THE SPECIAL TAX TREATMENT CONTROL LAW
1. Tax Incentives on Small and Medium-Sized Enterprises
2. Tax Incentives for Research and Human Resources Development
3. Tax Incentives for the International Capital Transactions
4. Tax Incentives for the Encouragement of Investment
5. Tax incentives for creating job
6. The provisions associated with taxation on Reorganization
7. Tax Incentives for the Balanced Development
8. Tax Incentives for the enhancement of social welfare
9. Tax Incentives on Interest and Other Income
10. Zero Rating of value-added Tax 
11. Exemption of value-added Tax
12. Exemption of Special Excise Tax or Transportation Tax
13. Exemption of Liquor Tax
14. Limit on Tax Incentives
15. Foreign Direct Investment
16. Tax Incentives for FDI
17. Tonnage Taxation System
18. Adjustment of double taxation on dividend paid by Partnership in Knowledge-based industry
19. Cash receipt system
20. Alternative Minimum Tax (ATM)
Tax incentives aimed at achieving specific national economic objectives were mainly
provided for under the Tax Exemption and Reduction Control Law (TERCL) and the
Foreign Investment Promotion Act (FIPA) until the enactment of the Special Tax Treatment
Control Law (STTCL) on January 1, 1999. Tax incentive provisions for FDI in the FIPA were
subsumed into the STTCL as of May 24, 1999.
One important aim of the consolidation of the tax incentive systems under the STTCL is to
significantly rationalize tax deferrals, credits, and exemptions granted to a wide range of
taxes, by making all tax incentives covered by the STTCL subject to sunset rules. Here,
most incentives expire automatically within one to five years unless they are extended.
The major purpose of STTCL is to impose taxes fairly and to implement tax policies
effectively by through provisions on tax exemptions and restrictions of such benefits with
an ultimate view of contributing to development of the sound economy.
1. Tax Incentives on Small and Medium-Sized Enterprises
(1) Tax credit for investment (due to expire on Dec. 31, 2006)
If SMEs acquire business assets such as machinery and equipment or installation of
information management system at the point of sales and information protection 
system, 3% of the acquisition amount is deducted from income tax or corporation tax.
(2) Tax incentives for newly established SMEs  (due to expire on Dec. 31, 2006)
(a) Reduction of income tax or corporation tax
when new SMEs are established in areas other than Seoul Metropolitan or its
adjacent areas in order to operate businesses such as manufacturing, mining,
value-added network (VAN), R&D, broadcasting, data processing & computer
related business, engineering science, transportation and warehousing, design
institute, movie industry, performance industry, tourism related accomodation , 
international conference business, trading exposition, operation of facilities for
amusement, operation of facilities for tourist, advertising industry, operation of
welfare facilities for the elderly, operation of facilities, vocational training  institute
or when new venture capital enterprises certified by authorities concerned are
established, the income tax or the corporation tax for such businesses is
reduced by 50% for the first four years including the year during which such
income accrues for the first time.
(b) Reduction of local taxes
The property tax on business assets belonging to new SMEs is reduced by 50%
for five years after establishment. In addition, the acquisition tax and the
registration tax are reduced by 100% for two years.
(3) Special tax incentive for SMEs (due to expire on Dec. 31, 2005)
 Small and medium-sized enterprises(SMEs) in metropolitan area are eligible for 10% 
and 20% deduction in corporation tax or income tax. SME in non-metropolitan area
are eligible for 5%~30% deduction in corporation tax or income tax respectively. 
2. Tax Incentives for Research and Human Resources Development
The tax incentives below are basically provided to all businesses that meet the given
objective conditions without any discrimination.
(1) Reserves for technology and human resources development (due to
expire on Dec. 31, 2006)
Companies, except those providing luxury services, are eligible to set aside
technological development reserves for expenses incurred in the technology and 
human resources development.  Then, the company shall be allowed to put into
losses of up to 3% (5% in case of technology-intensive industries, certain qualified 
capital goods industries, and parts & basic materials industries) of the gross
business income in each taxable year. The amount set aside shall be added back to
the taxable income from the third business year in 36-month installments.
(2) Tax credit for technology and human resources development (due to
expire on Dec. 31, 2006)
(a) Companies, except those providing luxury services, are eligible for tax credit in
case the expenses for development of technology and human resources occurred. 
They may choose the larger amount as tax credit, from those calculated using the
following two methods(note: unless the firm is a SME, only the latter applies): 
- 15% of expenses for technology and human resources development occurred
each business year; or
- 40% (in case of SMEs, 50%) of the expenses for technology and human
resources development occurred each business year which exceeds the 
average expenses occurred during the immediately preceding four business
years.
(3) Tax credit for investment in facilities for technology and human
resources development (due to expire on Dec. 31, 2006)
The companies purchasing facilities prescribed in the Presidential Decree with the
purpose of R&D and job training are eligible for tax credit up to 7% of the total prices.
(4) Tax Exemption for income from technology transfer 
A technology holder who has registered a patent right, utility model right transfers, or
has leased the right to a domestic or a foreign person is eligible for the exemption;
50% of the tax amount on the income arising from those activities shall be exempt.
(Due to expire on December 31, 2005) Companies purchasing patent rights or utility
model rights are eligible for tax credit of up to 3%(7% in case of SMEs) of the total 
price. (Due to expire on December 31, 2006)
(5) Non-taxation on capital gains of venture capitals
Venture capital companies investing in newly organized SMEs are eligible when they
sell off stocks or equity of those SMEs. Corporation tax is exempt for capital gains
from such transactions.
(6) Tax incentives for stock option (due to expire on Dec. 31, 2006)
This provision was introduced to facilitate the recruitment of competent personnel for
venture capital companies and to encourage business activities of enrolled
enterprises or enterprises listed in the stock exchange market.
The income arising from the exercise of stock option shall not be taxed unless it
exceeds 30 million won. 
(7) Income deduction for individual investors (due to expire on Dec. 31, 2006)
This tax incentive is available to individuals investing in the following companies:
cooperative associations (including those formed by individual investors) established
for start-up SMEs or trusts for securities investment in venture enterprises or 
restructuring enterprises. 15% of the amount invested not exceeding 50% of the
aggregate income shall be deducted from the aggregate income for any one of three 
years after the investment (including the year during which the investment is made). 
(8) Tax exemption of foreign technicians (due to expire on Dec. 31, 2006)
The wage and salary income paid by domestic companies to foreign technicians
working in Korea shall be exempt from income tax for five years.
3. Tax Incentives for the International Capital Transactions
(1) In cases where interest and commission under one of the following items
are paid, income tax or corporation tax shall be exempt.
(a) Interest and commission on foreign currency bonds issued by the State, a local
autonomous body, or any domestic corporation
(b) Interest and commission payable on foreign currency liabilities borrowed from a
foreign financial institution, or eligible institutions carrying foreign exchange
businesses, repayable in foreign currency by any foreign exchange bank
(c) Interest and commission on certificates of deposit in foreign currency from
non-residents by a foreign exchange bank, and on notes issued or sold in foreign 
countries under the Foreign Exchange Control Law
(2) Tax exemption for dividend income from overseas resources
development business (due to expire on Dec. 31, 2006)
If, there is any dividend income, out of the income for each business year of a
domestic corporation, received by making investments on overseas resources 
development projects with the government's permission, corporation tax shall be
exempt on the portion of the dividend income derived, and will be exempt in the 
respective country in which the investment is made.
4. Tax Incentives for the Encouragement of Investment
The tax incentives below are basically provided to all businesses that meet the given
objective conditions without any discrimination.
(1) Tax credit for investment in facilities for productivity enhancement (due to
expire on December 31, 2006) 
Where a resident or a domestic corporation invests in one of the following, 3% (7% in
case of SMEs) of the investment amount shall be deducted from income tax and
corporation tax.
(a)  Facilities for process improvement and automation 
(b)  Facilities for advanced technology and skills
(c)  Facilities for ERP or e-commerce 
(d)  Supply Chain Management system
(e)  Customer Relationship Management system
(f)  Utilization of ASP(Application Service Provider/Provision) instead of purchasing
directly ERP, EC, SCM, CRM (7% only for SMEs. 
(2) Tax credit for investments in environmentally friendly facilities and safety
facilities (due to expire on Dec. 31, 2006)
Where a resident or a domestic corporation invests in one of the following, 3% of the 
investment amount shall be deducted from income tax and corporation tax.
(a) Anti-pollution facilities
(b) Non-pollution facilities
(c) Facilities for prevention of industrial hazards
(d) Mine safety facilities
(e) Facilities for improvement of distribution industry, etc.
(f) Facilities for HACCP (hazard analysis critical control point, etc.)
(g) Facilities for prevention of the outflow of technology
(h) Facilities for developing oversea resource. 
(3) Tax credit for investment in energy saving facilities (due to expire on
Dec. 31, 2005)
Where a resident or a domestic corporation invests in energy saving facilities, 10% of
the investment amount shall be deducted from income tax and corporation tax.
(4) Investment Tax Credit granted temporarily to control business cycle
This tax credit was enacted to boost the economy by promoting investment in
facilities for a certain period. Where a resident or a domestic corporation invests in
business assets such as facilities and equipment from July 1, 2005 to December 31,
2005, 10% of the investment amount shall be deducted from income tax and
corporation tax.
(5) Reserve for Social Overhead Capital Investment(due to expire on Dec. 31,
2006)
Where a qualified public corporation as prescribed by the Presidential Decree
invests in social overhead capital (SOC) and includes reserve for investment in 
deductible expenses, an amount equivalent to 5% of the SOC investment amount
shall be deducted from taxable income in the concerned taxable year. The amounts 
appropriated to the reserves are added back to the gains in three-year installments
beginning three years after the appropriation of the reserves to the loss. 
(6) Tax credit for investment in welfare increasing facilities for employees
(due to expire on Dec. 31, 2006)
Where a resident or a domestic corporation constructs or purchases housing (the
gross area not exceeding 85 square meters) for the purpose of leasing to their
employees who do not own housing units, dormitories, child care facilities provided
by the workplace, or buildings used for the accommodation of the disabled or the
elderly, an amount equivalent to 7% of the acquisition value is deducted from the
income tax or the corporation tax for the business year in which the date of
completion of the said construction or the date of purchase falls upon.
5. Tax incentives for creating job
a. A company that starts its operation and creates jobs is provided with tax
relief.
(1) Main content
(a) A company is given 50% to 100% of income tax or corporation tax relief for the first
profit-generating year and three subsequent years in proportion to the increase of
employment. 
(b) 100% exemption of acquisition tax and registration tax on business assets
acquired within two years after starting operation  
(c) 50% exemption of property tax on business assets for five years starting from the
year that starts operation.  
  
(d) A company is entitled to carryforward NOL incurred within 2 years after starting
operation for seven years immediately after the year where the loss is incurred.   
(2) Requirements for the tax relief
(a) A company starts a business within the period from July 1. 2004 to December 31.
2006
(b) Employed workers should be residents and regular workers with one year or
more of contract.
(c) A company is a company resident under the Corporation Tax Code and an
individual is a resident under the Income Tax Code
(d) New start-up small and midsize business falls into the category of businesses
subject to tax deduction under the paragraph of Article 3 of the Special Tax Treatment
Control Law.( the category is expanded by nine to 20 industreis)
(e) A company employs the minimum number of regular workers required for each
type of business. (10 employees for manufacturing, mining industry, five employees
for other industries)
(f) A company should not fall into the category where starting a business is not
regarded as starting a business.
(g) Alternative Minimum Tax is not applicable. 
b. Special Tax Credit for increase in employment. 
(1) Main content
Where the number of a regular employee exceeds that of previous year, one million
won per employee in excess of the number of worker of previous year is deducted
from corporation tax, income tax.
(2) Requirement
(a) Qualified company: resident company, resident individual
(b) Qualified industry: industries other than consumption intensive service and
business harmful for the youth.
(c) Effective date: from the taxable year, to which July 26, 2004 belongs to the taxable
year, to which December 31, 2005 belongs.
C. Tax Credit for employment retention.
(1) Main contents
Where a company introduces a system to retain employment, not reducing regular
workers, 500,000 won per retained employee is deducted from corporation tax and
income tax. 
(2) Qualification
(a) Qualified company: resident company, resident individual.
(b) Minimum number of workers: five regular workers or more.
(c) Qualified industry: industries other than consumption intensive service and
business harmful for the youth. 
(d) Effective date: from the tax year, to which July. 26, 2004 to the year, to which
December, 31, 2005 belongs.
(e) Scope of employment retention system
i. Implementation and change of a shift system
ii. Shortening of working hours
- a company which introduces a five-day work week (40 hours of work per
week) before its legal enforcement date.
- a company which introduces a shorter working hour than a legal working
hour. 
(f) Alternative Minimum Tax is applicable. 
6. The provisions associated with taxation on Reorganization
The provisions below were introduced to facilitate the restructuring by reducing the tax
burden that can be a hindrance to the restructuring process such as business
reorganization, re-engineering, and financial structure improvement. These provisions 
are not specific to any particular companies or industries.
Developed countries including the U.S. are also known not to levy tax on reorganization
(so-called tax-free reorganization) when certain requirements are met.
(1) Consolidation between SMEs
In the case of consolidation between two or more SMEs, there shall be no capital
gains tax imposed on the real estate property transferred to the newly consolidated
company. However, when the newly consolidated company sells the real estate
property acquired from the consolidation, any capital gains from such sales shall be
based on the price at which the real estate was acquired before the consolidation.
(2) Conversion from an individual to a corporation
If a resident converts from an individual to a corporation(excluding luxury services),
he or she may be eligible for tax deferral with respect to income from investments in
business assets prescribed in the Presidential Decree.
(3) In-kind Contributions
The term "in-kind contribution" refers to a method for corporate restructuring whereby
a company makes an in-kind contribution of assets to a company to be newly
incorporated in return for shares in the new company. 
The shareholder company can defer the payment of the corporate income tax on any
capital gains arising from the in-kind contribution until the company sells the
acquired shares.
7. Tax Incentives for the Balanced Development
Tax incentives below were introduced to effectively deal with problems such as pollution
and traffic congestion in Seoul and metropolitan areas caused by concentration of
population and industrial facilities in the area and to develop underdeveloped areas. 
These tax incentives are provided to all enterprises that move away from Seoul and
metropolitan areas that meet the objective criteria set out by relevant laws and
regulations. Therefore, these tax incentives are not specific to particular enterprises or 
industries. 
(1) Tax Incentives for small and medium sized enterprises (SME) moving to areas
outside the Seoul Metropolitan Area (due to expire on Dec. 31, 2005) 
If a SME, which has been in the manufacturing business with plant facilities located in
the Seoul Metropolitan Area for more than two years, moves such plant facilities out
of that area, then it may be eligible for a 100% income tax or corporation tax reduction
for five years, and a 50% income tax or corporation tax reduction for the subsequent
two years.
(2) Temporary special tax exemption for change of location of head office or corporate
plant excluding real estate, luxury service and construction businesses (due to expire
on Dec. 31, 2005) 
If a corporation that has operated plant facilities for more than three years in a
metropolitan area with a restriction in population growth, or one that has operated a
head office for more than three years, moves plant facilities or its head office to a
provincial area, regarding the entire tax rate for the next four years in addition to the 
year in which the change of location has occurred, 50% of the corporation tax for the
next two years shall be exempt.
(3) Reduction of income tax for corporations located in agricultural areas 
Where a resident or a domestic corporation operates a business in a designated
agricultural area, the income tax or the corporation tax on the income from business 
shall be reduced by 50% for four years including the year during which the income
accrues for the first time.
The same tax incentives shall be provided to a SME that establishes its facilities in a
government designated development zone.
(4) Reduction of corporation tax for a farming company 
With respect to a farming company which is entrusted under the Basic Act on
Agriculture and Rural Area, the corporation tax on any income derived from an 
agency business of farming management and cultivation of land shall be subject to
the full tax amount, but for income from sources other than land cultivation, the tax 
shall be reduced by 50% for four years including the year in which the income is
initially accrued.
(5) Tax exemption for the capital gains from farmland transaction
When an individual who resides in a farmland area or where a domestic corporation
has continuously cultivated farmland for more than eight years from the time of
acquisition who is subject to the farm income tax (including the cases of
non-taxation, tax exemption and reduction, and non-assessment of small sum tax),
the income tax and additional tax on capital gains from the transfer of the above land
is exempt.
8. Tax Incentives for the enhancement of social welfare
(1) The following associations shall be taxed at 12%.
(a) Credit cooperative association and Saemaeul funds
(b) Unit agricultural cooperative association and special agricultural cooperative
association
(c) Fisheries cooperative association established on an area basis or on an industry
basis and fisheries products manufacturing cooperative associations (including
fishing village guilds)
(d) Cooperative associations, small cooperative associations, and the federation of
cooperative associations established under the Small and Medium Enterprise
Cooperative Association Act
(e) Fraternities and associations established under the Forest  Association Act
(f) The tobacco production association
(g) Consumer Association established under the Consumer Association Act
(2) Tax reduction for income from forest development 
Income from forest older than 10 years is reduced by 50% from income tax or
corporation tax.
9. Tax Incentives on Interest and Other Income
(1) Non-taxable interest income
 -  Private pension savings accounts
 -  Long-term savings accounts for purchasing housing units
 -  Preferential savings accounts for wage earners
 -  Interest income from deposits less than 20 million won and dividends from
partnerships less than 10 million won for farmers  and fishermen
(2) Reduced withholding rates on interest and dividend income
The following interest and dividend income shall be withheld at the rate of 9%.
(a) Interest or dividend income from savings deposits by students
(b) Interest income from long-term savings deposits by eligible wage and salary
earners, dividend income from long-term securities savings by eligible wage and
salary earners, and interest or dividend income from distribution of people's share
trust fund
(c) Interest or dividend income from securities savings by wage and salary income
earners
(d) Interest income from small household deposits not exceeding 20 million won and
interest income from trust deposits less than 20 million won
(e) Interest income from a class of national and local government bonds not
exceeding 20 million won
(f) Dividend income from Employee's Stock Holding Association
(g) Insurance profit from insurance contract below 18 million won
10. Zero Rating of value-added Tax 
In the case of value-added tax on the supply of goods under the following items, the tax
rate of zero shall be applied.
(1) Military supplies including those for police that are supplied by military supply
enterprises
(2) Petroleum products supplied to the units or agencies established by the Armed
Forces Organization Law
(3) Subway construction services
(4) Social infrastructure facilities and building projects entailed therein supplied to the
government, local authorities, Korea Rail Network authority or business under the law of
the Private Investment for Social Infrastructure. 
(5) Complementary gear for the handicapped
(6) Machinery, fertilizer, and pesticides used for agriculture and forestry
(7) Machinery, fishing gears, and nets used for fishing in adjacent seas or inland waters
(8) environment-friendly agricultural instruments
11. Exemption of value-added Tax
(1) value-added tax shall be exempt on the supply of goods or services for the following
items.
(a) Petroleum products supplied directly to the Central Federation of Fisheries
Cooperatives for use in auxiliary private power generation for island areas where it is
impossible or difficult for a considerable period for any general electricity 
businessperson to supply electricity
(b) Meal services supplied directly to students or employees by a school, a factory,
a mine, a building site, and a welfare refectory 
(c) National housing and its construction service
(d) Petroleum products supplied to the Korea Shipping Association for use by
passenger boats operated in coastal waters
(e) Public transportation (buses) operating on natural gas
(f) Medicines for rare diseases specified in the Presidential Decree
(2) value-added tax shall be exempt on the import of the following items 
(a) Anthracite coal
(b) Goods to be used for subway construction
(c) Ships to be used for business subject to tax in Korea
(3) Tax credit is allowed for businesspersons who file an increased revenue income that
exceeds the standard revenue income by thirty percent. 
(4) Where a foreign company or non-resident without a place of business in Korea who
carries out business abroad is provided with goods or services such as foods, 
accomodation, advertising service, office supplies for domestic office while doing
business in Korea, the goods and services are provided at tax-included prices and then
amounts equivalent to the sum of value-added taxes of those goods and services are
refundable by the Korean governmet to a foreign company or non-resident. 
12. Exemption of Special Excise Tax or Transportation Tax
(1) The goods purchased by a foreigner in Korea shall be exempt or refunded from the
value-added tax or the special excise tax, provided that the purchaser withholds them
abroad. 
(2) Special excise tax shall be exempt on the following goods that are hard to be
produced domestically thus imported.
(a) Goods to be used directly by public corporations such as Korea Institute of
Science and Technology, Korea Development Institute, and Korea Spiritual Culture
Research Institute
(b) Goods to be used for education in a vocational school
(c) Equipment and materials to be used directly by Korea Broadcasting System
Corporation
(d) Raw materials to be used by a person engaging in the defense industry
(e) Samples for experiment and research to be used by Industrial Technology
Research Association or a research institute affiliated to an enterprise
(f) Goods for research to be used by a research institute that is categorized into
non-profit corporation
(3) Special excise tax shall be exempt on Korean-made automobiles purchased by
diplomats stationed in Korea, Korean-made automobiles purchased by any foreign
voluntary aid agency registered by an agreement for its business.
(4) Petroleum products prescribed in 9 (2) and 10 (1) (e), (f) shall be exempt from the
special excise tax or transportation tax.
(5) Goods to be used by the Organizing Committee of the 2002 World Cup Football
Tournament for the construction of game facilities shall be exempt from the special 
excise tax.
13. Exemption of Liquor Tax
Liquor tax on alcoholic beverages served at special restaurants exclusively for use by
foreign military personnel stationed in Korea and foreign crews shall be exempt.
14. Limit on Tax Incentives
(1) Partial Exclusion of Tax Incentives
(a) A resident or domestic corporation purchasing facilities or equipment can adopt
only one of the following provisions that grant tax credit with the purpose of
encouraging investment.
- The related provisions :  1 (2), 2 (3), 4 (1) (2) (3) (4) (6)
(b) In case a resident or a domestic corporation adopts a provision from one of two
groups below, the provision in the other group shall not be applicable.
      - Group of Tax Credits : 1 (2), 2 (3), 4 (1) (2) (3) (4) (6) 
      - Group of Tax Reductions : 1 (3)(a) (4), 6 (2) (3) (4) (5) 
(c) A resident or a corporation operating businesses in the same workplace is
allowed to adopt only one of the following provisions that grant tax reduction.
      - The related provisions: 1 (3)(a) (4), 6 (2) (3) (4) (5)
(2) Minimum Tax Systems
(a) A taxpayer should pay a minimum tax as follows, even if he or she is granted the
tax incentives under the current Special Tax Treatment Control Law.
* Applicable taxes
- For a corporation: Corporation income tax (excluding penalty tax and back tax
prescribed by the Presidential Decree)
- For an individual: Business income tax
(b)  Minimum tax to be paid
- For a corporation, 15% (13% up to 100 billion won of tax base, 15% in the case
of SMEs) of tax base before considering applicable tax incentives.
- For an individual, 40% of tax amount before considering applicable tax
incentives.
(c) Tax to be added after calculating the minimum tax
  - Penalty tax
  - Penalties under the STTCL
  - Reassessment tax under the STTCL
(d) Tax creditable after calculating the minimum tax
 - Foreign tax credit
 - Credit for losses arising from disaster
 - Farmland tax Credit (only for corporations)
 - The full amount of R&D tax credit (for SMEs)
 - The amount of R&D tax credit for expenses on hiring master and doctoral
degree holders (for non-SMEs)
(3) The ceiling of total tax incentives for capital gains
For an individual, an exemption amount of capital gains accruing from
transactions of real estate shall be given within the limit of 100 million won based on 
tax amount per year. If the exemption amount exceeds 100 million won, the portion
exceeding that amount is not exempt.
15. Foreign Direct Investment
In the aftermath of the Asian financial crisis, the government has been advocating a
series of comprehensive reform measures in the corporate, financial, and labor sectors
to address some of the more fundamental problems in the economy. Because
stimulating foreign investment and injecting market competition into the domestic
economy are believed to be critical to the success of the reform drive, the government
has accelerated market liberalization in such areas as mergers and acquisitions (M&A),
securities, capital transactions, foreign exchange, and the real estate market, virtually
opening up all of the previously restricted markets to both portfolio investment and foreign
direct investment (FDI).
With respect to FDI which entails acquisition of a controlling interest in a foreign firm or
affiliate (e.g., a branch or subsidiary) unlike the passive and interest-driven portfolio
investment, the enactment of the Foreign Investment Promotion Act (FIPA) in September
1998 is noteworthy. The principal objective of FIPA is to attract FDI by:
1. eliminating burdensome regulations and anti-competitive market restrictions;
2. creating a more liberalized, transparent and favorable business environment for
foreign businesses and investors; and
3. expanding tax incentives such as tax exemptions and reductions for extended
periods.
The tax incentives granted to FDI under the FIPA, which was subsumed into the Special
Tax Treatment Control Law (STTCL) on May 24, 1999, are primarily aimed at attracting
high-technology and large-scale manufacturing investment, and include partial and full 
exemptions on individual and corporate income taxes and local taxes. Full exemptions
from customs duties, special excise tax, and value-added tax (VAT) may also be
granted to imported capital goods. 
To be eligible for the tax incentives provided by the STTCL, a foreign investor must either
retain at least 10% of the outstanding shares of the invested company (foreign-invested
company) where the ownership of the outstanding shares is less than 10%, or exercise
managerial control by an investment agreement or under a similar arrangement with the
foreign-invested company.
16. Tax Incentives for FDI
Under the regime of the Special Tax Treatment Control Law, FDIs in the businesses that
are expected to support the international competitiveness of domestic industry, when
specific conditions are met, are exempted from taxes including corporate tax.
(1) Exemptions for advanced technology FDIs
Tax ¡¡ ¡¡ ¡¡ Incentives ¡¡ ¡¡ ¡¡
Individual and corporate full exemption for 5 years, 50% reduction for
   income taxes    next 2 years ¡¡ ¡¡
local taxes : acquisition, full exemption for 5 years, 50% reduction for
   property, aggregate land,    next 2 years (local government can extend the 
   registration ¡¡    applicable period up to 15 years) ¡¡
customs duties, special full exemption for 3 years on imported capital
   excise tax, value added     goods by foreign-invested companies ¡¡
   tax ¡¡ ¡¡ ¡¡ ¡¡ ¡¡ ¡¡ ¡¡
* Exemptions are granted to applications after January 1, 2005.
(2) FDIs entering Foreign Investment Zone (FIZ)
Tax ¡¡ ¡¡ ¡¡ ¡¡ Incentives ¡¡ ¡¡
Period of application Individual and corporate full exemption for 5 years, 50% reduction
   income taxes    for next 2 years ¡¡
local taxes, acquisition, full exemption for 5 years, 50% reduction
   property, registration   for next 2 years : (up to 15 years)
customs duties, special full exemption for 3 years on imported
  excise tax, value-added  capital goods by foreign-invested
  tax ¡¡ companies ¡¡ ¡¡
Conditions for application manufacturing business $ 30 million or more ¡¡
tourism business $ 10 million or more ¡¡
logistic business $ 10 million or more ¡¡
research centers $ 5 million or more, hiring 10 or more
¡¡ ¡¡   master degree holders ¡¡
SOC business $ 10 million or more ¡¡
two or more foreign In case the area of investment of at least
businesses ¡¡ $ 30 million by two or more foreign
¡¡ ¡¡ invested businesses is designated by FIZ
(3) FDIs entering the Free Economic Zone(FEZ), Free Trade Zone, or
Industrial Complex Exclusively for Foreign Companies.
Tax ¡¡ ¡¡ ¡¡ ¡¡ Incentives ¡¡ ¡¡
Period of application Individual and corporate full exemption for 3 years, 50% reduction
   income taxes    for next 2 years ¡¡
local taxes, acquisition, full exemption for 3 years, 50% reduction
   property, registration   for next 2 years : (up to 15 years)
customs duties full exemption for 3 years on imported
¡¡ ¡¡ capital goods by foreign-invested
¡¡ ¡¡ companies ¡¡ ¡¡
Conditions for application manufacturing business $ 10 million or more ¡¡
tourism business $ 10 million or more ¡¡
logistic business $ 5 million or more ¡¡
  
(4) FDIs entering the Development District of Enterprise New town
Tax ¡¡ ¡¡ ¡¡ ¡¡ Incentives ¡¡ ¡¡
Period of application Individual and corporate full exemption for 3 years, 50% reduction
   income taxes    for next 2 years ¡¡
local taxes, acquisition, full exemption for 3 years, 50% reduction
   property, registration   for next 2 years : (up to 15 years)
customs duties full exemption for 3 years on imported
¡¡ ¡¡ capital goods by foreign-invested
¡¡ ¡¡ companies ¡¡ ¡¡
Conditions for application manufacturing business $ 10 million or more ¡¡
tourism business $ 5 million or more ¡¡
logistic business $ 5 million or more ¡¡
Foreign businesses and investors making investments in local companies for the first
time may also request tax exemptions and/or reductions on individual and corporate
income taxes by the end of the fiscal year in which the business begins. Where
additional investments are made after the initial one, further requests may be made within
two years from the date of notification of the FDI. When a late request is made, the
exemption or reduction will apply to the year the request form is submitted and the years
remaining.
As an incentive to potential investors in Korea, the FIPA also introduced a Tax Exemption
and Reduction Checking System, which enables foreign businesses and investors to
determine their tax benefit eligibility with the government prior to making any FDI 
commitments in Korea. Requests for tax exemptions and reductions for FDI are to be
decided by MOFE after the consultation with relevant government authorities.
17. Tonnage Taxation System
Originally shipping income from a shipping company is computed according to the
corporation tax. However, as main shipping nations rushed to introduce tonnage taxation
system that impose tax by reference to such as total tonnage of shipping operation and
the number of shipping operation regardless of its actual income, Korea decided to
introduce tonnage-based taxation system in order to enhance international
competitiveness. Under the new regime, a shipping company, which meets a certain
requirement, will have to elect to be taxed based on the tonnage taxation system. 
(1) Qualification
A qualifying company is a domestic company, which carries on ocean-going service
under the shipping act and the total tonnage of shipping operation per year by
chartered ship (chartered less than 2 years) shall be within 5 times of that of
shipping operation per year by a standard ship (owned by a company or charted for
2 years or more). 
(2) Tax base 
Tax base of a shipping company = (a) + (b)
(a)  Sums of shipping income per ship 
Shipping income per ship: shipping standard profit
Shipping standard profit per ship =
(Tonnage per ship x profit per ton per day)  x  days of operation x 
utilization rate.
(b) Non-shipping operation income (income other than shipping income): 
an amount of income calculated based on the provisions of corporation tax law.
(3) Application period
A shipping company, which elects to be taxed on the tonnage taxation system, will be
subject to the system for the consecutive five years beginning from the business
year, in which it wish to be applied with this regime. 
(4) Net operation loss (NOL)
NOL incurred from non-shipping income shall not be included in the computation of a
tax base of a shipping company under the tonnage taxation system. Also NOL
incurred before a shipping company is subject to this regime shall not be deductible
in the computation of shipping and non-shipping incomes.
(5) Exclusion of special treatment
Where income subject to withholding tax is included in the shipping income, the
withheld tax amount shall not be deductible as pre-paid tax.
18. Adjustment of double taxation on dividend paid by Partnership Member in
Knowledge-based industries. 
Dividend paid by a company taking the form of partnership in knowledge-based
industries to its domestic partners until December.31. 2008 is excluded from the
company's taxable income. This is an optional regime. Thus, to be qualified for such
exclusion, a company should elect this tax scheme and a company, which does not
apply for the exclusion of such dividend, is subject to corporate tax as before. 
Dividend received at the hands of partner is subject to 30 percent of withholding tax and
is included in the global income. However, these dividends are not included in
determining whether a taxpayer is subject to global financial income tax or not. 
Examples of knowledge-based industries include engineering service, research and
development, computer and telecommunications.
19. Cash receipt system
Details of cash transaction between a vendor issuing receipts and a consumer are
reported to NTS by the vendor and the customer is allowed deduction from income on
his or her tax return based on the amount of cash transactions. This regime is
introduced to improve compliance of the self-employed. 
(1) "Cash Receipt".
  
Where a vendor who register as a cash receipt member receive cash in 
compensation for services and goods rendered to a customer, the vendor is obliged
to issue to the consumer cash receipts using electronic devices through which
transactions are electronically reported to National Tax Service. The amount of
transaction eligible for such cash receipts shall be at least 5000 won per transaction.
The cash receipt shows the date of transaction, the amount of transaction and
vendor's personal records. 
(2) Vendor's obligation and tax benefit.
1. Vendor's obligation: A vendor is required to send electronically to the head of NTS
details regarding cash transactions such as the date and amount of transactions,
and personal data of consumers and vendor.
2. Vendor's tax benefit:  A vendor who is approved by the head of NTS through cash
receipt deliberation committee, is allowed to get deductions from paid VAT or get
refund by reference to the number of cash receipt issuing devices and the number of
cash receipts transaction. 
20. Alternative Minimum Tax (ATM)
Where the tax burden of a company or a resident (or non-resident) falls short of the
ATM, the difference is disallowed from tax exemption or reduction. This is to impose a
certain level of tax burden by precluding excessive tax exemption or reduction. 
(1) Corporation tax
(a) Scope of application
Domestic company's corporation tax and foreign company's corporation tax
imposed on income (limited to global income taxation) derived from Korea are subject
to the ATM. 
(b) Application method  
Where calculated tax amounts taking into account tax exemption or reduction
subject to ATM is smaller than ATM computed by the below formula, the difference
shall not be granted tax exemption or reduction. 
ATM = Tax base not taking into account exemption, non-inclusion of gains, 
reserve, depreciation under special treatment, income deduction subject to ATM  
Times 13% (15% for amounts in excess of 100 billion won)
* In case of SME 10%
(2) Income tax
(a) Scope of application
Income tax levied on business income of residents and income tax on business
income derived from fixed base in Korea of non-resident are subject to the ATM.  
(b) Application method
Where calculated tax amounts taking into account tax exemption or reduction
subject to ATM is smaller than the ATM computed by the below formula, the
difference shall not be granted tax exemption or reduction.
ATM = tax amounts calculated from the tax base not taking into account reserves,
depreciation under special treatment, income deduction subject to ATM  times 
35%.