Article 78-3(Reduction or Exemption for Foreign Investment) #
(1) Where a foreign-invested company or foreigner-contributed non-profit corporation defined in Article (2) 1 6 of the Foreign Investment Promotion Act (hereafter in this Article, referred to as “foreign-invested company”) files an application for tax reduction or exemption (hereafter in this Article, referred to as “application for tax reduction or exemption”) on foreign investment falling under Article 121-2 (1) of the Act on Restriction on Special Cases concerning Taxation (hereafter in this Article, referred to as “foreign investment”) pursuant to Article 121-2 (6) of that Act by not later than December 31, 2025 and is granted tax reduction or exemption pursuant to paragraph (8) of that Act (hereafter in this Article, referred to as “decision to grant tax reduction or exemption”), local taxes shall be reduced as prescribed in the following subparagraphs: Provided, That where a local government extends the reduction period up to 15 years or raises the reduction rate as prescribed by municipal ordinance, the period and rate prescribed by municipal ordinance shall apply, notwithstanding the following subparagraphs: <Amended on Mar. 14, 2023>
1. In cases of real estate acquired by a foreign-invested company to use directly for the business reported pursuant to Article 5 (1) or (2) of the Foreign Investment Promotion Act (hereafter in this Article, referred to as “business reported on foreign investment”) within five years (three years in cases of businesses subject to tax reduction or exemption under Article 121-2 (1) 2-2 through 2-9 and 3 of the Act on Restriction on Special Cases concerning Taxation) from the commencement date of business prescribed by Presidential Decree (hereafter in this Article, referred to as “commencement date of business”), 100/100 of the tax amount (hereafter in this Article, referred to an “amount of tax subject to reduction or exemption on acquisition tax”) calculated by multiplying the calculated amount of acquisition tax under the Local Tax Act by foreign investment ratio prescribed by Presidential Decree (hereafter in this Article, referred to as “foreign investment ratio”) shall be reduced or exempted; and, in cases of real estate acquired within the following two years, 50/100 of the amount of tax subject to reduction or exemption on acquisition tax shall be reduced;
2. In cases of real estate used by a foreign-invested company directly for the business reported for foreign investment as at the tax base date, 100/100 of the amount of tax (hereafter in this Article , referred to as an “amount of tax subject to reduction or exemption on property tax”) calculated by multiplying the calculated amount of property tax under the Local Tax Act by foreign investment ratio shall be reduced or exempted for five years (three years in cases of business subject to tax reduction or exemption under Article 121-2 (1) 2-2 through 2-9 and 3 of the Act on Restriction on Special Cases concerning Taxation) from the date the first liability for property tax arises after the commencement date of business; and 50/100 of the amount of tax subject to reduction or exemption on property tax shall be reduced for the following two years.
(2) Local taxes shall be reduced or exempted, as prescribed in the following subparagraphs, on real estate used by a foreign-invested company that is granted tax reduction or exemption after filing an application for tax reduction or exemption on foreign investment by not later than December 31, 2025, to use directly for the businesses under the subparagraphs of Article 121-2 (1) of the Act on Restriction on Special Cases concerning Taxation before the commencement date of business or real estate used directly as at the tax base date, notwithstanding paragraph (1): Provided, That where a local government extends the reduction period up to 15 years or raises the reduction rate as prescribed by municipal ordinance, the period and rate prescribed by municipal ordinance shall apply, notwithstanding subparagraph 2: <Amended on Mar. 14, 2023>
1. In cases of real estate acquired after the date on which the decision to grant tax reduction is received, 100/100 of the tax amount subject to reduction on acquisition tax shall be reduced or exempted;
2. 100/100 of the amount of tax subject to reduction or exemption on property tax shall be reduced for five years (three years in cases of businesses subject to tax reduction or exemption under Article 121-2 (1) 2-2 through 2-9 and 3 of the Act on Restriction on Special Cases concerning Taxation) from the date the first liability for property tax arises after the relevant real estate is acquired pursuant to subparagraph 1; and 50/100 of the tax amount subject to reduction on property tax shall be reduced for the following two years.
(3) Notwithstanding paragraphs (1) and (2), local taxes shall be reduced or exempted, as prescribed in the following subparagraphs, on foreign investment falling under the methods prescribed by Presidential Decree, such as transfer of business among foreign investment in the businesses under Article 121-2 (1) 1 of the Act on Restriction on Special Cases concerning Taxation: Provided, That where a local government extends the reduction period up to 10 years or raises the reduction rate as prescribed by municipal ordinance, the period and rate prescribed by municipal ordinance shall apply, notwithstanding the following subparagraphs: <Amended on Mar. 14, 2023>
1. Local taxes on real estate used by a foreign-invested company that receives the decision to grant tax reduction or exemption after filing an application for tax reduction or exemption on foreign investment by not later than December 31, 2025, to use directly for the businesses under the subparagraphs of Article 121-2 (1) of the Act on Restriction on Special Cases concerning Taxation and real estate used directly for the relevant business as at the tax base date shall be reduced or exempted as prescribed in the following classifications:
(a) In cases of real estate acquired within three years from the commencement date of business, 50/100 of the amount of tax subject to reduction or exemption on acquisition tax shall be reduced; and in cases of real estate acquired within the following two years, 30/100 of the amount of tax subject to reduction or exemption on acquisition tax shall be reduced;
(b) 50/100 of the amount of tax subject to reduction or exemption on property tax shall be reduced; and 30/100 of the amount of tax subject to reduction or exemption on property tax shall be reduced for the following two years;
2. Local taxes on real estate acquired by a foreign-invested company that is granted tax reduction or exemption after filing an application for tax reduction or exemption on foreign investment by not later than December 31, 2025, to use directly for the businesses under the subparagraphs of Article 121-2 (1) of the Act on Restriction on Special Cases concerning Taxation before the commencement date of business and real estate used directly for the relevant business as at the tax base date shall be reduced or exempted as prescribed in the following classifications:
(a) In cases of real estate acquired after the date the tax reduction or exemption is decided, 50/100 of the amount of tax subject to reduction or exemption on acquisition tax shall be reduced;
(b) 50/100 of the amount of tax subject to reduction or exemption on property tax shall be reduced for three years from the date the first liability for property tax arises after the relevant real estate is acquired; and 30/100 of the amount of tax subject to reduction or exemption on property tax shall be reduced for the following two years.
(4) Paragraphs (1) through (3) shall not apply to foreign investment under Article 2 (1) 8 (g), Article 2 (1) 4 (a) (ii), 5 (1) 1 and Article 6 of the Foreign Investment Promotion Act.
(5) Where a foreign-invested company is granted a tax reduction or exemption after filing an application for reduction or exemption after the deadline for application for tax reduction or exemption expires, paragraphs (1) through (3) shall apply only to the remaining period after the date on which the tax reduction or exemption is decided. In such cases, even if the foreign-invested company have already paid the amount of tax before the decision to grant a tax reduction or exemption, the amount of tax shall not be refunded.
(6) In applying paragraphs (1) through (3), in cases of any of the following foreign investment, the amount equivalent to holding ratio (where the holding ratio is less than 5/100, it shall be deemed 5/100) of stocks or equity shares calculated as prescribed by Presidential Decree (hereafter in this Article, referred to as “stocks, etc.”), the amount equivalent to lending, or the amount of foreign investment shall not be deemed to be subject to tax reduction or exemption: <Amended on Dec. 22, 2020>
1. Where a foreign corporation or foreign company (hereafter in this paragraph, referred to as “foreign corporation, etc.”) makes foreign investment and falls under any of the following cases:
(a) Where a national of the Republic of Korea (excluding a person residing permanently in a foreign country by obtaining permanent residency or permission to stay in lieu of permanent residency) or Korean corporation (hereafter in this paragraph, referred to as “national of the Republic of Korea, etc.”) owns at least 5/100 of voting stocks, etc. of the relevant foreign corporation, etc. directly or indirectly;
(b) Where a national of the Republic of Korea, etc. is a stockholder that appoints the representative director of the relevant foreign corporation, etc. or the majority of directors solely or in accordance with the agreement or contract, etc. with other stockholders;
2. Where any of the following persons lend money to a foreign investor defined in Article 2 (1) 5 of the Foreign Investment Promotion Act (hereafter in this Article, referred to as “foreign investor”):
(a) A foreign-invested company;
(b) A national of the Republic of Korea, etc. who directly or indirectly owns at least 5/100 of voting stocks, etc. of a foreign-invested company;
(c) A nation of the Republic of Korea, etc. who is a stockholder that appoints the representative director of a foreign-invested company or the majority of directors solely or in accordance with the agreement or contract, etc. with other stockholders;
3. Where a foreigner makes foreign investment via a country or region prescribed by Presidential Decree among countries or regions with whom neither a tax treaty in Article 2 (1) 7 of the Adjustment of International Taxes Act nor an investment protection agreement has been signed.
(7) When a foreign-invested company increases its capital, paragraphs (1) through (6) shall apply mutatis mutandis to tax reduction or exemption for the increased capital; in such cases, the commencement date of business under paragraphs (1) through (3) shall be deemed the date on which the registration on changes of capital increase is filed: Provided, That in cases of an application for tax reduction or exemption falling under the standards prescribed by Presidential Decree, the consultation with the Minister of the Interior and Safety or the head of a local government under Article 121-2 (8) of the Act on Restriction on Special Cases concerning Taxation may be omitted.
(8) When calculating the amount of tax subject to reduction or exemption on acquisition tax and property tax for a foreign-invested company pursuant to paragraph (7), the following stocks, etc. shall be reduced or exempted during the remaining period of reduction or exemption and at the ratio of reduction or exemption for the relevant remaining period in the same manner as tax reduction or exemption is granted to stocks, etc. based on which such stocks, etc. are acquired:
1. Stocks, etc. acquired by a foreign investor upon capitalizing the reserve, revaluation reserve, or other reserves prescribed by other statutes under Article 5 (2) 2 of the Foreign Investment Promotion Act;
2. Stocks, etc. acquired by investing the proceeds from the stocks, etc. (limited to stocks, etc.) acquired by a foreign investor under Article 5 (2) 5 of the Foreign Investment Promotion Act.
(9) In calculating the amount of tax subject to reduction or exemption on acquisition tax and property tax for a foreign-invested company pursuant to paragraph (7), where a foreign-invested company continues using the fixed assets for business purposes of the business whose period of tax reduction or exemption under paragraphs (1) through (3) expires in the business subject to tax reduction or exemption for the portion of capital increase under paragraph (7) (hereafter in this paragraph, referred to as “business for the portion of capital increase”) or in circumstances prescribed by Presidential Decree, the amount calculated by the following formula shall be the amount of tax subject to reduction or exemption on acquisition tax and property tax for the business for the portion of capital increase:
The amount of tax subject to reduction or exemption on acquisition tax and the amount of tax subject to reduction or exemption on property tax × (The value of the fixed assets for business purposes newly acquired or installed after the date the registration on changes of capital increase is filed / The total value of the fixed assets for business purposes for the business for the portion of capital increase)
(10) Notwithstanding paragraph (7), where a foreign-invested company increases its capital within the reported foreign investment amount confirmed when the tax reduction or exemption is decided prior to the third anniversary from the first notice concerning the decision on the tax reduction or exemption is served after reporting the foreign investments, even if no application is filed for tax reduction or exemption, the foreign-invested company shall be deemed to be granted a tax reduction or exemption for the portion of the increased capital.
(11) Where the first contribution (including capital increase; hereafter in this paragraph, the same shall apply) is not made until the third anniversary of the date the first notice of the decision to grant tax reduction or exemption is served after reporting foreign investment, the effect of the decision to grant tax reduction or exemption becomes invalid; and where the first contribution is made within three years from the date the first notice of the decision to grant tax reduction or exemption is served after reporting foreign investment, but the relevant business does not commence to the fifth anniversary of the first notice of the decision to grant tax reduction or exemption is served, paragraphs (1) through (3) shall apply as if the business commenced at the fifth anniversary of the date the first notice of decision to grant tax reduction or exemption is served.
(12) In any of the following cases, the head of a local government shall collect the reduced portion of acquisition tax and property tax pursuant to paragraphs (1) through (3) as a penalty. In such cases, the scope of the amount of tax to be collected and methods for application in cases falling under multiple grounds for additional tax collection; and other necessary matters shall be prescribed by Presidential Decree:
1. Where a foreign investor transfers stocks, etc., which he/she owns to a nation of the Republic of Korea or a Korean corporation pursuant to this Act after the acquisition tax or property tax is reduced or exempted pursuant to paragraphs (1) and (3);
2. Where the ratio of stocks, etc. of a foreign investor falls short of the ratio of stocks, etc. at the time of reduction or exemption after the acquisition tax or property tax is reduced or exempted pursuant to paragraphs (2) and (3);
3. Where the registration is revoked pursuant to the Foreign Investment Promotion Act;
4. Where the relevant foreign-invested company closes its business;
5. Where a foreign-invested company fails to meet the criteria for tax reduction or exemption under Article 121-2 (1) of the Act on Restriction on Special Cases concerning Taxation within five years (three years for criteria for tax reduction or exemption relating to employment) from the date it reports foreign investment, in terms of payment of the object of investment, acquisition of long-term loans defined in Article 2 (10 4 (b) of the Foreign Investment Promotion Act or the number of employees;
6. Where such real estate is not used directly for the relevant purposes without just grounds, within three years from the date of acquisition
7. Where such real estate is sold or donated, or used for any other purpose, after having been used directly for the relevant purposes for less than two years.
(13) Notwithstanding paragraph (12), in any of the following cases, the amount of tax reduced may not be collected as a penalty, as prescribed by Presidential Decree:
1. Where the registration of a foreign-invested company is revoked as the foreign-invested company is dissolved due to a merger;
2. Where any capital goods imported with customs duties, etc. exempted pursuant to Article 121-3 of the Act on Restriction on Special Cases concerning Taxation have been used but are used for any other purpose than their original purposes or disposed of as they become unusable for their original purposes due to a natural disaster or other force majeure events, or depreciation, technological advancement, and other changes in economic conditions;
3. Where a foreign-invested company transfers stocks, etc. to a national of the Republic of Korea or a Korean corporation to go public under the Financial Investment Services and Capital Markets Act;
4. Where a foreign-invested company meets the relevant criteria for tax reduction or exemption by delivering the object of investment within the performance period extended by the relevant Mayor/Do Governor under the Foreign Investment Promotion Act;
5. Where the purpose of tax reduction exemption is deemed achieved, which is prescribed by Presidential Decree.
(14) Where a foreign-invested company granted tax reduction or exemption falls under any of the subparagraphs of paragraph (12) 3 through 7, the reduction or exemption under paragraphs (1) through (3) shall not apply during the relevant taxable year and the remaining reduction period, as prescribed by Presidential Decree.(15) The procedures, etc. for application for tax reduction or exemption and decision to grant tax reduction or exemption under paragraphs (1) through (14) shall be governed by the provisions of Article 121-2 (6) through (8) of the Act on Restriction on Special Cases concerning Taxation.
[This Article Newly Inserted on Jan. 15, 2020]