FDI
In the wake of the Asian financial crisis, accusatorily called the “IMF Crisis” due to the perceived punitive measures attached to IMF intervention, Korea enacted the Foreign Investment Promotion Act ostensibly to attract more inward foreign investment into Korea.
In order to qualify under the Act, the foreign investor must make an investment equivalent to KRW100 million. At the time of writing, this is approximately USD90,000. Certain “in kind” contributions can qualify as well.
The main benefits under the Act are that all remittances to the home country are guaranteed and that the company will receive equal treatment with Korean companies. It will also almost be guaranteed the granting of sufficient visas.
Taxation
The Korean government has for a long time recognised the importance of foreign investment. Initially, this took the form of loans and subsidies and foreign expertise coupled with a highly protectionist attitude. Now, it is taking a different form as it recognises that its current economic model has resulted in an asymmetric economy with a relative dearth of SMEs.
Coupled with an aging population, competition from overseas markets, the government has tried to liberalise its approach with a series of measures including the establishment of free economic zones, with, inter alia, special tax treatment and various Free Trade Agreements. Its goal is to become a true hub of business in Asia. If a foreign company is proposing to invest, these are very much worth looking into.
Corporation Tax
The basic rates of Corporation Tax are as follows:-
11% on the first KRW200 million of the tax base
22% up to KRW200 billion
24.2% over KRW200 billion
Witholding Tax and VAT
Witholding tax for a non-resident is payable at the rate of 22% unless the rate is reduced by a Tax Treaty with the third party country.
The rate of VAT is currently 10%.
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