According to tax treaties, dependent personal services (labor) of a non-resident are subject to taxation in the country where such services were rendered. Therefore, the labor performed in Korea is subject to taxation regardless of whether its payment comes from abroad or within Korea. ◎ In this case, the foreigner’s income constitutes domestically sourced income of a non-resident under the Korean Income Tax Act, so the foreigner is required to report and pay income tax. ◎ However, if the foreigner meets specific requirements set by the tax treaty with the corresponding country (e.g., short-term stay of less than 183 days), he/she is not subject to taxation in Korea.

It may differ slightly depending on the tax treaties with other countries. However, a non-resident who meets all the following requirements is generally exempted from wage & salary income tax in the country where the work is rendered. – Where a non-resident has stayed in Korea for less than 183 days of the calendar year concerned or out of any 12 months – Where a person who is not a resident of Korea paid the income concerned – Where the income concerned was not borne by the fixed place of business in Korea owned by the employer

It cannot be generalized since each country has its own tax rules. However, it is very likely that the foreign employee or foreign executive may have to report and pay the income tax in his/her home country. ◎ However, most countries have a tax system that deducts the tax amount that has already been paid abroad (in Korea in this case) to prevent double taxation.

The registration license tax associated with a foreign-invested company’s capital increase is not a local tax that may be reduced or exempted. ◎ Under Article 78-3(1)1 of the Restriction of Special Local Taxation Act, in regard to real estate acquired within five years from the date of commencement of business for use in a business notified by the foreign-invested company concerned, 100 percent of the amount calculated by multiplying the acquisition tax pursuant to the Local Tax Act with the foreign investment ratio will be exempted, and 50 percent of the amount of acquisition tax subject to reduction or exemption shall be reduced for real estate acquired for two years thereafter. In subparagraph 2 of the same Article, in regard to real estate that a foreign-invested company is directly using for the business for which foreign investment was notified as of the basic date for taxation, 100 percent of the tax amount calculated by multiplying the calculated property tax pursuant to the Local Tax Act with the foreign investment amount for five years from the date property tax obligations occur for the first time after the business commencement date, and 50 percent of the property tax amount subject to reduction or exemption shall be reduced for two years thereafter. ◎ Accordingly, acquisition tax and property tax can be reduced or exempted, but not business license tax associated with a foreigninvested company’s registration of capital increase.

Even if a foreign-invested company fails to satisfy the conditions for tax reduction or exemption for foreign investment, it can receive the same tax reduction or exemption benefits that apply to purely domestic companies. ◎ Companies eligible for local tax reduction (including foreign-invested companies): companies established under subparagraph 1 of Article 2 of the Support for Small and Medium Enterprise Establishment Act falling under one of the following: – An SME that has started up its business* ("Startup SME") in an area other than the Seoul Metropolitan Overconcentration Control Zone** by December 31, 2020 ◎ Definition of business start-up: Establishing a new small and medium-sized enterprise and commencing its business operations, which does not fall into any of the following cases (Article 2 of the Enforcement Decree of the Support for Small and Medium Enterprise Establishment Act): – Where a person succeeds a business from a third party and continues the same type of business – Where the small and medium enterprise operated by a sole proprietor is changed into a corporation or the company form is changed through reorganization, and it continues the same type of business – Where a person commences another business after closing a business, but continues the same type of business ① Acquisition tax ◎ Eligibility: Real estate acquired to continue the same business as the one operated on the date of establishment ◎ Reduction period and rate: 75% for four years from the first day on which reduction applies ◎ First day on which reduction applies: Date of incorporation registration ② Property tax ◎ Eligibility: Real estate used for its own business (excluding leasing). In the case of land annexed to a building, only the standard area of a factory site (Article 102(1)1 of the Enforcement Decree of the Local Tax Act) or the area within the applicable multiple by specific-use area (Article 101(2) of the Enforcement Decree of the Local Tax Act) ◎ Reduction period and rate: Exempted for three years from the date of establishment and reduced by 50% for the subsequent two years

Moving into an industrial complex itself may warrant local tax reduction or exemption as long as the given criteria are met. Local tax reduction or exemption ◎ Eligible areas – Industrial complexes under the Industrial Sites and Development Act (national industrial complex, general industrial complex, urban high-tech industrial complex, and agro-industrial complex) – Host areas under the Industrial Cluster Development and Factory Establishment Act – Technoparks created under the Act on Special Cases concerning Support for Technoparks ◎ Eligible real estate – Land purchased to build industrial buildings, etc. – Industrial buildings, etc. acquired by either new construction or expansion (including the case of building or expanding factory buildings to rent to an SME) – Industrial buildings, etc. acquired after a considerable renovation in an industrial complex, etc. ◎ Details of local tax reduction – Acquisition tax – Property tax – Reduction period: Five years from the date on which tax obligations are established for the first time – Reduction rate: 35% in the Seoul metropolitan area, 75% in other regions

According to Article 78 of the Restriction of Special Local Taxation Act, 50 percent of the acquisition tax is exempted on land purchased to build industrial buildings or on industrial buildings either newly built or expanded in an industrial complex designated under the Industrial Sites and Development Act. An additional tax reduction of up to 25 percent can be granted under a local ordinance. A complex-type FIZ is designated in a national industrial complex or general industrial complex; hence the company is eligible for acquisition tax reduction or exemption.

A foreign-invested company whose application for tax reduction or exemption is approved on or after January 1, 2020 is still eligible for reduction or exemption of local taxes. Article 121- 2(4) of the Restriction of Special Taxation Act states that foreigninvested companies that applied for tax reduction or exemption by December 31, 2019 are eligible for a reduction or exemption of local taxes. However, with the addition of Article 78-3 of the same Act, local tax reduction or exemption can be granted if an application is filed by December 31, 2022. In other words, the legal base for providing local tax reduction or exemption was changed.

Registration tax was repealed and integrated into acquisition tax when the Local Tax Act was revised on March 31, 2010 (enforced on January 1, 2011). Registration tax is effectively reduced or exempted since it has become a part of acquisition tax, which is reduced or exempted. However, it is technically incorrect to say that registration tax is exempted or reduced as such a tax no longer exists, and it is advised to refrain from mentioning the registration tax.

The deadline for applying for tax reduction is the last day of the taxable year in which the foreign-invested company's business was commenced. If a foreign-invested company applies for and is granted tax reduction or exemption after the deadline, the company can receive a tax reduction or exemption for the tax year in which the application was submitted and for the remaining reduction or exemption period. However, the tax paid before the tax reduction or exemption decision will not be refunded.