Invest KOREA

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.

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.

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.

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

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.

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.

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.

There are 27 complex-type FIZs in Korea as follows: ◎ To qualify as a tenant of a complex-type FIZ, the company should be registered as a foreign-invested company with a minimum foreign investment ratio of 30 percent and engage in the business categories (mainly the manufacturing industry) set by the basic management plan. The requirements for occupancy (minimum investment amount and factory building area) have been recently relaxed. The tenant company should invest an amount at least equal to the factory land price within five years from the date of signing the tenancy contract, and the construction of a factory that meets the minimum area ratio for the business type should be completed within five years.

For a manufacturing company, not all of the minimum investment amount needs to have arrived when the tenancy contract is signed. ◎ According to Article 12 of the Guidelines for Operation of Foreign Investment Zones, a tenant company has to be a company invested solely by foreigners, or a joint venture company in which the share of a foreign-invested company is at least 30 percent of the total number of voting stocks or the total amount of contribution and the amount of foreign investment therein is at least KRW 100 million. A company whose foreign investment meeting the conditions listed above has been notified may sign the FIZ tenancy contract. ◎ The minimum investment amount for moving into an FIZ should arrive within the execution period of five years from signing the tenancy contract.