Invest KOREA

There are restrictions, but they are limited to restriction of permitted business categories, which are also applied in general industrial complexes. ◎ The following business categories are eligible for occupancy in a complex-type FIZ. Business categories allowed to move into each FIZ are determined by the basic management plan for each complextype FIZ, under Article 10 of the Guidelines for Operation of Foreign Investment Zones. – Businesses involving technologies for new growth engine industries prescribed under Article 121-2(1)1 of the Restriction of Special Taxation Act – Businesses applying or manufacturing advanced technologies or advanced products defined under Article 5 of the Industrial Development Act – Research institutes affiliated with enterprises under subparagraph 3(c) of Article 2 of the Special Act on Support of Scientists and Engineers for Strengthening National Science and Technology Competitiveness and research and development businesses under subparagraph 4(a) of Article 2 of the same Act – Businesses prescribed by Articles 25(1)3(a) and 25(1)3(b) of the Enforcement Decree of the Foreign Investment Promotion Act – Other business categories that a management agency determines, taking account of the industrial characteristics of the relevant region ◎ Before signing the tenancy contract, a company shall review the basic management plan of the FIZ that it wishes to move into and check which business categories are permitted.

An FIZ tenant company that is provided a leased site may apply for cash grant. However, calculation of the cash grant ceiling shall be based on the Operation Guidelines for the Cash Grant System, and the amount of reduced or exempted rent that the FIZ tenant company has received until the cash grant contract is signed shall be included in the cash grant ceiling, resulting in a reduced cash grant amount. ※ Related regulations: Article 10 of the Operation Guidelines for the Cash Grant System

No tax reduction or exemption benefits are provided for service-type FIZ tenant companies under the Restriction of Special Taxation Act. ◎ The Restriction of Special Taxation Act defines individual-type FIZ and complex-type FIZ tenant companies as eligible for tax reduction or exemption under Article 121-2(1)2 and Article 121-2(1)2-5. Service-type FIZ tenant companies are not included.

The tenant company of a service-type FIZ should implement the project plan (in terms of the foreign investment amount, building construction area, and minimum number of hires) within three years from the date of signing the tenancy agreement. However, for complex-type and individual-type FIZs, tenant companies should implement the project plan within five years.

Long-term loans can be repaid to maturity under the Foreign Investment Promotion Act. If such repayment leads the tenant company to fail to meet the tenancy requirements per project plan, it can be a cause for the tenancy agreement's termination, and the market rent (five percent of the land acquisition price) will be applied.

The tenant company of an FIZ should complete its investment (implementation period of the project plan) within five years from signing the tenancy agreement. The investment’s fulfillment is determined based on the balance of foreign investment and the construction area after the five years.

If the foreign investment ratio of a tenant company of an FIZ falls below 30 percent before implementing the project plan, the company should pay the market rent due to non-compliance with the tenancy qualification. In this case, the company may reinstate the tenancy qualification within two years after consultation with the Minister of Trade, Industry and Energy. ◎ The reduced rent shall continue to be applied if the tenant company fails to maintain its tenancy qualification by increasing domestic capital to install the plant or machinery, facilities, and devices without reducing the amount of foreign investment after the project plan has been implemented. Even in this case, the foreign investment ratio should be maintained at 10 percent or higher.

A foreign-invested company operating a business that meets certain criteria is eligible for a rent reduction for the state-owned land. ◎ Cases where a foreign-invested company receives 100 percent rent exemption: – Where a foreign investor makes an investment according to specific criteria and the foreign-invested company operates in the area where the foreign investor wishes to invest in (individual-type foreign investment zone) – Where a business has been approved for a tax reduction or exemption under Article 121-2(1)1 of the Restriction of Special Taxation Act and its foreign investment amount is USD 1 million or more – Where a business produces components or materials prescribed in subparagraph 1 of Article 2 of the Act on Special Measures for the Promotion of Specialized Enterprises, etc. for Components and Materials and its foreign investment amount is USD 5 million or more ◎ Cases where the foreign-invested company receives a 75 percent reduction of the rent: – Where a business intends to engage in the manufacturing sector and its foreign investment amount is USD 5 million or more – Where a business determined by the Minister of Trade, Industry & Energy after the Foreign Investment Committee's deliberation to be contributing significantly to the social overhead capital, industrial restructuring, or financial independence of the local government ◎ Cases where the foreign-invested company receives a 50 percent reduction of rent: – For land in a national industrial complex under Article 6 of the Industrial Sites and Development Act – For land in a general industrial complex, urban high-tech industrial complex or agro-industrial complex under Articles 7, 7-2, and 8 of the Industrial Sites and Development Act

Industrial locations to support foreign investors are classified into foreign investment zones (FIZ), free economic zones (FEZ), and free trade zones (FTZ). In these areas, benefits such as discounts on rent and reductions on local tax and customs duty are offered. ◎ FIZs are categorized into individual-type, complex-type, and servicetype. The head of a regional or local government designates and announces an FIZ after deliberation by the Foreign Investment Committee. The individual-type FIZ was introduced to attract largesized investors after the 1997 Asian financial crisis. The complextype FIZ set out to attract SMEs in the high-tech industry but became a part of FIZ in 2004, given it shared the same purpose of promoting foreign investment. As of December 2019, 79 individual-type FIZs, 27 complex-type FIZs, and three service-type FIZs are in operation. ◎ An FEZ is a special economic zone designed to actively attract foreign investment by enhancing foreign-invested companies’ business environment, improving their employees' living conditions, and relaxing various regulations. Starting with Incheon FEZ in 2003, Busan Jinhae FEZ, Gwangyang Bay FEZ, Yellow Sea FEZ, Daegu-Gyeongbuk FEZ, North Chungcheong Province FEZ, and East Coast FEZ were added, and a total of seven FEZs are currently in operation. FEZs are different from FIZs in that they tend to be larger than local governments, are empowered with administrative authority by the local government, and are focused on creating a foreigner-friendly environment by granting exceptional establishment of foreign schools or hospitals. ◎ An FTZ is the first special zone introduced in 1970 at a time when Korea was going through industrialization. It is a tariff reserve area where raw material imports and goods exports go through simplified customs clearance, promoting the import and export business. Initially, FTZs were free export zones focused on the manufacturing industry, and then no tariff zones for logistics were added. They were consolidated as FTZ in 2004. FTZs are categorized into industrialtype, airport-type, logistics-type, and seaport type. FTZs are similar to FIZs in that they offer similar benefits to tenant companies such as a reduction in factory land lease. Still, they are clearly distinguished in that FTZs operate as a no-tariff zone to promote trade.

Article 46-6 of the Industrial Sites and Development Act states that the State or local governments may have an agency falling under Articles 16(1)1 and 16(1)2 designate and operate a part of an industrial complex as an industrial complex for lease only to revitalize the regional economy and to supply inexpensive industrial locations. ◎ Accordingly, the State and local governments may purchase industrial land or factory to lease to a company. In that case, the company should sign a tenancy contract with the relevant management agency under Article 38 of the Industrial Cluster Development and Factory Establishment Act.