Ⅲ. Taxation
3. Local Tax
Local tax is collected primarily to finance the expenses required to provide administrative service to local residents, but also has the functions of distribution of income, development of the local industry and economy, and contribution to balanced national development. Local tax can be categorized into taxation of property, taxation of income and taxation of consumption. Property taxation includes property tax, aggregate land tax, automobile tax, acquisition tax, and registration and license tax.
Income taxation includes local income tax, and consumption taxation includes registration and license tax, leisure tax, tobacco consumption tax, regional resource facilities tax, local consumption tax and local education tax.
※ The tax base and tax rate for local taxes may vary by local government and are subject to change.
In this regard, refer to the tax authority of the local government concerned or related laws and regulations.
3-1 Acquisition Tax
Acquisition tax is imposed on persons who acquire certain assets, and is designed to have those whose tax-bearing capacity is exposed in the process of the transfer of ownership of real estate or vehicles bear tax burden.
The tax base of acquisition tax is the value of the asset at the time of acquisition. This refers to all costs that have been paid before the actual date of acquisition or are payable to the seller or to any third party or parties in order to acquire the relevant asset. As a rule, the acquisition price is based on the amount that is declared by the person who acquires the asset. If the price is not declared or the declared price is below the market price, the standard market price is applied. The actual purchase price is treated as the tax base when an asset is acquired from the central or a municipal government, by import, or when the acquisition price is evidenced by corporate books or court sentence, or when the asset is acquired through open sale. In the case of construction or repair of a building (excluding new buildings or remodeling), change in the type of vehicle, machinery or equipment, or change of land category, the value increased from such an occurrence shall be the tax base.
The standard rates for acquisition tax are as follows and the tax rates may be adjusted within 50 percent of the standard rates based on municipal ordinances.
※ Local education tax may be imposed on acquisition tax in certain municipalities.
• Acquisition Tax
• Registration and License Tax
• Resident Tax
• Local Income Tax
• Property Tax
108
Doing Business In Korea
<Acquisition Tax - Tax Base & Tax Rates (Article 11 & 12, Local Tax Act)>
Category Tax rates
Acquisition of real estate
① Acquisition by inheritance 2.8% (2.3% for farmland)
② Free acquisition other than acquisition by inheritance 3.5% (2.8% for non-profit businesses)
③ Original acquisition 2.80%
④ Acquisition by division of public property 2.30%
⑤ Acquisition by division of common property 2.30%
⑥ Acquisition by reasons other than those provided above 4% (3% for farmland)
⑦ Housings acquired for value (Acquisitions on or after August 28, 2013)
•1% (Housings valued at KRW 600 million or less at the time of acquisition)
•2% (Housings valued more than KRW 600 million but not more than KRW 900 million at the time of acquisition)
•3% (Housings valued more than KRW 900 million)
Vessels
Vessels subject to registration
① Acquisition by inheritance 2.50%
② Free acquisition other than
acquisition by inheritance 3.00%
③ Original acquisition 2.02%
④ Acquisition by import and
shipbuilding order 2.02%
⑤ Acquisition by reasons
other than described above 3.00%
Compact vessels, motor-powered water
leisure equipment 2.02%
Ships other than compact ships 2.00%
Vehicles
Non-business passenger vehicles 7% (4% for compact cars)
Business vehicles 4.00%
Other non-business vehicles 5% (4% for compact cars)
Two-wheeled vehicles as defined in the Motor
Vehicle Management Act 2.00%
Other vehicles 2.00%
Machinery Equipment
Machinery equipment that requires registration according to the Construction Machinery Management Act.
3.00%
Machinery equipment that does not require registration according to the Construction Machinery Management Act.
2.00%
Aircraft
Aircraft subject to Article 3 of the Aviation Act 2.00%
Aircraft whose maximum take-off weight is
more than 5,700kg 2.01%
Aircraft whose maximum take-off weight is
less than 5,700kg 2.02%
Standing trees 2.00%
Mining and fishing rights 2.00%
Membership of golf clubs, condominiums, riding clubs,
sports facilities 2.00%
109
II. BusinessManagement
※ However, a higher tax rate equivalent to two to four times the tax rate is applied in the following cases:
– Acquisition of taxable goods for business purpose in order to build a new factory or expand an existing one in an industrial complex in an overconcentration control area of the Seoul metropolitan area
–Acquisition of real estate that is considered a luxury asset (Villa, golf club, luxury recreation facility, luxury housing or boat)
–Acquisition of real estate for the establishment or expansion of a factory in a large city
3-2 Registration and License Tax
Registration and license tax refers to tax imposed on the registration of matters related to the acquisition, transfer, change or termination of property rights and other rights (registration of acquisition is excluded, as acquisition tax is imposed), and tax imposed on administrative licenses acquired for certain sales facilities and acts, including licenses, permits, registrations, designations, inspections and tests prescribed by law.
The tax base of registration and license tax is the value at the time of registration, value of bonds, or the investment amount. The value at the time of registration shall be the reported value. When no report has been made, or when the reported value falls short of the standard market value, the standard market value at the time of registration shall be applied.
※ Local education tax may be imposed on the amount of registration and license tax paid for certain registrations depending on the region.
< Registration and License Tax – Tax Base and Tax Rate (Article 28 of the Local Tax Act)>
Category Tax base Tax rate
Real estate registration
(*1)
Preservation of ownership Value of real estate 0.8%
Goods without ownership;
establishment and transfer of right of lease
① Surface rights Value of real estate
0.2%
② Mortgage Value of bond
③ Easement Value of dominant
tenement
④ Right to lease on a lump-sum deposit (jeonse) basis
Value of the lump-sum deposit
⑤ Right of lease Monthly rent
Others
Auction application / provisional
seizure / provisional disposition Value of claim
② Provisional registration Value of real estate
③ Other registrations Per registration Flat amount of KRW 6,000
① Incorporation and payment of
capital Paid-in capital
0.4%
(0.2% for non-profit corporations)
② Increase in capital investment (for-profit corporation)
The amount of capital increase
③ Increase of total equity investment or total assets (non-profit corporation)
The amount of capital increase
Capitalization of revaluation reserves(excluding capitalization within three years of revaluation)
The amount of capital
increase 0.1%
Relocation of head office Per registration KRW 112,500
Establishment of a branch office Per registration KRW 40,200
Registration other than the above Per registration KRW 40,200
110
Doing Business In Korea
Category Tax base Tax rate
Other registration
Automobile registration
Passenger cars for non-business use
5% (2% for compact cars)
Vehicles for business
use 2%
Non-business use vehicles other than the above
3% (2% for compact cars)
Vessel registration 0.02%, etc.
Aircraft registration 0.01-0.02%
Construction machinery registration
New registration,
ownership transfer 1%
Settlement of
mortgage 0.2%
(*1) In the case of real estate registration, KRW 6,000 is imposed when the computed tax amount is less than KRW 6,000.
(*2) In the case of a newly-founded corporation or a surviving corporation after merger, or in the case of capitalization of revaluation reserves, KRW 112,500 is imposed when the tax amount is less than KRW 112,500.
3-3 Resident Tax
The resident tax is divided into equipartition, pro rata property and employee-based resident tax. The equipartition resident tax is equally imposed on all individuals or corporations residing or located in the territory of a municipal government; whereas the pro rata property resident tax is imposed based on the gross floor area of a business establishment. The employee-based resident tax is imposed based on the employee payroll.
The municipal government head may adjust the equipartition or employee-based resident tax rate to within 50 percent of the standard rate as provided under municipal ordinance. The head of the municipal government concerned may also lower the pro rata property resident tax rate below the standard rate provided under municipal ordinance. Resident tax is not imposed on those protected under the National Basic Living Security Act, the central and municipal governments, local autonomous government cooperatives, foreign government agencies, international organizations in Korea, and foreign aid organizations (excluding those foreign governments or aid organizations that impose a tax of an identical nature on Korean government agencies or aid organizations). The pro rata property resident tax is not imposed on businesses with business establishments with a gross floor area of 330m
2or less.
The tax base and tax rates for resident tax are as follows:
< Resident Tax – Tax Base and Tax Rate (Article 78, Local Tax Act)>
Classification Tax base Tax amount Tax rate
Equipartition Individual
Individuals who have an addresses in Si/Gun
An amount equal to or less than KRW 10,000 determined by ordinances
Limited tax rate
Individuals who have business establishments
in Si/Gun KRW 50,000 Standard tax
rate
111
II. BusinessManagement
Classification Tax base Tax amount Tax rate
Equipartition Corporations
More than 100 employees, capital or
investment worth more than KRW 10 billion KRW 500,000
Standard tax rate
More than 100 employees, capital or
investment between five to KRW 10 billion KRW 350,000 Not more than 100 employees, capital or
investment worth more than KRW 5 billion
KRW 200,000 More than 100 employees, capital or
investment amount between three to KRW 5 billion
Not more than 100 employees, capital or investment amount between three to KRW 5
billion KRW 100,000
More than 100 employees, capital or
investment amount between KRW 1 - 3 billion
Others KRW 50,000
Pro rata property
The gross floor area of the business establishment as of the date of taxation (not imposed when the gross floor area is less than 330m2)
Gross floor area of the business establishment: KRW 250 per 1 m2 (Two times for pollutant emitting business establishments)
Employee-based
Employer who pays salary to employees (not imposed when the business establishment has 50 or fewer employees)
Total employee payroll paid each month x 0.5% (standard tax rate) (to be returned no later than the 10th of the following month)
3-4 Local Income Tax
Local income tax is divided into personal local income tax that is imposed on general income, retirement income and transfer income, and corporate local income tax that is imposed on the business income of a corporation, or income from the transfer or liquidation of land, etc.
The head of a municipal government may adjust the local income tax rate to within 50 percent of the standard tax rate as provided under municipal ordinance. Local income tax is not imposed on petty income whose tax amount is less than KRW 2,000.
The tax rate and base rate of local income tax are as follows:
< Local Income Tax – Tax Base and Tax Rate (Article 92, 103-3, 103-20 of the Local Tax Act)>
Classification Taxable income and
taxpayer Tax base and tax rate Standard tax rate
Personal local income tax
Persons obligated to pay income tax
Composite income tax base X standard tax rate 0.6-3.8%
(Retirement income tax base X 1 / service years x 5)
X standard tax rate X 1/5 X service years 0.6-3.8%
Transfer income tax base X standard tax rate 10% of transfer income tax rate
112
Doing Business In Korea
Classification Taxable income and
taxpayer Tax base and tax rate Standard tax rate
Corporate local income tax
Entities obligated to pay corporate tax
Corporate income tax base of each year’s income
X standard tax rate 1-2.2%
Income from the transfer of land, etc. X 3%
(4% in the case of assets not yet registered) Corporate tax base of income from liquidation
X standard tax rate 1-2.2%
※ With the amendment to the tax law on Jan. 1, 2014, local income tax, which had been a surtax to corporate tax and income tax, became an independent tax. In this regard, local income tax can be imposed on foreign-invested companies regardless of corporate tax incentives.
3-5 Property Tax
Property tax is a Si/Gun tax (or Gu tax) levied on the owners of land, buildings, vessels, and aircraft.
The taxable objects for land are divided into three categories: general aggregate taxation objects, separate aggregate taxation objects, and scheduler taxation objects.
The tax base for property tax is the standard market price. The standard tax rate for property tax is shown in the table below. The tax rates can be adjusted by ordinance within the range of 50 percent of the standard tax rate. However, in the case of the establishment or expansion of factories in overconcentration control areas, five times the tax rate of 0.25% (the tax rate for other buildings) shall apply for five years from the first date of taxation.
※ Local education tax equivalent to approximately 20 percent of the property tax may be imposed in some municipalities
< Property Tax- Tax Base and Tax Rate (Article 111, Local Income Tax Act)>
Category Tax base Tax rate (%)
Land
General aggregate tax
Not more than KRW 50 million 0.2%
More than KRW 50 million and not more than KRW 100 million
KRW 100,000 + 0.3% of the amount exceeding KRW 50 million
More than KRW 100 million KRW 250,000 + 0.5% of the amount
exceeding KRW 100 million
Separate aggregate tax
Not more than KRW 200 million 0.2%
More than KRW 200 million and not more than KRW 1 billion
KRW 400,000 + 0.3% of the amount exceeding KRW 200 million
More than KRW 1 billion KRW 2.8 million + 0.4% of the
amount exceeding KRW 1 billion
Schedular tax
1. Farmland, orchards, pasture land, forest 0.7% of the tax base 2. Land for golf courses and luxury resorts 4% of the tax base
3. Land other than 1 and 2 0.2% of the tax base
Building
Buildings for golf courses and luxury resorts 4% of the tax base Factory buildings in residential areas 0.5% of the tax base
Other buildings 0.25% of the tax base
113
II. BusinessManagement
Category Tax base Tax rate (%)
House
Vacation home 0.40%
Other houses
Not more than KRW 60 million 0.10%
More than KRW 60 million and not more than KRW 150 million
KRW 60,000 + 0.15% of the amount exceeding KRW 60 million
More than KRW 150 million and not more than KRW 300 million
KRW 195,000 + 0.25% of the amount exceeding KRW 150 million
More than KRW 300 million KRW 570,000 + 0.4% of the amount
exceeding KRW 300 million
Vessel Luxury vessels 5% of the tax base
Other vessels 0.3% of the tax base
Aircraft 0.3% of the tax base
Newly established or expanded factories in overconcentration control areas 1.25 % (five times 0.25%) 1)
1) In the event of the establishment or expansion of a factory in an overconcentration control area, five times the tax rate shall be applied for five years from the first date of taxation.
Properties falling into the following categories shall not be subject to taxation.
< Non-Taxable Objects for Property Tax (Article 109, Local Income Tax Act)>
Category Applicable objects
Non-taxation on the state, etc.
•Land owned by the country, local government, local government associations, foreign governments & international organizations stationed in Korea
•Land used for official or public purposes by the country, local governments and local government associations for one year or more
Non-taxation by usage
•Roads, rivers, embankments, conduits, remains, historical relics and graves as prescribed by Presidential Decree
•Forest protection zone and other lands having considerable grounds for non-imposition of property tax in the public interest
•Buildings constructed for temporary use, which fall short by one year of the property tax base date
•Ships used for rescue in times of emergency, or as ferries with no charge, as floating bridges, or as barges belonging to a mother ship
•Buildings on which it is improper to levy a property tax, such as buildings subject to removal by an administrative agency
114
Doing Business In Korea
1. Customs Clearance
‘Customs clearance procedures’ refers to a series of procedures whereby goods to be exported or imported are shipped to a certain place, undergo customs inspection, are loaded into a foreign trade vessel or a foreign trade aircraft or are taken over by a domestic party. The procedures are governed by the Customs Act and trade related laws. When a foreign investor makes an investment-in-kind with capital goods, he/she should complete the import customs clearance procedure and obtain a written confirmation of completion of investment-in-kind issued by the Commissioner of Korea Customs Service (KCS).
1-1 Import Clearance
‘Import clearance’ refers to the series of customs processes whereby goods that arrive in Korea from abroad are declared to a customs office. Upon import declaration, the head of the customs office checks the items listed in the import declaration to determine whether they correspond to the actual goods declared and adhere to the various import regulations, etc. before accepting the import declaration, at which time the due tariffs etc. are collected.
Import Declaration
An import declaration must be filed in the name of the owner or the customs broker, the customs brokerage firm, or the customs clearance handling firm. In principle, a declaration can only be filed after the ship or plane carrying the loaded goods has entered the port/airport. However, when swift customs clearance is required for imported goods, declaration can be made earlier as determined by the Commissioner of KCS (i.e., before departure from/entry into a port, before entering a bonded area, or following storage in a bonded area).
• Import Clearance
• Customs Clearance of a Foreign-Invested Company’s Capital Goods
• Bonded Area
Customs
04
115
II. BusinessManagement
※ Time of import declaration
•Before departure from port: Declaring goods imported via a plane or ship from Japan, China, Taiwan, Hong Kong, etc. prior to the ship or plane’s departure from the port/airport (Declaration can be filed starting five days before a ship’s entry into a port, or one day before a plane’s arrival at an airport in Korea.)
•Before entry into port: Declaring imported goods after the ship etc. carrying the goods leaves the port of loading and prior to its arrival (the time of submitting the cargo manifest for air freight and the cargo-unloading declaration for sea freight) at the port. (Declaration can be filed starting five days before a ship’s entry into a port, or one day before a plane’s arrival at an airport in Korea.)
•Before entering a bonded area: Declaring imported goods after the arrival of ships etc. loaded with imported goods at the port and before entering a bonded area for customs clearance.
•After storage in a bonded area: Declaring imported goods after storing the imported goods in a bonded area.
Import declaration becomes effective once the customs clearance system receives the declaration documents submitted by the declarer. The taxable goods, applicable laws, foreign exchange rate for taxation, taxpayer, etc. are determined at this point as well.
Required documents
•Invoice and price declaration report, packing list (if required)
•Copy of Bill of Lading (B/L) or Airway Bill (AWB)
•Country of origin certificate (only for required goods)
•Confirmation documents on goods subject to confirmation by the head of the customs office as prescribed by the Customs Act
•Tariff reduction or exemption (payment in installation) application/usage tariff rate application (only for required goods)
•Approval (application) for applying tax rate by agreement
•Confirmation of security for tax payment under Article 183 of the Enforcement Decree of the Local Tax Act
•Kimberley Process Certificate (limited to rough diamonds)
※ Copies of documents certified against the original may be submitted by the importer. In the case of a paperless (P/L) declaration, the declarer (customs broker, etc.) should check the declaration documents in advance and submit the details of the declaration as an e-document. In such cases, the declaration form and attachments are not necessary.
Selection of Goods to be Inspected
In order to check that the items listed in the import declaration form match the imported goods, and also to check whether there are any violations of related laws, selective inspections on imported goods (cargo selectivity, C/S) are carried out according to the standards set by the Commissioner of KCS, and the goods to be inspected and the documents to be submitted are decided. The importer, manufacturer, declarer, etc.’s violation records and credibility are considered in the selection process.
Inspection of Goods
In principle, when import declaration is made, customs officers will check the formalities of the
declaration form, the legal import requirements, and the documents submitted for declaration to
accept the declaration. However, when the various marks, usage, functions, etc. cannot be checked
solely through the import declaration and submitted documents, or when there is a need to check
whether other goods are concealed and whether the declared goods match the actual goods, the
goods are unpackaged and visually inspected.
116
Doing Business In Korea
Examination of Customs Clearance Requirements
Goods for post-inspection are inspected to verify compliance with the following formalities:
•Whether all required documents for declaration have been prepared, and whether the items listed
in the declaration form match the actual goods
•Whether the items which the head of the customs office checks for compliance with the import
requirements are appropriately classified and meet the import requirements
•Whether the country of origin has been marked, whether intellectual property rights have been
violated, whether a request for analysis is needed, etc.
In principle, examination of taxation of imported goods is carried out after acceptance of the declaration. However, such an examination is conducted before accepting the declaration of certain items as described below. The following items are also examined to verify the appropriateness of classification, tax rate, taxable value, tax amount, and the appropriateness of the application for tax reduction, tax exemption, or installment payment.
•
Goods subject to tax reduction or exemption and installment payment
•Goods declared by tariff delinquents, or goods subject to imposition notification
•
Goods designated by the Commissioner of KCS as requiring tax deliberation prior to declaration acceptance for the purpose of securing duty claims (agricultural products, used cars, etc.)
Payment of Tariffs, etc.
For the payment of tariffs and other taxes, a dual system is employed: the payment by report method, by which the declarer reports and pays the self-determined tax amount; and the imposition notice method, by which the head of the customs office determines the tax amount and notifies the relevant party thereof.
The tariff payer must declare the tax base, tax rate and paid tax amount on all imported goods, excluding goods subject to imposition notice, to the head of the customs office. The tariff must be paid within 15 days of acceptance of the import declaration, or prior to acceptance of the declaration.
Upon receipt of the tax payment declaration, the head of the customs office examines the items listed on the import declaration and other matters based on the related regulations. When all the conditions are met, the import declaration is accepted and then the reported tax amount is examined.
When the head of the customs office collects tariffs via an imposition notice, the amount of tax to be imposed on the goods concerned is determined and the taxpayer is notified thereof. The taxpayer must pay the tax within 15 days of receiving the notice at a national treasury receipt bank or a post office.
Goods subject to imposition notice are as follows:
•
Goods for which tariffs are imposed in accordance with Subparagraphs 1, 6, 8 and 11 of Article 16 of the Customs Act
•
Facilities constructed at bonded construction sites which are operated prior to import declaration
•Goods stored in bonded areas which are carried out prior to acceptance of the import declaration
•
Hand-carried baggage and unaccompanied goods of travelers and crew
117
II. BusinessManagement
•Postal items (excluding those approved for import)
•
Goods for which the head of the customs office levies or collects tariffs in accordance with the law
•Consignments donated to a resident of Korea which the recipient will use for personal purposes
•
Goods subject to disposition of rectification by the head of the customs office (excluding the tax amount declared for tax payment)
•
Other goods that are subject to notification of installment payment
<Import Clearance Procedure>
1-2 Customs Clearance of a Foreign-Invested Company’s Capital Goods
When foreign investors make an in-kind investment of capital goods, customs clearance of the capital goods should be completed in addition to investment notification and registration.
Confirmation of the Specifications of Imported Goods
Foreign investors who have completed investment notification must apply for a confirmation of imported capital goods at a foreign exchange bank or KOTRA. The following items are to be confirmed:
•
Capital goods exempted from tariff, individual consumption tax, and value added tax.
•Capital goods imported by a foreign investor for investment purposes.
•
Import of external payment vehicles received by a foreign-invested company from foreign investors as an investment, or internal payment vehicles created in exchange for external payment vehicles, which are capital goods among the goods designated or notified by the Ministry of Trade, Industry &
Energy according to Article 17 of the Enforcement Decree of the Foreign Trade Act.
Load/Depart
Enter Port & Unload
Enter Bonded Area
Import Declaration
Cargo Selectivity
Customs Clearance Requirements Inspection
Accept Import Declaration
Pay All Taxes
Carry Out/ Receive Cargo Skip Inspection
Post-payment
Inspect
Pre-payment - Before leaving port
- Before entering port
- Before entering the bonded area - After entering the bonded area
Goods Inspection
118
Doing Business In Korea
Import Clearance
Foreign-invested companies must complete import declaration within five years of the date of notifying investment of the capital goods. However, the deadline may be extended up to one year for unavoidable reasons, such as a delay in factory construction.
If a foreign investor establishes a foreign-invested company through investment in-kind, the goods should clear customs after acquiring the business registration certificate before incorporation in order to benefit from a deduction of value added tax. Also, when foreign-invested companies that are granted tax reduction or exemption by the Ministry of Strategy and Finance import capital goods or make investments in kind within the range of investment funds received in cash for direct use in businesses subject to tax reduction or exemption, tariffs, etc. may be exempted. However, capital goods imported with investment funds in the form of long-term loans do not benefit from tariff exemption. Applications for tariff exemption must be made before acceptance of import declaration.
Retroactive applications for exemption, i.e., applications made after the acceptance of import declaration, are not accepted.
Confirmation of Completion of In-Kind Investment
For capital goods paid as objects of investment, a confirmation of completion of in-kind investment must be obtained from the KCS officer dispatched to KOTRA prior to incorporation registration and foreign-invested company registration.
<Customs Clearance Process for Capital Goods>
Notification of foreign investment
•Report to: A foreign exchange bank or KOTRA
•Documents to submit : Two copies of the investment notification form (Three copies of the application form for tax reduction for businesses subject to tax reduction)
Confirmation of specifications of imported capital
goods
•Report to: A foreign exchange bank or KOTRA
•Confirmation item: Capital goods that are objects of investment
•Documents to submit: Three copies of the application form, documentary evidence of price (bill of sale, etc.)
Import clearance
•Customs clearance after acquiring the business registration certificate issued in the name of the foreign-invested company
•Documents to submit for capital goods subject to tariff exemption –A copy of the application form for tariff exemption
–A copy of the confirmation of specifications of imported capital goods
–A copy of documentary evidence (investment notification form) certifying that the capital goods are introduced through investment-in-kind or with cash
–A copy of documents certifying that the business is subject to tax reduction or exemption (A document notifying that tax reduction or exemption has been granted)
–Invoice, price report, B/L or AWB, packing list (only for required items), certificate of country of origin (only for required items), documents requiring proof and confirmation such as permits, approvals, etc. as prescribed by Article 226 of the Customs Act, notification of transport to bonded area (for goods that entered a bonded area), import agent contract
Confirmation of completion of in-kind investment
•Report to: KCS officer dispatched to KOTRA
•Required documents : Two copies of the application form, copy of import declaration certificate
119
II. BusinessManagement
Registration of incorporation
•Report to : District courthouse registration department or registry office
•Documents to submit: Application form and required documents. The certificate of confirmation of completion of in-kind investment should be attached in the case of investment-in-kind
Registration of foreign-invested
company
•Report to: A foreign exchange bank or KOTRA
•Documents to submit: Application form and required documents. A copy of the certificate of confirmation of completion of in-kind investment should be attached in the case of investment-in-kind
Aftercare of Capital Goods
To transfer or lease capital goods introduced as foreign investment and exempted from tariffs or to use such goods for purposes other than those notified before five years have passed from the date of import declaration acceptance under the Customs Act, a notification should be filed to a foreign exchange bank or KOTRA. If capital goods are transferred or used for purposes other than those notified, a sentence of up to five years’ imprisonment or a fine of up to KRW 50 million may be imposed on persons who failed to notify the disposal of the capital goods.
Also, in the following cases, reduced or exempted tariffs will be collected.
•When a foreign-invested company’s registration has been cancelled or business is closed down:
The abated or exempted tax amount shall be collected retroactively for three years (individual consumption tax and added value tax: five years) from the date of cancellation or closure.
•
When the objects of investment are used for purposes other than those notified or are disposed of:
The abated or exempted tax on capital goods that are used for purposes other than those notified or are disposed of within three years of acceptance of import declaration under the Customs Act (five years for individual consumption tax and value added tax) shall be collected.
•
When a foreign investor transfers stocks, etc. within three years of the date of exemption of tariff, etc.: The abated or exempted tax on capital goods shall be collected.
* When collecting tariff, if the value of the goods has depreciated due to usage, the tax collected shall be reduced proportionate to the reduced value.
However, the collection of tariffs can be exempted as an exception in the following cases.
•When registration of a foreign-invested company is cancelled due to the company’s dissolution by a merger.
•
When capital goods that have been imported with tariffs exempted cannot be used for their original purposes due to natural disasters and other force majeure, or due to other economic circumstances such as depreciation, technological advancement, etc. and when they are used for other purposes or are disposed of by obtaining the approval of the Minister of Strategy and Finance.
•
When transferring stocks, etc. of a foreign-invested company to a national or a corporation of the Republic of Korea as part of initial public offering of the foreign-invested company concerned in accordance with the Financial Investment Services and Capital Markets Act.
•In the following cases which are recognized as having fulfilled the aim of tax reduction or exemption:
– When foreign investors who have invested in an industry-supporting service business or a
business accompanying high technology transfer their business subject to tax reduction or
exemption or their shareholdings to a national or a corporation of the Republic of Korea, and
when the Minister of Strategy and Finance confirms that the products and services produced or
120
Doing Business In Korea
provided by the said business can be produced domestically without any problem.
– When foreign investors transfer their stocks, etc. to a Korean national or a corporation of the Republic of Korea in accordance with government policies, and the transfer is confirmed by the Minister of Strategy and Finance.
※ Customs clearance for moving goods
‘Customs clearance for moving goods’ refers to the head of the customs office’s simplification of the procedure for confirming the qualifications of the mover and the required documents, application of the relevant taxation or tax exemption, and other acts and procedures as prescribed by the Customs Act, by taking into consideration the movers' job, reasons for changing residence, etc. regarding products for daily use included in the individual's hand baggage and unaccompanied goods that are carried in by those entering Korea to change their residence. In principle, goods recognized as ‘moving goods’ are not taxed in accordance with the Customs Act, but the scope of ‘moving goods’ is different depending on whether the owner of the goods is a mover, semi-mover or short-term visitor as categorized according to the period of a Korean national's stay abroad (excluding Koreans holding permanent residency of a foreign country) and a foreigner’s intended period of stay in Korea (including persons holding citizenship).
For example, in order to have automobiles recognized as moving goods, there is a requirement to register and use the automobile for at least three months at the previous place of residence (an overseas country) prior to the date of entry into Korea (i.e., the loading date when loaded prior to the date of entry, and the cancellation date when cancelled prior to the date of entry). As such, the methods of determining the tariff may differ for individual items. Hence, the customs clearance requirements and the scope of recognition as moving goods must be checked in advance before bringing moving goods into Korea.
Packing and loading of goods > Transport (shipping company) > Domestic arrival (shipping company) > Entry into a bonded warehouse > Fill out import declaration and transmit EDI > Import declaration (customs office)
> Goods inspection (taxation or tax exemption decided)/acceptance of import declaration > Delivery from warehouse
1-3 Bonded Area
Bonded areas are designated or licensed by the head of the customs office for the purpose of efficient freight management and customs administration. Activities conducted in bonded areas include the storage of foreign goods for customs clearance such as imports, exports, and returns;
production, processing, or other similar activities by using foreign goods or a combination of foreign and domestic goods as raw materials; exhibition of foreign goods; construction using foreign goods;
sale of foreign goods; and inspection of import and export goods. Bonded areas are divided into designated, licensed, and general bonded areas.
< Types of Bonded Areas >
Type Details
Designated bonded area
Certain public facilities or areas designated by the head of the customs office as bonded areas: these include designated storage places used to temporarily store goods awaiting customs clearance, and customs inspection places used as sites for the inspection of goods by customs.
Licensed bonded area
Private for-profit facilities that have been licensed by the head of the customs office as a bonded area on the request of the owner. Licensed bonded areas are classified into commercial bonded areas for storing cargo for import and export and bonded warehouse for private use used by the owner to store his/her cargo (bonded warehouse, bonded factory, etc.).
General bonded area
Areas designated by the Commissioner of KCS where all the functions of the existing licensed bonded areas (entry, storage, manufacture & processing, exhibition, construction, and sale) can be carried out.
121
II. BusinessManagement
2. Tariff Reduction, Exemption & Refund
‘Tariff reduction and exemption’ refers to the full or partial waiver of tariff obligations, either conditionally or unconditionally depending on the case, for certain goods in order to achieve the specific aims of the country. The refund of customs duties on raw materials that are to be exported constitutes an export support system for the purpose of improving the price competitiveness of exported goods in the global market.
2-1 Tariff Reduction and Exemption
There are two types of tariff reduction: unconditional reduction of and/or exemption from taxes based on specific facts, and conditional tariff reduction and exemption in which tariffs are reduced or exempted on condition of specific usage. In principle, the Customs Act stipulates tariff reduction and exemption, although tariffs may be reduced or exempted according to the Foreign Investment Promotion Act, the Restriction of Special Taxation Act, the Submarine Mineral Resources Development Act, and multilateral and bilateral agreements.
< Tariff Reduction & Exemption Under the Customs Act >
Unconditional Reduction & Exemption Conditional Reduction & Exemption
•Exemptions for goods used by diplomats (Article 88)
•Exemptions for goods used by the government (Article 92)
•Exemptions for small-sum goods (Article 94)
•Exemptions for travelers' personal effects, etc. (Article 96)
•Exemptions for re-import (Article 99)
•Reductions for damage (Article 100)
•Reductions for overseas trusted and processed goods (Article 101)
•Reductions or exemptions for correction of unbalanced tax rates (Article 89)
•Reductions or exemptions for goods used for academic research(Article 90)
•Exemptions for goods for religious use, etc. (Article 91)
•Exemptions for specific goods (Article 93)
•Reductions or exemptions for goods used to prevent environmental pollution (Article 95)
•Exemptions for re-export (Article 97)
•Reductions or exemptions for re-export (Article 98)
2-2 Tariff Refund
Tariffs paid or to be paid when importing raw materials for export are drawn back to the exporter or the manufacturer of the exported goods upon export, notwithstanding the Customs Act, etc.
• Tariff Reduction and Exemption
• Tariff Refund
122
Doing Business In Korea
< Tariff Refund Application Methods & Procedures >
Category Details
Exports subject to refund
•Exports for which export declarations are accepted under the regulations of the Customs Act. However, in the case of export without exchange, only the exports designated by the Ordinance of the Prime Minister are subject to refund.
•Sales or construction, paid for in foreign currency within Korea, designated by the Ordinance of the Prime Minister
•When supplying to companies in areas designated by the Ordinance of the Prime Minister as bonded areas under the Customs Act, or to companies in free trade zones under the law concerning the designation and operation of a free trade zone
•Other exports as designated by the Ordinance of the Prime Minister
Raw materials subject to refund
When goods for export are produced
Raw materials that are physically attached to export goods as a result of physical or chemical changes during production, or raw materials that contribute to the production of goods for export via chemical reaction, etc.
When goods are exported in
their original imported state Exported goods
Applicant
Exports Either the exporter or the manufacturer who is listed as the refund applicant on the export declaration certificate When payments are received in
foreign currency within Korea Either the seller or the manufacturer of the concerned goods Entry into bonded areas and
free trade zones, and other exports
Either the supplier or the manufacturer who is listed as the refund applicant on the ‘certificate of confirmation of entry (load) of goods for export subject to refund’ to confirm supply for exports, etc.
Application Period
Exports When goods for export are loaded
Other exports Upon completion of the export, sale, construction, or supply of goods for export
Application deadline
•Within two years of the date on which the products manufactured or processed with imported goods subject to refund (raw materials) are supplied for export subject to refund.
–Application for refund of tariff on the exported products shall be filed collectively for all raw materials used to produce the exported products.
–Tariffs on raw materials for export which are imported retroactively within two years of the
–Tariffs on raw materials for export which are imported retroactively within two years of the