was acquired with money carried in or remitted from abroad (including the money deposited in an overseas account), requires only filing of a payment notification and supporting documents with the designated foreign exchange bank. In other cases, (e.g. where real estate was purchased with money domestically generated), the resident foreign national should notify to the Bank of Korea of the outbound payment of the income from the domestic real estate sale.

▶Non-resident Foreign Nationals If a non-resident foreign national intends to purchases domestic properties for non-profit purposes, the notification of real estate acquisition, in principle, must be filed with the designated foreign exchange bank at the time of the inbound remittance of the purchase price. The real estate purchase price that was filed may be remitted overseas after filing of a payment notification with the designated foreign exchange bank. Any proceeds from the sale of real estate that was not filed must be notified with the Bank of Korea at the time of the outbound remittance. Although a non-resident foreign national as well as a foreign corporation may purchase domestic properties for non-profit purposes, purchase of properties for for-profit purposes requires establishment of a domestic corporation or branch in advance. Engaging in leasing or other profit-making activities after purchasing domestic properties in the name of a foreign corporation would require establishment of a domestic corporation and transfer of title and thereby bears twice the burden of paying acquisition taxes, registration taxes and other taxes on transfer of title. Some under-funded domestic companies enter into sale and leaseback agreements with foreign companies, in which case the leaseback also constitutes an act of profit making and therefore the foreign company must establish a domestic corporation or branch.

Inbound remittance If a non-resident intends to acquire a domestic real estate or the real right, right of lease or any other rights similar thereto, a notification must be filed with the designated foreign exchange bank in any of the following cases: Where the acquisition is made with funds carried in or remitted from abroad (including the moneys deposited in an overseas account); Where the non-resident acquires a lien arising from a due transaction with a resident, or a domestic real estate or any other rights thereto through exercise of such lien; and Where the non-resident acquires a domestic real estate or any other rights thereto from any other non-resident who acquired the same real estate or any other rights thereto with the monies as set forth in (a). The filing must be made at the time of withdrawal of the purchase fund and with the designated foreign exchange bank. The documents to be filed are a real estate acquisition notification, a lease contract notification (if leased), a collateral offering notification (if a resident offers collateral to a non-resident), a real estate purchase contract, and documents evidencing acquisition of liens, if any. In this case, foreigners should be aware that sale of real estate and overseas remittance of the proceeds would require submitting a real estate acquisition notification to the remitting bank, and that unlike the case of land acquisition notification, in the acquisition of building(s) only the real estate-related rights other than the ownership is subject to filing. No notification or permit, however, is required in any of the following cases: Where a non-resident mining right holder acquires a domestic real estate or any other rights thereto as permitted under the provisions of the Submarine Mineral Resources Development Act; Where a non-resident leases a domestic real estate for the residential purposes for himself, his relatives and/or his employees; Where a non-resident Korean national (a legal resident in a foreign country) acquires a domestic real estate or any other rights thereto; and Where a non-resident acquires a domestic real estate or any other rights thereto from another non-resident staying in Korea.

Outbound remittance Outbound remittance of income from sale of domestic real estate or any other rights thereto that was acquired in any of the following manners requires notification to the designated foreign exchange bank with documents which prove the acquisition and sale of the said real estate or any other rights thereto. Where the non-resident acquired with fund carried in or remitted from abroad the domestic real estate or any other rights thereto that are exempted from permits and notifications; and

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Where the acquisition was made with notification to the designated foreign exchange bank or notification given to and permits given by the Bank of Korea. If a Korean national residing in a foreign country intends to remit overseas the proceeds from the sale of real estate owned in his name, a real estate sale price confirmation and other documents must be filed with the designated foreign exchange bank. In any other cases than the above, if a non-resident intends to remit the proceeds from the sale of a domestic real estate or any other rights thereto, a notification must be made with the Bank of Korea. < Resident and Non - resident under FETA > Resident

Any individual having an address or a place of abode in Korea or any corporation having its principal office in Korea

Non - resident

Any other individual or corporation

Any branch or satellite and other offices of a nonresident located in Korea Any overseas diplomatic establishment of Korea Any organization, agency or any other similar units having its principal office in Korea Any Korean national dispatched to and stationed in an overseas diplomatic establishment

Any diplomatic establishment of a foreign government or any international organization in Korea The US armed forces, or any member or civilian employee thereof Any place of business or any other office located in a foreign country Any organization, agency or any other similar units having its principal office in a foreign country

The following foreign nationals - Any person working or engaged in business activities for a domestic place of business or any other office - Any person staying in Korea for 6 months or more - Any person who was a resident and who reentered within 6 months of the last departure and is staying in Korea for the purpose of staying for 6 months or more

The following foreign nationals: - Any person staying in Korea for the purpose of working for any diplomatic establishment of a foreign government or any international organization in Korea - Any person entering Korea for the purpose of official business of a foreign government or any international organization Any of the following: A Korean national deemed as a non-resident; provided, however, that such person is deemed a resident if such person temporarily enters Korea and stays in the country for 3 months or more. - Any person working for a place of business or any other office or any international organization in a foreign country - Any person who has stayed abroad for 2 years or more or who has left Korea for the purpose of staying abroad for 2 years

4) Real Estate Taxes ▶Taxes Applicable to Each Phase Purchasing phase The taxes levied in the phase of purchase (registration) of real estate include the acquisition tax (2 percent of the acquisition price), registration tax (3 percent of the acquisition price) and value-added tax (10 percent of the acquisition price, which may be refunded or count toward tax credit for a business), and other cascading taxes such as the local education tax (20 percent of the registration tax). As another burden, national housing bonds must be purchased as well (the amount of which may be reduced at the rate of the foreign investment ratio if the company is registered as a foreign-invested company). On any of the following types of purchase, the acquisition tax is levied at 6 percent, three times as much as otherwise: Where real estate is acquired for the purpose of founding or extending a factory in the Metropolitan Congestion Control Region (except in industrial complexes, investment promotion areas and Industrial Districts); Where business purpose real estate of the head office or principal office of a corporation is built or extended in the Metropolitan Congestion Control Region; and Where luxurious real estate (deluxe houses, country houses, golf courses, etc.) or a non-business purpose real estate is acquired (levied at 10 percent, five times as muc h as the normal rate). Additionally, the registration tax is levied three times as much (9 percent) in any of the following cases: Where the registration of real property is arising from foundation or extension of a factory in the Metropolitan Congestion Control Region (except in industrial complexes, investment promotion areas and Industrial Districts); and Where the registration of real estate is arising from establishment or moving of a head office or a branch office, or acquisition of any and all properties made within five years of such establishment or moving in or to the Metropolitan Congestion Control Region (except in industrial complexes). Provided, however, that the acquisition tax and registration tax are either reduced or exempted for high-tech businesses and the businesses in foreign investment zones.

Ownership phase The taxes levied in the phase of owning real estate include the property tax (0.3 percent to 7 percent of the value of buildings), aggregate land tax (0.2 percent to 5 percent of the land value), and other cascading taxes such as the local education tax (20 percent of the real estate tax and aggregate land tax).

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Founding or extending a factory in the Metropolitan Congestion Control Region, however, results in the property tax levied five times (1.5 percent) as much for the subsequent five years; provided, however, that the property tax and aggregate land tax are either reduced or exempted for high-tech businesses and the businesses in foreign investment zones. A rental business operator must pay the value-added tax (10 percent of the lease fee, collected from the lessee) and the corporate income tax (15 percent or 27 percent) or personal income tax (9 percent to 36 percent) on the lease income.

Selling phase The taxes levied in the selling phase of real estate include the value-added tax (10 percent of the transfer price of buildings) as well as the capital gains tax (9 percent to 36 percent) and resident tax (10 percent of the capital gains tax) in the case of an individual or the corporate income tax (15 percent or 27 percent) and resident tax (10 percent of the capital gains tax). In the case of individuals, however, sale of unregistered real estate may result in a heavy tax burden at the rate of 70 percent.

▶Tax Incentives for a Foreign-Invested Company Acquisition of a real estate made by an industry support service business or a high-tech businesses under the Foreign Investment Promotion Act (FIPA) or acquisition of real estate within a foreign investment zone is eligible for tax relief with respect to the acquisition tax, registration tax, property tax and aggregate land tax (100 percent for the first five years and 50 percent for the subsequent two years). The local government may, by its ordinances, extend the relief period within the extent of 15 years or increase the reduction rate (refer for details to the tax relief paragraph in the explanation of foreign investment programs). If any company registered as a foreign-invested company under the FIPA files for a building permit for business purpose buildings or registration of business purpose real estate, any company eligible for tax relief under the Restriction of Preferential Taxation Act (RPTA) is eligible for total exemption from purchase of national housing bonds, and any other foreign-invested company is eligible for reduction of the amount of the bonds to be purchased in proportion to the foreign investment ratio.

▶Summary of Real Estate Related Taxes Phase

Taxes and dues

Remarks ▶ Founding or extending a factory and construction of business-purpose

Acquisition

Acquisition tax (2% of the acquisition price)

Heavier imposition

Relief Value-added tax (10% of the acquisition price)

real estate for the head office in the Metropolitan Congestion Control Region: 3 times normal rate (6%) ▶ Acquisition of golf courses, country houses and other luxurious real estate and non-business purpose land for a corporation: 5 times normal rate (10%)

▶ High-tech businesses and the businesses in Foreign Investment Zones

May count toward tax credit if engaged in business Exempted if a house under the national housing standard size is purchased (85 m2)

▶ Founding or extending a factory in the Metropolitan Congestion Control Region: 3 times normal rate (9%) Registration tax (3% of the acquisition price)

Heavier imposition

Registration

Local education tax (20% of the registration tax) Relief

▶ Registration of real estate arising from establishment or moving of a head office or a branch office, or acquisition of any properties made within 5 years of such establishment or moving in or to the Metropolitan Congestion Control Region: 3 times normal rate (9%) ※Same as in the above case of the acquisition tax

▶ Reduction of the amount of the bonds to be purchased in proportion to the foreign investment ratio. National housing bonds

Relief

▶ If the standard market value is 100 million won or more: 6.5% on residential buildings (or 7% in large cities) or 4.5% on any other buildings (or 5% in large cities)

Heavier imposition

Founding or extending a factory in the Metropolitan Congestion Control Region: 5 times normal rate for the subsequent 5 years

Relief

High-tech businesses and businesses in Foreign Investment Zones are eligible

Aggregate land tax (0.2 to 5%)

Relief

High-tech businesses and businesses in Foreign Investment Zones are eligible

Cascading taxes

Local education tax (20% of the real estate tax and comprehensive land tax)

Property tax (0.3 to 7%)

Owning

Individual

Capital gains tax (9 to 36%)

Heavier imposition

70% on sale of unregistered real estate (or 60% if sold within 1 year or 50% if sold after 1 year)

Sale

Corporate income tax Corporation (15 % or 27%) (13% or 25% from 2005)

Any capital gains are counted toward non-operating income and the corporate income tax is levied thereon.

Resident tax

10% of the capital gains tax or corporate income tax

Value-added tax

10% of the transfer price of buildings (collectible from the transferee)

4. EMPLOYMENT PRACTICES 1) Employment ▶Overview The employer must enter into an employment contract setting forth the wages, working hours, place of employment and duties. In particular, the components, calculations, and terms of payment of wages must be expressed in writing. The employer may not enter into a contract that provides for any monetary penalty or any liquidated damages for breach of employment contract. Any employment contract setting forth any working conditions that fail to meet the standards as set forth by the law is invalid within such extent, and the standards as set forth by the law are applicable.

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▶Mandatory Employment Any company employing 50 persons or more must fill 2 percent or more of its employees with physically handicapped persons, and failure to do so results in a penal share. Such company should also make its efforts to keep 3 percent of its work force as elderly persons. The employment insurance scheme pays incentives to those companies who keep or newly employ elderly persons at a certain ratio or more or to those who reemploy any person aged from 45 years up to 60 years within two years of his/her previous retirement in the process of restructuring.

▶Prohibited Employment For any harmful or dangerous duties involving high-pressure containers, radioactivity, etc., no unqualified, unlicensed, or unskilled person may be employed. No female employee or employee aged less than 18 years may be engaged in any harmful or dangerous duties or any duties in a pit. No person aged under 15 years may be employed unless such person owns an employment permit issued by the Ministry of Labor.

2) Employer’s Duties ▶Working Hours, Breaks, and Holidays Although the daily and weekly working hours may not exceed eight hours a day and 40 hours (excluding breaks) per week, respectively, the hours, however, may be extended up to 12 hours per week, if agreed to by the workers. Breaks of 30 minutes or more must be given if the working hours are four hours or more, and breaks of 1 hour or more if the working hours are eight hours or more. Any worker who served a prescribed number of days in a week must be given one paid holiday or more per week on the average. Companies can not force any female to work between 10 p.m. and 6 a.m. or on a holiday without her consent. No pregnant female nor person under the age of 18 may be compelled to work between hours from 10 p.m. and 6 a.m. or on a holiday without the approval of the Ministry of Labor (MOL). Any worker who reported for duty for 80 percent or more of a year must be granted 15 days paid leave, to which an additional day of leave is added for every two years up to a total of 25 days. Leave must be granted on such days at requested by the worker and the ordinary or average wages in accordance with the staff regulations or other provisions must be paid for the leave. The employer, however, may grant leave at other days than requested if granting of leaves at requested days would cause a critical impediment to the operation of the business.

Pregnant female workers may not be scheduled to work overtime and must be granted 90 days of maternity leave inclusive of the date of childbirth (with the first 60 days paid). Workers requesting time off to participate in any election covered under the Election of Public Officials and the Prevention of Election Malpractices or in the exercise of any other civil rights or performance of other civil duties must be granted upon request.

▶Payment of Wages and Allowances Payment of wages must be made in full, in common currency, and in the minimum amount or more, directly to the worker on one or more prescribed days in each month. The minimum wages are annually determined and publicly notified by the MOL. The minimum wages for any person under the age of 18 who has served for less than six months, however, is 90 percent of the above minimum wages. The term “minimum wages” implies that such wages excluding (i) any wages that are not periodically paid once or more in each month (bonuses, allowance for regular attendance, etc.), (ii) wages for services other than prescribed (overtime allowance, night duty allowance, etc.), and (iii) various fringe benefit remunerations (family allowance, commutation allowance, food expenses, etc.) must be equal to or exceed the minimum wages. Fifty percent or more of the ordinary wages must be additionally paid for overtime duties, night duties (duties performed during hours between 10 p.m. and 6 a.m.) and holiday duties. If the operation is suspended due to any cause attributable to the employer, 70 percent or more of the average wages must be paid to all affected workers during the period of the suspension.

▶Restrictions on and Prior Notice of Dismissal No employee may be subject to dismissal, layoffs, suspension, punitive wage cuts or any other punitive actions without just cause. No employee may be dismissed during days off taken for recuperation from an injury or disease arising out of duty or 30 days thereafter. No female prior to or after childbirth may be dismissed during days off taken under the provisions of the law or 30 days thereafter. Dismissal of any worker (including dismissal for managerial reasons) requires a prior notice given at least 30 days in advance. Failure to give a 30-day prior notice results in an obligation to pay ordinary wages for 30 days or more.

▶Employee Retirement If an employment contract for a fixed term has been entered into, then the expiration of the employment contract term alone, in principle, results in termination of the employment with no other dismissal actions, where the parties to such employment contract may extend or renew the contracted term of their own volition. Any employer ordinarily employing five or more workers must pay to any retiring employee as severance benefits ordinary wages for 30 days or more for each year of consecutive service. In other words:

72 73

The amount of the severance benefits = the number of years of consecutive service (i.e. the number of days of service/365) the average wages for 30 days. Any employer who has served for less than a year, however, is not entitled to severance benefits.

3) Dismissal of Employee ▶Dismissal Requirements No employee may be subject to dismissal, layoffs, suspension, punitive wage cuts or any other punitive actions without just cause. Legitimate dismissal validly terminates the employment contract. Since expiration of the contracted term, resignation, and extinction of a party do not constitute dismissal, the restrictions on dismissal are not applicable, in principle. In certain circumstances, however, refusal to renew a termed contract that has been repeatedly renewed, recommended resignation against the employee’s will, disguised cessation of business, and other similar acts may be deemed as dismissal. In general, dismissal has to be based on just cause, i.e., the worker’s fault severe and unacceptable enough not to be able to continue the employment contract. In other words, absence without leave, bad conduct, malfeasance, falsification of career records, and any other acts or behaviors against good-faith performance of the employment contract or disciplines of the operation fall under such faults. Further, since dismissal requires not only substantial justification but also procedural justification, violation of any procedures provided for under a collective agreement or staff regulations may constitute unjust dismissal.

▶Requirements of Dismissal for Managerial Reasons Dismissal of workers for managerial reasons requires (i) urgent managerial necessity, (ii) efforts made to avoid dismissal, (iii) reasonable and fair criteria for dismissal, and (iv), selection of the affected in accordance with such criteria. The management must notify the labor union comprising the majority of the workers or any other person representing such majority, if such union does not exist, of the possible measures to avoid dismissal and the dismissal criteria at least 60 days prior to the intended date of dismissal, and must confer with such union or person in good faith.

< Requirements and Procedures of Dismissal for Managerial Reasons > (Articles 31 and 31-2 of the Labor Standards Act)

Urgent managerial necessity arises - Continually aggravated management resulting in the company facing managerial crises - Transfer, acquisition, merger or consolidation of business to prevent further aggravation

▼ Efforts to avoid dismissal - Limit on overtime work, simultaneous taking of leaves - Reduction of working hours (wages) and other labor cost reductions - No more new employment - No renewal of temporary employment contracts - Re-stationing, dispatch to other companies - Temporary suspension (temporary retirement) - Receiving application for voluntary retirements, etc.

Good-faith deliberation (The representative of workers must be notified at least 60 days in advance of possible measures to avoid dismissal and the dismissal criteria)

Labor union or representative of workers

▼ Reasonable and fair selection of dismissible employees - Made by the labor and the management in sufficient consideration of the other party’s standpoint, no gender discrimination

Good-faith deliberation

Alternatives to dismissal, opinions on and alternatives to the selection criteria

▼ Notification with the MOL 30 days prior to dismissal - If 10 or more persons are dismissed in premises employing 99 persons or less, or if 10% or more persons are dismissed in premises employing 100 up to 999 persons, or if 100 or more persons are dismissed in premises employing 1000 persons or more

▼ Dismissal for managerial reasons - 30-day prior notice or allowance (ordinary wages for 30 days)

▼ Efforts to reemploy dismissed employees - At the time of new employment within 2 years of the dismissal for managerial reasons

▶Restrictions on Dismissal No employee should be dismissed during his/her leave and the following 30 days for his/her medical treatment for a disease or an injury out of his duty and maternity leave. No employee should be dismissed for reasons of joining, establishing or performing duties for a labor union. No discriminatory treatment in dismissal should be given for reasons of marriage, gender, religion, nationality or social status. No dismissal or other unfavorable treatment should be determined or given on the ground that the employee has informed a labor inspector of any violation of the law.

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4) Labor Unions and Direct Actions ▶Labor Unions Workers may voluntarily and independently organize a labor union in a bid to maintain and improve working conditions and the social and economic status of workers. No legal restrictions are placed on the organizational form of a labor union. Although multiple labor unions are, in principle, allowed, yet if a business or a premise has an existing union, no other labor union targeted for the same group of workers may be organized until Dec. 31st 2006. The labor union is entitled to collective bargaining with the management. The matters for which the collective bargaining may be made must be (i) those regarding working conditions, (ii) those of a collective nature, and (iii) those at the disposal of the employer. The effective period of any collective agreement may not exceed two years.

▶Labor Disputes Labor disputes typically arise from disagreements between the labor union and the employer or a group of employers regarding decisions on wages, working hours, fringe benefits, and working conditions, where a “disagreement between the arguments” refers to cases where no further attempt to reach an agreement between the parties leaves any room for agreement through independent bargaining.

▶Direct Actions Direct actions refer to strikes, slowdowns, lockouts, and any other actions taken by any party in favor of or against certain intentions in a labor/management relationship, hindering normal operation. A legitimate direct action must be (i) taken by a legal labor union, (ii) targeted to maintain and improve working conditions and improve the social and economic status of workers, and (iii) in accordance with the procedures provided for by the law. However, any collective action involving the following cases is not regarded as a direct action or as legitimate. (i) a temporary worker organization (ii) individual acts of refusal to provide service, (iii) political struggles irrelevant to working conditions, (iv) any attempt to interfere or do harm to management, (v) any sympathy strikes, or (vi) collective action with no possibility of impeding the normal operation of the company. Any illegitimate direct action, which is not exempted from civil and criminal liabilities and is not subject to arbitration under the Labor Union Act, may result in liability for interference in the execution of duties under the Penal Code, and may create liability resulting in dismissal or other disciplinary actions to the related workers.

▶Reactions by Employer For the sake of business as usual, the employer can use any non-union members and union members who do not participate in the strike and wish to work, or workers from other business premises, if applicable, to continue their duties without interruption. Employer, however, may not employ or contract outside workers (“scabs”) to substitute for those participating in a labor stoppage. A lockout is an act by employer that prevents workers from returning to their jobs. Employer may only lockout its workers in retaliation for direct actions taken by a labor union. Employer is exempted from the obligation to pay wages and allowed to deny workers’ access to the work place, if it can show its actions are justifiable.

5) Unfair Labor Practice ▶Types of Unfair Labor Practices Prohibited First, any act of dismissing or taking unfavorable actions against any employee on the grounds that such employee has joined or attempted to join or organize a labor union or performed a legitimate act for the affairs of the labor union. Second, any act of dismissing or taking unfavorable actions against any employee on the grounds that such employee has participated in a legitimate collective action, or reported to the district labor relations commission or testified against the employer, or submitted exhibits to other administrative agencies evidencing any violation of laws by the employer. Third, any act of inserting in the terms and conditions of employment a provision conditioning that worker not join, or withdraw from, or join a specific labor union except when it is conditioned as a part of a collective bargaining agreement entered into with a union representing at least two-thirds of the entire workers employed at a specific work site. Fourth, any act of refusing or prohibiting without just cause the entry into a collective bargaining agreement or the collective bargaining with the representative of or any person authorized by the labor union. Fifth, any act of interfering with the operation of a labor union, or attempting to suborn financially staff exclusively engaged in the union’s affairs or its finances. Employer may, however, donate funds for the overall welfare of its employees or provide minimal office space for the union. The employer may also allow workers to engage in deliberation or bargaining during working hours.

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▶Remedies for Unfair Labor Practices Certain remedies for unfair labor practices are available to prevent unfair acts in violation of fundamental labor rights and to protect individual workers and the labor union. Any worker or labor union whose rights are violated by the employer may file for remedies with the district labor relations commission. Any worker or labor union dissatisfied with the decisions rendered by a district labor relations commission may appeal directly to the National Labor Relations Commission.

6) Amendments to Labor Standards Act(LSA) Provisions

Prior

Amended

Statutory working ▶ 8 hours per day, 44 hours per week (or 7 ▶ 40 hours per week (also for minors) hours hours per day, 42 hours per week for minors)

Flexible working hours

▶ For each 2-week unit: staff regulations, up ▶ Each period is up to 3 months to 48 hours per week -Agreement between the labor and the ▶ For each 1-month unit: agreement between management in writing, up to 12 hours per the labor and the management in writing, day and 52 hours per week up to 12 hours per day and 56 hours per week

Measures to promote use of yearly leaves

▶ Monthly leave: abolished ▶ Monthly leave: 1 day per month ▶ Yearly leave: 15 to 25 days ▶ Yearly leave: - 15 days for 1 year of service, to which 1 day - 10 days for 1 year of service, to which 1 day for each 2 years of service is added for each year of service is added - Monetary compensation in excess of 20 days - 1 day for each month of service for any person having served for less than 1 year - Not granted to any person having served ▶ Measures to promote use of leaves for less than 1 year are introduced

Selective compensatory leave

▶ Not applicable

▶ Provided for ground on which selective compensatory leaves may be introduced upon agreement between the labor and the management.

Menstrual leave

▶ Menstrual leave: 1 day per month, paid

▶ Unpaid

Ceiling on overtime ▶ Up to 12 hours per week (or 1 hour per day work and 6 hours per week for minors)

▶ Up to 16 hours per week, temporarily for 3 years

Overtime premium ▶ Additional wages at 50% rate

▶ 25% for the first 4 hours, temporarily for 3 years

Modification of collective bargaining and employment regulations

▶ Not applicable

▶ An addendum provides for obligation to make efforts to revise existing collective agreement(s) and staff regulations

Entry into force

▶ Finance, insurance, public sectors, 1000 employees or more: July 1, 2004 ▶ Not applicable ▶ 300 employees or more: July 1, 2005 ※Reduction from 48 hours to 44 hours ▶ 100 employees or more: July 1, 2006 March 1989: 48 hours→46 hours for all ▶ 50 employees or more: July 1, 2007 premises ▶ 20 employees or more: July 1, 2008 Oct. 1990: 46 hours→44 hours for financial ▶ Less than 20 employees: delegated to a and insurance businesses presidential decree but no later than 2011. Oct. 1991: 44 hours for all premises ※May be introduced upon labor/ management agreement prior to the entry of the Act into force

7) Social Insurance Programs Program

Employment insurance

National pension

Health insurance

Objective

Unemployment prevention, promotion of employment, development of workers’ vocational skills

Remedies for injuries, diseases, physical disabilities, deaths and other accidents on duty

Payment of pension for Prevention, diagnosis aging, incurable and treatment of diseases and deaths of diseases and injuries citizens

Entry into force

July 1995

July 1964

Jan. 1988

Applicable Employment Size

1 full-time employee or 1 full-time employee or more more

Eligibility

Any person employed All employees Any person at 18 or at 60 or younger and employed in applicable older and under 60 remaining in premises employment until 65

All employees employed in applicable premises

Ineligibility

Business owner, foreigner

Business owner (may be covered in limited cases)

Any person having served for less than a month

Any person having served for less than a month

Availability for Foreigners

May be covered if whished

Covered

Covered in principle ※Depending on nationality

Covered

Date of eligibility

Date of employment

Date of employment

Date of employment

Date of employment

Date of ineligibility

The day immediately following retirement

The day immediately following retirement

The day immediately following retirement

The day immediately following retirement

Total wages 0.45% (Unemployment payment)

None Payroll 0.005 - 0.011 (depending on duties)

Standard monthly remuneration 4.5%

Standard monthly remuneration 1.97%

Recuperation payment Off-duty payment Disability payment Survivorship payment

Standard monthly remuneration 4.5%

Standard monthly remuneration 1.97%

Age pension Disability pension Survivor’s pension

Recuperation expenses Medical checkup Funeral expenses

Ministry of Health and Welfare (National Pension Corporation)

Ministry of Health and Welfare (National Health Insurance Corporation)

Payment of Premium

Worker

Unemployment payment: 0.45% Employment Employer stabilization: 0.15% Development of vocational skills: 0.5% (150 to 999 employees)

Coverage

Supervising government office

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Workmen's compensation insurance

Unemployment payment Employment stabilization programs Vocational skills development programs

Ministry of Labor (Korea Labor Welfare Corporation)

July 1977

1 full-time employee or 1 full-time employee or more more

5. TAX SYSTEM 1) Tax System of Korea In Korea, taxes are classified according to tax-imposer, the use of tax revenues and the incomes on which the tax amount is based.

National Taxes

Internal Taxes

Direct Taxes

Indirect Taxes

Local Taxes

Income Tax, Corporate Tax, Inheritance Tax, Gift Tax, Excess Profits Tax (Unjust Profits Tax) Value-added tax, Special Excise Tax, Liquor Tax, Transportation Tax, Securities Transactions Tax

Customs Duty

Customs Duty

Surtaxes

Education Tax

Ordinary Taxes

Acquisition Tax, Registration Tax, Residence Tax, Property Tax, Aggregate Land Tax, Auto Tax

Earmarked Taxes

City Planning Tax, Business Office Tax, Community Facility Tax, Regional Development Tax, Local Education Tax

2) Introduction on General Taxation ▶Corporate Tax The tax payer and the extent of his or her liability Type of Corporation

Domestic Corporation

Foreign Corporation

Income for each Business Year Capital

Gain from Property Transfer

Liquidation Income

For-Profit Corporation

Domestic & foreign sourced Income

o

o

Non-Profit Corporation

Income generated from for-profit businesses generated from both domestic & foreign sourced income

o

x

For-Profit Corporation

Domestic sourced income

o

x

Non-Profit Corporation

Income generated from for-profit businesses mentioned generated from domestic sources.

o

x

Country, etc.

Tax-exempt Corporation

Taxation method The National Tax Service levies Corporate Taxes annually on both income and the resulting residuals if a corporation liquidates.

Calculation Method

Gains Income of Business Year Losses

Dissolution Liquidation Income

Merger

Net income + total gains - total losses + donation limit surplus Income and profit from transactions that increase the net value of the assets of a corporation Excluding paid-in capital and other items described in the Corporation Tax Law as exclusion from gross income Losses and expenses from transactions that reduce the net value of the assets of a corporation Excluding refund of capital or shares, disposal of surplus and other items described in the Corporation Tax Law as non-deductible item Residual value of assets > Total amount of equity capital (paid-in capital + surplus) Value of stock received as a result of merger + merger grant > total amount of equity capital

Tax rate Korea’s corporate tax rate uses a two-step progressive approach. Beginning in Business Year 2005, tax rates are set at either 13 percent or 25 percent. To promote business activities, the government set these rates at 2 percent lower respectively compared to previous rates. Tax Base 100 million won or less More than 100 million won

Tax Rate

15% of tax base 15 million won + 27% of the amount in excess of 100 million won

▶Income Tax Tax payers Tax Payers

Taxable Income

Resident tax payer

Income generated from domestic and foreign sources Income from domestic source

Non-Resident tax payer

Income from domestic source

Tax Payment Report and payment of final return of the global income tax by May 31st of the following year

Income tax rate The Income tax rate applies four-phase progressive tax rate. Tax Base

80 81

Tax Rate

10 million won or less

9% of the tax base

More than 10 million won

900,000 won + 18% of the amount exceeding 10 million won

More than 40 million won

6.3 million won + 27% of the amount exceeding 40 million won

More than 80 million won

17.1 million won + 36% of the amount exceeding 80 million won

Taxes levied on resident and non-resident foreign tax payers including withholding rates The income tax is calculated according to the following table. In the case where there is a tax treaty between Korea and another country, the tax treaty comes prior to local income tax stipulations.

Korean Laws Non-Resident

Resident

Taxable Items

Tax Treaty

Individual

Corporate

Individual, Corporate

Individual, Corporate

Interest

15%, 25%, 30% → global taxation

15%, 25% corporate income

25%

10~5%

Dividend

15% global taxation

Corporate income

25%

5~15%

Global taxation

Corporate Income

Withholding global taxation

Aircraft, etc.

Global taxation

Corporate Income

2%

General

Global taxation

Corporate Income

2%

Liberal profession, etc.

3%, 5% → global taxation

Rental fee

20% → global taxation

General Real Estate

Business

Wage and salary

Withholding taxation → global taxation Global taxation

Temporary Property

Corporate Income

-

20% (personal service) 25% (Full Payment) -

Corporate Income

25% (Other Income)

Withholding taxation → global taxation

-

Pension

25% (Other Income)

20% → global taxation (partially excluded)

Corporate Income

Others

25% (Other Income)

Retirement

Separate taxation

-

Same as resident

Timber

Separate taxation

Corporate income

Same as resident

Separate taxation

Corporate income

Same as Resident

Separate taxation

Corporate Income

Lessor of 25% of capital gain or 10% of sales price

Real Estate etc. Capital gains Stocks

10~15%

▶Capital gains Tax Where property is transferred with compensation such as sale, exchange and payment in kind to a corporation, the Capital Gains Tax applies. Corporations will be taxed on this as corporate income tax.

Real estate and property of its kind If land, real estate or other properties are transferred, the capital gains tax shall be prorated according to the period of possession. For example, 50 percent for less than one year, 40 percent for one year to less than two years, and 9 percent to 36 percent for more than 2 years. In case the property is transferred before owner’s registration, the tax rate will be 70 percent. For specific share transfers, the holdings of a corporation that possesses excessive real property, such rights to use specific facilities (golf club membership, etc.), and business rights, a tax rate of 9 percent to 36 percent shall be applied regardless of the period of possession.

Specific Shares

Value of real property is more than 50% of a corporation’s total asset value Majority shareholder owns 50% or more of the total interest and The stock transfer ratio is more than 50%

The equity securities of a corporation that possesses real property excessively

The value of real property accounts for more than 80% of the total asset value The shares of a corporation that built or acquired and is operating or renting one or more of the following: golf courses, ski resorts, condominiums and specialized resort facilities

Equity securities In case of unlisted shares, if a major stockholder of a large corporation transfers them after retaining less than a year, a tax rate of 30 percent shall be applied. If such stocks are retained for more than a year, a tax rate of 20 percent is applied. Minority stockholders of large corporations transferring unlisted stocks, shall be liable to a 20 percent rate, regardless of the period retained. If a small and medium corporation transfers its unlisted stocks, they will be liable to 20 percent tax, regardless of its period retained. Listed stockholders, in principle, are normally not subject to tax. If, however, a majority shareholder of a large business transfers the shares after holding on to them for less than a year, he or she will be liable to a 30 percent rater of tax. If he or she retains the stocks for more than a year, the tax will be 20 percent.

▶Value Added Tax On the value added in the course of supplying goods or services, a 10 percent value added tax shall be levied.

82 83

Business registration Business Registration for paying value added tax shall be filed within 20 days of the commencement of the business. Required filing documents for a foreign-invested corporation are a notification form of Foreign-Investment Report, Certificate of Foreign Currency Purchase, Certificate of Foreigner Registration Certificate, and Report of Designated Tax Payment Manager etc.

Tax refund system The following goods and services are zero-rated and the related input taxes incurred are refundable. They are goods for export; services rendered outside Korea; and other goods or services supplied for foreign exchange earnings.

▶Local Taxes Local taxes consist of provincial, city and county taxes. Provincial taxes include acquisition tax, registration tax, race tax, horse race tax, license tax, community facility tax, regional development tax and local education tax. City or county taxes include inhabitant tax, property tax, mileage tax, automobile tax, agricultural income tax, butchery tax, aggregate land tax, urban planning tax, and business place tax. At the same time, local education tax is added to taxes such as registration tax, property tax and aggregate land tax.

Reasons of Acquisition

Korean Laws Registration Tax

Acquisition Tax

Education Tax

Tax Base

Acquisition Price

Acquisition Price

Registration Tax Amount

Purchase Building Inheritance Gift Exchange

3% 0.8% 0.8% 1.5% 3%

2%

20%

Acquisition tax Persons acquiring the following are liable to pay taxes within 30 days of acquisition: Real estate (land, buildings), Motor vehicles, heavy equipment (heavy equipment for construction/cargo handling gears and mining equipment under the Construction Machinery Management Act) Standing trees Aircrafts and vessels Mining rights and fishery rights Golf club, condominium, and sports complex memberships

Generally, the tax base is 2 percent of the acquisition price. However, a heavy tax is levied for acquisition of following types of properties:

Taxation Rate

Taxable Cases

▶ Luxurious properties: villas, golf courses, luxury amusement places, high class residences, luxury boats, ※Luxury amusement places: Casinos (excluding foreigners-only casinos), automatic game machines, steam bath houses, luxury beauty parlors, entertainment bars (excluding tourist restaurants)

10% (2% x 5 times)

▶ Acquiring taxable items (except urban-type factories) for business 6% (2% x 3 times)

purposes located in the Overpopulation Control Zone (except areas designated for industrial complexes and industrial zones) to newly build or extend factories whose factory site is larger than 500 m2. ※Applicable to individuals as well

▶ Real estates acquired by a corporation for business use as a main office in the Overpopulation Control Zone. (Including building and extending a main office building and the land attached to the building ※Real estate for business use as a main office means the real estate used as the office of the main office and the real estate for the accessory facilities. Facilities for employee welfare are not included

6% (2% x 3 times)

Registration tax A Registration tax is levied when registering particulars concerning acquisition, transfer, alteration, or lapse of property rights or other titles in the official registry book. It should be paid before business registration and the tax rate is as follows.

Classification

Tax Base

Inheritance

Tax Rate 0.8 % (Farm Land: 0.3 %)

Acquisition without compensation

1.5 % Real Estate Value

Proprietary Rights

Others, except Proprietary Right

84 85

Acquisition for Value (Acquisition with compensation)

3 % (Farm Land: 0.1 %)

Preservation of Proprietary Rights

0.8 %

Partition of Common Property etc.

Real Estate Value received by partition

0.3 %

Superficies, Mortgage, Right of Lease, Provisional Registration etc.

Real Estate Value, Credit Amount, Deposit Amount (for a real estate lease), Real Estate Value

0.2 %

Classification

Tax Base

Tax Rate

For-profit Corporation

Contributed Capital Amount, Capital Increase Amount

Non-profit Corporation

Total Amount of Investment

0.2 %

Relocation of MainOffice

Per case

75,000Won

Establishment of Branch Office

Per case

23,000Won

Passenger Car

Non-Business Use

Value of a car

5 % (micro car: 2 %)

Other Automobiles

Business Use and Non-business Use

Value of Automobiles

3 % (micro car: 2 %)

Registration of a Corporation

0.4 %

Registration tax rates for corporations moving into the Overpopulation Control Zone from a Non- Overpopulation Control Zone shall be levied three times the rates given above. However, for the following lines of business whose cause is justifiable that such location is inevitable, heavy taxation shall not be applied. Lines of Urban Type Business for High-Taxation Exemption SOC Facility, Banking, Construction for Foreign Market and Housing Construction, Electric Communication, The State-of-the-Art Technology Industry under the Industry Development Act and Act on Activation of Industrial Cluster and Factory Establishment, distribution, Transportation, Freight Terminal, Ware House, Government-Invested Corporation (over 20 percent of total shares), Recycling, Medical Service, Software Industry, Performance Facility (incl. Theatres), (Combined) Cable Broadcasting Station, Urban Type Factory, Hire-Purchase Financing, Object Business etc. of Restructuring Company

Property tax Property tax is levied based on the property’s current standard value as in the following table. In the case where a non-urban type factory is newly built or extended in the Metropolitan Overpopulation Control Zone, five-fold heavy tax shall be levied for five years from the first taxation base date. (0.3 percent x 5 times = 1.5 percent)

Property

Tax Rate

▶ Buildings Houses Golf Courses, Villas, Luxury amusement facilities Factory Buildings in the residence zone of Special municipality, Megalopolis, City Area, except Eup (town), and Myon (area) Other Buildings

0.3 % - 7 % (graduated progressive rate) 0.6 % 0.3 %

▶ Vessels

0.3 % (5 % for high-class vessels)

▶ Aircraft

0.3 %

Aggregate land tax Tax base for all types of land are classified into General Combined Tax Base, Special Combined Tax Base and Separate Tax Base. The taxation method for each tax type is as follows. Tax Base

Taxation

General Combined Tax Base

Calculated by adding values of all land (except the land applied to Special Combined Tax Base or Separate Tax Base) and applying a progressive rate to it.

Special Combined Tax Base

Calculated by adding value of specific land and applying a progressive rate to it

Separate Tax Base

Formed by the addition of the values of concerned land only, instead of adding the values of all land, and applying then applying a regressive tax rate on it

※Value of Land = Publicly Announced Individual Land Price x Applied Ratio of Tax Base Value

Taxable land for Aggregate Land Tax is classified as follows. Land Type

Low Rate Separate Taxation

Farmland (dry fields, rice paddies, orchards), pasture lots and forests and fields

0.1 % Farmland tilled by the owner, Pasture lots within the standard size, Conservation forest etc.

Factory lot and Retained Land for Supply

0.3 % : Within the standard size/ Industrial Complex, Industrial Zone / owned by the Korea National Housing Corporation or the Korea Land Corporation.

Special Taxation

General Combined Taxation 0.2-5 % farmland, pasture lots exceeding standard size, other forest and field owned by a corporation and absentee landlord

0.3-2 % : Located in the city level or above and within the standard scope

0.2-5 % : Exceeding the standard size

5%

Land for Golf courses, Villas and Luxury amusement facilities Land attached to residential buildings except the above

Land attached to the general building except above

Other Land

86 87

High Rate Separate Taxation

0.2-5 %

0.3-2 % Land within the scope of standard size

0.2-5 % Land exceeding the standard size

0.2-5 %

5 %(except farm houses) : Portion exceeding 993m2 (For special municipality) or 662m2 (For Megalopolis)

Resident tax Resident Tax is levied based both in proportion to income and on a per capita rate. In case of pro rata income, tax amount is 10 percent of corporate tax, income tax and farmland tax. In case of per capita rate, individuals should pay less than 10,000 won (provided by the ordinances). Corporations should pay from 50,000 won to 500,000 won according to the capital size.

Business place tax Business Place Tax is levied in a pro rata fashion according the size of the business place, and levied in a pro rata fashion according the size of the payroll. In regard to property, tax is levied at the rate of 250 won per square meter. For the sizes of less than 300 square meters, the tax is exempted. For a pollutant discharging business place, a higher tax rate of 500 won per square meter is levied. In regard to employees, 0.5 percent of payroll is levied monthly. For a business place with less than 50 employees, the tax is exempted. However, the business place tax rate is a standard tax rate. Therefore the actual tax rate can vary according to the regulations of different cities and counties.

▶Customs Duties Tariff assessment All goods being imported from foreign countries cannot be brought into Korea unless their customs duties are prepaid. Customs duties are calculated by multiplying tax base of the tariff tax base by the tariff rate. The tariff tax base is either the value or the quantity of the imported goods. The tariff rate is provided on the tariff rate table by group of items. As the tax rate applies to each HS Number corresponding to an item or a group of items, the tariff is affected by the decision on which value should be regarded as the taxable value or how the taxable value is decided. If the value is the tax base of the tariff, it is called an “ad valorem duty”and if the quantity is tax based, “specific duty.”The value that is the tax base of the ad valorem duty is called the “taxable value.”Korean customs valuations on taxable values reflect the relevant provisions of the WTO Valuation Agreement and have the same principals of the international tariff valuation.

Taxable value Taxable values on imported goods are assessed by various methods. The first stage is its transaction value. The valuation method, which decides taxable value by transaction value, is called the first method. However, for cases other than sales, the transaction value cannot be used as the base for taxable value. In these cases, the taxable value is determined by reviewing the following methods successively. Taxable Value Decision Method

Base for Taxable Value

The first method

Transaction value

The 2nd method

Transaction value of the item of the same kind and quality

The 3rd method

Transaction value of similar items

The 4th method

Local sales value

The 5th method

Calculated value

The 6th method

Various reasonable standards

Cases not recognized as sales ▶ ▶ ▶ ▶ ▶ ▶ ▶

Goods imported free of charge Goods imported for consignment sale where sale prices are determined by auctions etc. Goods imported to be sold in the local market under the exporter’s responsibility Goods imported by legally dependent entities such as branch offices etc. Goods imported under a lease agreement Imported goods for gratuitous lease Goods imported to be destroyed within Korea at the consignor exporter’s (such as industrial waste etc.) ▶ Imported goods with restriction on their use and dealings

Customs duties refund A customs duties refund means that the Korean government returns certain customs duties to the payer(s) under certain conditions. It is part of the export support system that aims to enhance the international price competitiveness of Korean export goods. Under the system the Korean government returns to the exporters or the manufacturers of export goods the customs duties they paid when they imported raw material for export goods. To be eligible for a customs duty refund, The exporter or the export good manufacturer should have the Certificate of Import Declaration, The customs duties for the goods have been paid or the goods have been granted for lump-sum payment of customs duties, The goods must be produced and supplied for exporting within two years after the import declaration and application for customs duties refund must be filed within two years after the goods were submitted for export.

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▶Other Taxes Education tax Education tax is a tax levied upon the income of persons engaged in the banking and insurance businesses and various taxes as surtax. The tax base and the tax rate are as follows. Tax Base

Education Tax

Local Education Tax

Tax Rate

Income of persons engaged in banking and insurance businesses

0.5 % (payable in each quarter)

Special Excise Tax (except petroleum and its kind), Automobile Tax

30 % (15 % for kerosene)

Transportation Tax

15 %

Liquor Tax

10 %

Registration Tax, Aggregate Land Tax, Property Tax

20 %

Per Capita Rate Inhabitant Tax

10 % (for population over 500,000 persons: 25 %)

Automobile Tax (Non-Business Use Only)

30 %

Race Tax, Horse Race Tax

60 %

Tobacco Consumption Tax

50 %

Securities transaction tax The Securities Transaction Tax(STT)is levied when the securities are transferred. The basic tax rate of STT is 0.5 percent and elasticity tax rates of STT are 0.15 percent to 0.3 percent. In case of listed stocks, the taxpayers are securities settlement corporations and securities companies. In case of unlisted stocks, the taxpayer is the transferor. However, in the case that a non-resident foreign corporation whose business place is not within the country transfers securities outside the market, the transferee becomes the taxpayer and the location of the issuer’s main office becomes the place for tax payment.

3) Foreign-investment Related Tax Support System ▶Tax Reduction and Exemption for Foreign Investment Companies or Corporations Details can be found in the Foreign Investment Promotion Act.

▶Tax Support for Foreign Investors’ Dividends For dividends taken by foreign investors from a foreign-invested corporation that is engaged in businesses eligible for tax reduction or tax exemption, tax will be reduced or exempted reflecting the percentage of dividends such businesses withdrew out of the total dividend income accrued during the tax reduction or exemption period. The initial date in reckoning for tax reduction or tax exemption of dividends generated from new investments and capital increase through paying actual money, actual shares and dividends is same as that of the corporate tax. During the period when the corporate tax gets full exemption, the dividend income tax will also be exempted 100 percent. During the period that the corporate tax gets 50 percent reduction, the dividend income tax will also be reduced by 50 percent. In the case where a foreign investor takes over the shares of a foreign-invested company from a local individual or a local corporation, it is regarded as acquisition of existing shares. Therefore, it is not eligible for the tax reduction or tax exemption. However, in the case where a foreigner or a foreign corporation takes over the shares from another foreigner or foreign corporation, the original period and rate of tax reduction and tax exemption remain effective.

▶Tax Exemption on Advanced Foreign Technology In case highly advanced technology, which is judged critical for enhancing Korea’s global competitiveness, is introduced pursuant to an agreement, the provider’s (individual, corporation, international organization) corporate tax and income tax will be exempted for five years from the date which the initial compensation for introducing the technology is to be made.

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▶Tax Support for Foreign Technicians Earned income tax will be fully exempt for the income that a certain foreign technician earned in return for his/her service provided to Korean individual or corporation in Korea for five years from the initial date-provided that the initial date is before December 31, 2006-to the month of fifth-year-date from the initial service date. A foreign technician will be exempted from earned income tax if he/she renders his/her service to Koreans in Korea pursuant to the technology introduction agreement stipulated in the FIPA. However, the privilege shall remain effective only for five years to the month of fifth-year-date from the issuing date of certificate of report for the technology introduction agreement under the condition that the agreement is observed.

▶Expansion of Scope for Tax Exemption on Foreign Workers’ Overseas Allowance The recipient of this benefit can choose either tax exemption on 17 percent of his/her gross salary or application of equal terms with those for Koreans after a tax exemption on 30 percent of his/her gross salary.

The Invest KOREA global network is at your service ■ HEAD OFFICE Seoul, KOREA 300-9, Yomgok-dong, Seocho-gu, Seoul, Korea Tel: (82-2) 3460-7543/7545 Fax: (82-2) 3460-7946/7 www.investkorea.org

■ EUROPE Frankfurt, GERMANY Tel: (49-69) 242-9920 Fax: (49-69) 25-3589

Berlin, GERMANY Tel: (49-30) 2096-2637 Fax: (49-30) 2096-2635

■ NORTH AMERICA

Vienna, AUSTRIA Tel: (43-1) 586-3876 Fax: (43-1) 586-3979

Helsinki, FINLAND Tel: (358-9) 638122 Fax: (358-9) 638611

■ ASIA & OCEANIA

New York, U.S.A Tel: (1-212) 826-0900 Fax: (1-212) 888-4930

Hamburg, GERMANY Tel: (49-40) 23-2235/2638 Fax: (49-40) 23-3998

Singapore Tel: (65) 6221-3055 Fax: (65) 6223-5850

Los Angeles, U.S.A Tel: (1-323) 954-9500 Fax: (1-323) 954-1707

Munich, GERMANY Tel: (49-89) 2424-2630 Fax: (49-89) 2424-2639

Sydney , AUSTRALIA Tel: (61-2) 9299-1790 Fax: (61-2) 9299-1792

Chicago, U.S.A Tel: (1-312) 644-4323 Fax: (1-312) 644-4879

Paris, FRANCE Tel: (33-1) 55-35-88-88 Fax: (33-1) 55-35-88-89

Melbourne, AUSTRALIA Tel: (61-3) 9699-3833 Fax: (61-3) 9699-3811

Dallas, U.S.A Tel: (1-972) 243-9300 Fax: (1-972) 243-9301

London, U.K. Tel: (44-20) 7491-8057 Fax: (44-20) 7491-7913

Washington D.C. , U.S.A Tel: (1-202) 857-7919 Fax: (1-202) 857-7923

Brussels, BELGIUM Tel: (32-2) 203-2142 Fax: (32-2) 203-0751

San Francisco, U.S.A Tel: (1-650) 571-8483 Fax: (1-650) 571-8065

Milano, ITALY Tel: (39-02) 795147, 795813 Fax: (39-02) 798235

Atlanta, U.S.A Tel: (1-770) 508-0808 Fax: (1-770) 508-0801

Zurich, SWITZERLAND Tel: (41-1) 202-1232 Fax: (41-1) 202-4318

Miami, U.S.A Tel: (1-305) 374-4648 Fax: (1-305) 375-9332

Oslo, NORWAY Tel: (47) 23 32 76 50/3 Fax: (47) 22 11 02 70

■ JAPAN Tokyo Tel: (81-3) 3214-6951 Fax: (81-3) 3214-6950

Osaka Tel: (81-6) 6262-3831 Fax: (81-6) 6262-4607

Nagoya Tel: (81-52) 561-3936 Fax: (81-52) 561-3945

Fukuoka Tel: (81-92) 473-2005 Fax: (81-92) 473-2007

■ CHINA

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Detroit, U.S.A Tel: (1-248) 355-4911 Fax: (1-248) 355-9002

Stockholm, SWEDEN Tel: (46-8) 30-80-90 Fax: (46-8) 30-61-90

Shanghai Tel: (86-21) 6219-7592 Fax: (86-21) 6219-6015

Toronto, CANADA Tel: (1-416) 368-3399 Fax: (1-416) 368-2893

Copenhagen, DENMARK Tel: (45) 3312-6658 Fax: (45) 3332-6654

Hong Kong Tel: (85-2) 2545-9500 Fax: (85-2) 2815-0487

Vancouver, CANADA Tel: (1-604) 683-1820 Fax: (1-604) 687-6249

Amsterdam, NETHERLANDS Tel: (31-20) 673-0555 Fax: (31-20) 673-6918

Taipei, TAIWAN Tel: (886-2) 2725-2324 Fax: (886-2) 2757-7240

How to Invest in Korea Incentives & Procedures

www.investkorea.org

The investment promotion arm of KOTRA November 2004