Enterprise-only complexes and free trade zones in Korea

Among the industrial complexes designed to be exclusive for the auto parts industry are foreign enterprise-only complexes and free trade zones, besides the normal industrial complex (state or regional).

Foreign enterprise-only complexes were planned and designated in consideration of rising land prices that hindered foreign direct investment and factory-building investment (Greenfield-type), and foreign investors' preference for lease over procurement to reduce the capital investment to provide the foreign enterprises with the land at a low cost.

Governments support regarding foreign enterprise-only complexes includes; Rent. In the case of high technology businesses valued at US$1 million or more, the rent is totally exempted, and in the case of general manufacturing firms investing US$5 million or more, 75% of the rent is exempted.

Tax benefits. For income tax and corporate tax, 100% of the tax is exempted for 5 years and 50% for another 3 years, when the tax belongs to national tax. When it comes to local tax (acquisition tax, registration tax, property tax and integrated land tax), a 100% exemption is granted for 5 years and 50% for another 3 years, after the date of acquisition, and a reduction for a maximum 15 years will be possible in accordance with the municipal government's regulations. In the case of tariffs, special excise tax and value added tax, a 100% tax exemption is granted on capital goods for 3 years after the declaration of investment.

Sale of land. Of the sites covering 4,615,000 m , as of Oct 2004, 63.9% or 2,950,000m , were sold. And in the case of leases, 59.8% or 2,476,000m of 4,141,000m was completed. Breaking it down by region, Chunan marked 100% completion in both sales and leases.

Viewing the remainder, Pyungdong marked 58%, Jinsa 53.6%, Daebul 38%, Gumi 38.6% and Ohchang 29.2%. (differences in sales rates between the regions are estimated to have been caused by inconsistent designation of the sites and different adjustment dates)

Free trade zone. Export-free zones were established in Masan (1971) and Iksan (1974) in an attempt to attract export-centered foreign direct investment, and they were officially renamed as free trade zones in accordance with revised laws designating the free trade zones anew in Jan 2000.

Support for free trade zones

Rent. Rentals of around one-fifth level compared with other areas in Korea, with long-term contracts of more than 10 years, which may be further extended.

Tax benefit. When moving to free trade zones, a five-year 100% tax exemption on corporate and income tax is granted, and 50% reduction for another 2 years is also granted. Local tax (acquisition, registration, property and integrated land tax) is 100% exempted for 5 years, with 50% exemption for another 3 years, which can be extended up to 8-15 years maximum. A tariff, special excise tax and value-added tax on capital goods are also subject to exemption. 
 

Free Trade Zones (2003) 

Source: Administration office of free trade zone

Conditions for free provision: Investment S$10 million for high tech Investment of US$1 million with at least 30% of foreign investment

Foreign investment zones In the case of high tech manufacturing and industry support services with foreign investment amounting to US$30 million, it may be designated as a foreign investment zone, granting most of the benefits granted by Foreign Investment Promotion Act.

Support for foreign investment zones

Rent. The rental for state-owned property within foreign investment zones may be 100% exempted.

Tax benefits When designated as foreign investment zones, income and corporate tax, if they are national tax, are exempted for 5 years, and 50% for another 2 years (when no income is generated for 5 years from the date of business, the period is counted after 5 years). Local tax, (acquisition, registration, property and integrated land tax) is 100% exempted for 5 years, with 50% exemption for another 3 years, which can be extended up to 15 years maximum.

Other benefits. Support includes development cost within a foreign investment zone, and infrastructure such as harbor, roads, water supply and electricity, and the foreign-invested company is not obliged to hire nationally meritorious persons as required by the government's labor regulations; and they are exempted from payment of disruption costs during factory construction, as well as the medical, education and housing benefits.  

Designation of Foreign Investment Zones