Tax Incentives May Decrease for Foreign Companies doing Business in Korea: Tax Law Updates

The Office of the Prime Minister’s Korea Institute of Public Finance held an interesting public hearing with the Korean Ministry of Strategy and Finance. The public hearing was held to address, in part, changes to tax incentives for foreign businesses.

The major reforms being considered are the:

Elimination of tax incentives for foreign companies owned by a foreign-capital invested company with 10% Korean ownership;
Reduction of a 7-year tax incentive for those investing in a free economic zone to 5-years. (We, strongly, advise filing, quickly, your application for an exemption. Under Article 121-2 of the Special Tax Treatment Control Law, the grant of an incentive is available up until three years from the date of the decision to grant the incentive.)
Increase of incentives for certain service sector business that have increased employment in Korea.

The first two proposals may have a substantial negative impact on investment in Korea. A great number of these proposals through the Prime Minister’s Office and/or the Korean Ministry of Strategy and Finance do, finally, become law. We fear the first two proposals will become law.

With the present Elliott-Samsung issues, Lone Star debacle and increased competitiveness of neighboring countries, Korea may becoming a less attractive destination for foreign investment. We hear a good deal of chatter concerning how Korea is a less friendly destination that China, Vietnam, Malaysia and even Taiwan.

The present attitude towards these incentives is that the incentives went to, only, a very small number of foreign companies, the incentives leave Korean companies at a disadvantage, these forms of incentives don’t work to attract investments and Korea needs more tax revenues. These viewpoints may be the viewpoint of the power that be in the Administration and National Assembly and may be to the benefit of the chaebols who, increasingly, compete against foreign companies in their own backyard.

Our advise is to, quickly, file for your seven-year tax incentives if you are considering investment in a Korea free economic zone. In many cases the application can be approved within a few months. Please insure you hire a proactive attorney with a deep knowledge of your technology/business and sufficient access to the government.

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Sean Hayes may be contacted at: [email protected]

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.

Sean’s profile may be found at: Sean C. Hayes