Korean Free Economic Zones (KFEZs) are specially designated areas designed to improve the business and living environments for foreign firms looking to invest in Korea. In 2003, Korea’s very first KFEZ was launched in Incheon following the passing of the adoption of the “Act on Designation and Management of the Free Economic Zones.” Since then an additional seven have begun operation, bringing the grand total of KFEZs in Korea to eight. Companies with business in KFEZs are eligible for tax credits and other incentives under the Foreign Investment Promotion Act (FIPA). FIPA’s recent amendments passed in 2019 to provide better analysis on FDI impact on the Korean economy. For an article on this issue please: Revision to Korea’s Foreign Investment Promotion Act.
As shown above, there are KFEZs operating in Incheon, Busan-Jinhae, Gwangyang Bay Area, Daegu-Gyeongbuk, Saemangeum-Gunsan, the Yellow Sea Coastal Area, and in Chungbuk. Each FEZ focuses on attracting certain major industries, though there is some overlap between the FEZs. Such industries include aviation logistics; R&D, tourism; semiconductor and LCD manufacturing; steel and petrochemistry; IT development; and biologics among others.
To invest in an FEZ, whether it be constructing a factory, funding project development, equity investment or importing/exporting products; it needs to be done in one of the three prescribed methods as dictated by the Foreign Investment Promotion Act (FIPA) and the Act on Designation and Management of Free Economic Zones.
- Acquisition of Shares or Equity Holding of a Local Company
- Long-term Loan of 5 or More Years
- Contribution to a Non-profit Corporation
Benefits of Free Economic Zones in Korea
The Korean government has gone to great lengths to create the most ideal business environment to allow companies to thrive. The government has expended billions of dollars to lay infrastructure for new emerging business hubs. KFEZs offer exemptions or reductions for not only tariffs, but also acquisition and property taxes. The KFEZs offer various financial and site support for cash grants, infrastructure and rent. There are also relaxed regulations to make doing business in Korea a little easier.
These relaxed regulations include relief from control on labor issues, exemptions from certain zoning regulations, and affordable foreign currency transfers. Additionally, each FEZ designates individual project managers who serve to support all investment procedures from the beginning preliminary review stages to providing business consulting for new investment opportunities and/or prospective investment partners. Investors will of course also benefit from many immigration/visa related incentives as well.
Method of Investment in Korea’s Free Economic Zones
To ensure that investments into FEZs are properly recognized, it is important to ensure proper reporting and registration. First investors are to report their foreign investment to the Korea Trade-Investment Promotion Agency (KOTRA) and remit funds with a foreign exchange bank.
A lawyer in Korea is, usually, necessary. The procedures are not simple and a proactive guide is necessary.
Investors are required to register the incorporation of their company in Korea with a court registry as well as the appropriate tax office in the region. It is important to mention that the tax office is also where you will be required to apply for your business registration. Upon completing these steps, investors can then transfer their equity funds into their company account via the same foreign exchange bank and register the company as a foreign-invested firm. The process, with appropriate counsel, usually, after recognition as eligible for investment in the respective KFEZ, takes less than ten business days.
Should you be interested in investing in one Korea’s KFEZs or require further assistance therein, please schedule at call at: Schedule a Call with an Attorney.
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