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Under Article 40 of the Industrial Cluster Development and Factory Establishment Act, any person who has acquired an industrial site or a factory from a tenant company or support agency by auction or other associated laws should sign a tenancy contract within a year from the date of acquisition. Otherwise, the asset has to be transferred to a third party within the following year.
◎ However, if the acquirer is the Korea SMEs and Startups Agency, the Korea Land and Housing Corporation, the Korea Water Resources Corporation, a bank established under Article 8 of the Banking Act, the Korea Credit Guarantee Fund, the Korea Technology Finance Corporation, the Korea Asset Management Corporation, the National Agricultural Cooperative Federation, or a local government-invested public corporation set up under the Local Public Enterprises Act, the grace period may be further extended within another year.
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A tenant company that wishes to sell its factory after construction should submit to the management agency documents prescribed by the Ordinance of the Minister of Trade, Industry, and Energy under Article 39(3) of the Industrial Cluster Development and Factory Establishment Act.
◎ If a company intends to sell the industrial land acquired under Article 39(2) of the Industrial Cluster Development and Factory Establishment Act or under Article 50 of Enforcement Decree of the same Act within five years from reporting the completion of the factory construction, the company should declare the ownership transfer to the management agency.
◎ In this case, the industrial complex's transfer price is the acquisition price multiplied by the producer price index from the date of acquisition to the transfer date plus the industrial complex's maintenance costs. The transfer value of the factory may be based on the market value appraisal.
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The Seoul Metropolitan Area Readjustment Planning Act regulates the total number of factories established in the Seoul Metropolitan area, while the attached Tables of the Enforcement Decree of the Industrial Cluster Development and Factory Establishment Act define rules on the establishment, expansion, or relocation of factories in three zones: overconcentration control zone, growth management zone, and nature preservation zone.
※Note: Restrictions on factory locations in the Seoul Metropolitan Area
◎ The Seoul Metropolitan Area refers to Seoul Special Metropolitan City, Incheon Metropolitan City, and Gyeonggi-do (Article 2 of the Seoul Metropolitan Area Readjustment and Planning Act).
◎ For the appropriate dispersion of population and industries within the Seoul Metropolitan area, the Seoul Metropolitan area shall be divided into overconcentration control zone, growth management zone, and nature preservation zone (Article 6 of the Seoul Metropolitan Area Readjustment and Planning Act).
※Relaxation of the restrictions: Articles 26, 27, 27-2, 27-3, and attached Tables 1, 2, 3 of the Enforcement Decree of the Industrial Cluster Development and Factory Establishment Act
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In the case of factory establishment approval under Article 13 of the Industrial Cluster Development and Factory Establishment Act, the construction permit is deemed to be obtained through the legal fiction of authorization or permission. (The legal fiction of authorization or permission is the system that collectively handles separate authorization and permit processes under different laws to improve administrative work efficiency and services for the public.) By doing so, the company can apply for factory establishment permit and construction permit for factory building concurrently, hence shortening the factory's construction period.
◎ According to Article 17(1) of the Foreign Investment Promotion Act, associated licensing and permit requests for factory establishment approval shall be deemed to have been granted through the legal fiction of authorization or permission, which effectively shortens the time taken for the administrative work.
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A company does not need to have ownership over the land when applying for factory establishment approval. Only the right to use the land is necessary. Once it is confirmed a factory can be built on the site after examining the requirements for moving into the site, the company can apply for factory establishment approval after obtaining the land owner's permission to use it even before the land ownership is transferred.
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You can find such information on the Korea Industrial Complex Corporation website.
◎ For information on FIZs, log on to the website and go to: Major Project
▶ Foreign Investment Zone
▶ Designation and Management Organization. For information on the current state of industrial complexes, go to: Major Project
▶ Research and Study of Industrial Location
▶ Industrial Complex Statistics & Periodicals.
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If the total area of all the floors of buildings housing manufacturing equipment or machine plus the horizontal projected area of outdoor manufacturing structure is smaller than 500m² , factory establishment approval is unnecessary. However, even if the size is smaller than 500m² , the company may apply for factory establishment approval if it wishes to process all the factory related permits through the legal fiction of authorization or permission.
– If a factory that is registered with a factory area less than 500m² is expanded and as a result the factory construction area increases to 500m² or larger, the factory should apply for the new establishment of a factory, not for the expansion of the factory.
◎ The following cases do not need a separate factory construction approval as it is regarded such approval has already been given: – Where a manufacturer signed the tenancy contract with the management agency of an industrial complex
– Where a company develops an industrial complex upon the approval of implementation of an industrial complex development plan instead of moving into a free trade zone, obtaining approval on its venture business plan, or moving into an industrial complex
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Individual sites (sites other than industrial complexes) refers to any site other than planned sites, and the investor develops the factory site to establish a factory. The investor needs to check in advance whether a factory is allowed to be built on the site and obtain approval from the relevant local government (city, Gun, or Gu). The next steps are: factory construction, installation of manufacturing facilities, registration of the factory, and factory operation. If the factory construction area is 500 m� or larger, the company should obtain approval for the factory construction from the relevant local government. A company whose factory construction area is below 500 m� may obtain factory establishment approval, should the company seek the legal fiction of authorization or permission for factory establishment.
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A tenant company in an FIZ should implement the submitted project plan within five years from the date of signing the tenancy agreement. The tenant company that fails to do so is subject to contract termination under subparagraph 2 of Article 14 of the Guidelines for Operation of Foreign Investment Zones.
◎ If the project plan is not implemented due to unavoidable reasons, a grace period of up to one year may be granted. During the grace period, a non-fulfillment rent (five percent of the site price) is imposed on the excess area compared to the project plan. If the company fails to attract foreign investment even after the grace period, the non-fulfillment rent is charged on the entire site.
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A complex-type FIZ restricts companies from renting a factory site that is bigger than necessary and encourages companies to secure the plot suitable for the size of the factory building. It applies the standard factory area ratio and the minimum investment amount by sector to maximize the efficiency of land usage. Foreign-invested companies that wish to move into a complex-type FIZ shall meet the following two conditions:
◎ FIZs limit the size of the leased site by the standard factory area ratio under Article 15 of the Guidelines for Operation of Foreign Investment Zones. The area of the site is calculated by applying the standard area ratio of a factory in the relevant business category. (In the case of a category of business whose standard area ratio of a factory is not more than 12 percent, the area ratio of 12 percent shall apply.)
◎ The limit on lease area for each company in a complex-type FIZ shall be determined by a master plan for management, taking into consideration the characteristics of each complex within an area not exceeding the value corresponding to 100/100 of the amount of foreign investment made by the tenant company.
