Invest KOREA

According to Yonhap News,

(SEJONG = Yonhap News) South Korea announced new and extended incentives Thursday, including tax breaks, aimed at attracting foreign investment that would spur the local economy.

To encourage foreign investors and firms to bring their headquarters to South Korea, the government will peg the income tax rate at 17 percent for all foreign employees at the headquarters regardless of the size of their income, the Ministry of Trade, Industry and Energy said.

The measure is a continuation of the tax incentive set to expire at the end of this year, the ministry said.

The government will also extend the maximum visa duration for foreign employees of a headquarters here to five years from three years, it said.

South Korea was ranked fourth in terms of its potential to attract foreign direct investment (FDI) in 2011, but the actual amount of investment that came through did not meet the expectation, placing the country 31st in 2012.

"Foreign investment has recently been increasing on the implementation of free trade agreements, but the country still has many problems to solve, including the relatively small amount of investment arriving here despite its high potential and lack of high-value investment, such as research and development centers or company headquarters," Kwon Pyung-oh, the head of the ministry's trade and investment policy bureau, said at a press briefing.

Kwon said only eight foreign firms are currently headquartered here while some 4,000 global firms have their main or regional headquarters in Singapore and 1,367 in Hong Kong.

In addition to attracting more headquarters, the government also hopes to induce job creation by foreign investors.

Foreign firms currently have 10 million won (US$9,380) deducted from their taxable income for each local employee they hire. The government plans to increase the tax break up to 20 million won.

Deductions in lease fees for companies inside foreign investment zones will be tiered according to the number of local employees hired as well as the amount of their investment, the ministry said.

According to the ministry, outbound shipments by foreign-invested firms here accounted for 20 percent of the country's total exports in 2012. They, however, accounted for only 6 percent of the country's total employment in the same year.

The ministry, meanwhile, said the revision to the Foreign Investment Promotion Act will be enacted on March 11.

The revision, which passed the National Assembly on Jan. 3, allows a holding company to set up a joint venture of a sub-subsidiary if a foreign firm owns a stake up to 50 percent.

Under the existing fair trade act, the local sub-subsidiary must own 100 percent of the stakes.