Chiefs of Korean free economic zone authorities gathered Friday to urge the Seoul government to maintain tax benefits given to foreign investors in the districts, amid a move to revise preferential treatment for foreign businesses.
During a meeting in Osong, North Chungcheong Province, the heads of seven FEZs across the country — Incheon, Busan-Jinhae, Gwangyang Bay Area, Daegu-Gyeongbuk, Yellow Sea, East Coast and Chungbuk — said that if the government makes revisions to minimize the tax benefits, the move would slow foreign investment in the zones.
Since the establishment of the first FEZ in Incheon in 2013, foreign investors and firms operating in the zones received various tax benefits, such as exemptions or reductions in corporate and income taxes as well as those related to acquisition and property, along with tariffs. The perks have been regulated by the Special Act on Designation and Management of FEZs and Restriction of Special Taxation Act.
For instance, those who invested $1 million to $30 million can receive up to 100 percent exemptions from corporate and income tax for the first three to five years. They also receive 100 percent exemptions from acquisition tax for 15 years.
However, since December last year, the mood has changed, following European Union finance ministers’ decision to put Korea on a blacklist of “uncooperative regions” regarded as tax havens. They called the South Korean taxation systems unfair and say they discriminated between local and foreign firms, as well as among residents and non-residents.
The EU called South Korea’s special tax benefits for FEZ investors a “harmful preferential tax regime,” and saw it as legislation that explicitly gives preferential tax treatment to foreigners.
Following the Moon Jae-in administration’s promise to revise the tax law this year to improve the system for foreign businesses here, the EU in January removed Korea from the blacklist.
FEZ authorities came up with a statement and delivered it to the Ministry of Trade, saying that the tax benefits should be maintained for foreign investors, as well as the easing of restrictions in new designations of additional FEZs to attract more foreign investment.
The Ministry of Strategy and Finance has said officials are reviewing whether to give equal tax benefits to local companies in the zones, or level out the tax benefits given to all firms in the zones.
“While this does seem unfair, South Korea is probably the only country in the OECD (Organization for Economic Cooperation and Development) that explicitly provides preferential tax treatment to foreign investors. We will take this opportunity to discuss tax concessions for foreigners, considering both the interests of domestic industry and international standards,” a ministry official said.
By Kim Da-sol (ddd@heraldcorp.com)
