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Reductions or Exemptions on Capital Goods

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  • Reductions or Exemptions on Capital Goods
In the case of capital goods imported through the notification of foreign investment by the acquisition of newly issued stocks, etc. among capital goods (listed below) that are used in businesses subject to tax reductions or exemptions, customs duties, individual consumption tax, and value-added tax are exempted under the Restriction of Special Taxation Act.
  • Capital goods imported by a foreign-invested company with a foreign or domestic means of payment obtained as equity investment from a foreign investor
  • Capital goods imported by a foreign investor as an object of investment
* Related law: Article 121.3 of the Restriction of Special Taxation Act

Application

If a company that has been granted tax reductions or exemptions intends to import capital goods and apply for exemptions from customs duties, individual consumption tax, and value-added tax, the following documents must be submitted to the head of customs.

Due Date for Application

The import declaration for capital goods subject to tax reductions or exemptions must be completed within five years from the date of investment notification under the Foreign Investment Promotion Act.
If the import declaration cannot be completed within the above-mentioned period due to inevitable reasons, such as a delayed approval of factory establishment, a request for an extension of one year may be submitted to and approved by the Minister of Economy and Finance (up to six years).

Exceptions

Investments through the acquisition of existing stocks or shares issued by companies operated by Korean nationals or Korean corporations are not subject to exemptions.

Additional Collection of Reduced or Exempted Tax and Exclusions

If a company that has been granted tax reductions or exemptions falls into certain categories prescribed by the Restriction of Special Taxation Act, the head of customs (head of tax offices) and the head of the concerned local government also collect custom duties and local taxes.
Additional collection of reduced or exempted taxes is excluded in the cases of a dissolution, etc., of a foreign-invested company due to merger.
Reasons for exclusion of additional collection of reduced or exempted tax are as follows:
  • The registration of a foreign-invested company is revoked following a dissolution due to merger.
  • Capital goods that were imported and used after having been exempted from customs duties, etc. become unusable for their original purposes due to natural disasters or other force majeure events, or depreciation, technological advancement, or other changes in economic conditions; consequently, such capital goods must be used for other purposes or disposed of with an approval from the Minister of Economy and Finance.
  • A foreign-invested company transfers stocks, etc. to a Korean national or a Korean corporation for the purpose of an initial public offering under the Financial Investment Services and Capital Markets Act.
  • A foreign-invested company meets the requirements for a tax reduction or exemption by delivering the object of investment within the period extended by the mayor or provincial governor under the Foreign Investment Promotion Act.
  • The purposes of a tax reduction or exemption are deemed achieved, as prescribed by other laws.
* Related laws: Article 121.5.5 of the Restriction of Special Taxation Act, Article 116.10.2 of the Enforcement Decree of the Act