Foreign Direct Investment - Cash Grant - Business Start Up in South Korea
2-1 Overview of Cash Grant
Foreign investment shall meet the following requirements and its foreign investment ratio shall be over 30% to be eligible for cash grant.
In case of new construction or expansion of factory facilities (workplaces for non-manufacturers) to be engaged in the industry support service industry, essential for strengthening the national competitiveness, and industries that hold high-end technology In case of new construction or expansion of factory facilities to manufacture the below parts and material items subject to cash grants for the parts and material industry and stipulated in the Special Act on Cultivation of Parts and Material Company
- Parts and materials that contribute a lot to creating the high added value of finished products
- Parts and materials that hold high-end technology or advanced technology, creating high added values and making technology spillover effects
- Parts and materials that lay the groundwork for the development of industries or are highly connected to other industries
< Parts and Material Industry Subject to Cash Grant >
Korea Standard Industrial Classification
|
Sector
|
|---|---|
| 17 | textile products |
| 21 | pulp, paper and paper products |
| 24 | chemical substance and chemical products |
| 25 | rubber and plastic products |
| 26 | non-metallic mineral products |
| 27 | primary metal industry |
| 28 | fabricated metal products |
| 29 | other machinery and equipment |
| 30 | computer and office supplies |
| 31 | other electricity and electric conversion |
| 32 | electronics parts and video, audio and communication devices |
| 33 | medical, precision and optical equipment and watches & clocks |
| 34 | automobiles and trailers |
| 35 | other transportation vehicles |
| 36 | furniture and other products |
In case of new construction or expansion of factory facilities (workplaces for non-manufacturers) with creating new jobs that exceed the number of regular workers as stipulated below among businesses subject to cash grants
< The Minimum Number of Regular Workers to Be Eligible for Cash Grant >
KSIC
|
Category
|
Minimum Number of Regular Workers
|
|---|---|---|
| C B F H J N Q | Manufacturing Mining Construction Transportation Publishing, Video, Broadcasting & Communication, IT Business Facility Management and Business Support Service Healthcare and Social Welfare Service | 300 |
| A D G I K M R | Agriculture, Forestry and Fisheries Electricity, Gas, Steam and Water Wholesale and Retail Accommodation and Restaurant Finance & Insurance, Science & Technology Service Arts, Sports and Leisure | 200 |
| E P S | Sewage & Waste Treatment, Material & Environment Recovery Education Service Association & Organization, Repair and Other Personal Service | 100 |
| L | Real Estate and Lease | 50 |
In case of new construction or expansion of research facilities to conduct research on the industry support service industry, essential for strengthening the national competitiveness, and industries holding high-end technology with more than 5 researchers having the master's degree in the relevant sector or the bachelor's degree in the relevant sector with more than 3 years of research experience In case of foreign investment that is highly likely to affect the domestic economy as compared to its investment amount and is considered to have satisfied necessary requirements and approved by the Foreign Investment Committee
- Foreign companies that own workplaces in more than 3 countries and establish a regional headquarter in Korea to take charge of divisions in more than two countries
- Companies that are engaged in leading or strategic industry sectors selected by each local government based on the Article 2.5 or 6 of the Special Act on Balanced National Development and are likely to contribute to the regional economy
(2) Cash Grant Rate
Cash grant rate will be given 30 percent of the investment amount, at the most. For R&D centers, the limit will be 40 percent.
The central and local governments are responsible for cash grants as follows:
Land purchase & lease: the Seoul Metropolitan Area: 30:70, non-Seoul Metropolitan area: 60:40 Employment subsidy and training subsidy: 50:50 (But, employment subsidies for interns are 100 percent financed by the central government) Construction, capital goods, research equipment, infrastructure, R&D: the Seoul Metropolitan Area: 30:70, non-Seoul Metropolitan areas: 60:40 (The ratio can be modified via the decision made by the Committee).
* Supports provided based on The Central Government's Financial Supports for Facilitating Local Governments' FDI Attraction are the same with cash grants, thus foreign investors can be granted the two supports at the same time. The total amount of financial supports cannot exceed the limit stipulated in the annexed table 2.
A foreign-invested company shall use cash grant only for the following purposes:
Employment, education and training subsidy Land purchase-lease Construction Basic facilities installation Purchase of capital goods and research equipment
The purchase cost of land to be leased shall be included in the cash grant. Support for the difference from the selling price according to the Central Government's Financial Supports for Facilitating Local Governments' FDI Attraction shall not be provided.
2-2 Cash Grant Application Procedure
A foreigner who intends to receive cash grant shall submit an application form and an investment plan to the Minister of Trade, Industry and Energy. An evaluation team consisting of related public officials and private sector experts shall evaluate the application form and the investment plan, and submit the evaluation report to the Minister of Trade, Industry and Energy.
A foreigner may request a negotiation to the Minister of Trade, Industry and Energy prior to the submission of application form. In such case, the foreigner can identify the possibility and amount of cash grant through a pre-negotiation. Therefore, the pre-negotiation is more important than the formal negotiation procedure.
< Application for Negotiation and Cash Grant & Evaluation >
The decision on cash grant shall be made following deliberation or consultation by the Foreign Investment Committee (for less than 1 billion won in grant). Following the above decision, the applicant, the Minister of Knowledge Economy, and the head of a local government may conclude a contract for cash grant. The contract period shall be 10 years from the last date of cash grant payment, and the contract shall include details of how the cash grant is provided, the acquisition and lease of land, and follow-up management of cash grant, etc. The contract shall be concluded within 60 days from the application for cash grant is filed.
< Decision on Cash Grant & Contract Conclusion >
Application form for cash grant (Annexed form)
The cash grant may be paid in a lump sum on the date when the decision on cash grant is made, or in installments of up to 10 times for the duration of up to 5 years. In case of payment in installments, the foreign-invested company's records such as the implementation of the plan for investment expenditure or the execution of cash grant shall be evaluated before cash grant is provided. Payment of cash grant is made in the following methods. (Amount and timing may be adjusted.)
< Payment of Cash Grant >
Items
|
Payment Method
| |
|---|---|---|
| Land purchase cost | Pay in installments as interim payments or balance after concluding a sales contract. | |
| Rental fee | Payment under the rental contract between the applicant and the owner of leased land. | |
| Factory/research facility construction costs | Payment shall be made after evaluating the implementation of the investment expenditure plan. | |
| Purchasing cost of capital goods & research equipment to be used for business or research purposes at the factory or research facilities | ||
| Cost to install basic facilities required to newly construct a factory or research facilities such as electricity and communications facilities | ||
| Education and training subsidy, employment subsidy | Payment shall be made after evaluating the performance result of the employment plan within the investment period. |
2-3 Follow-up Management of Cash Grant
An applicant shall, directly or indirectly, manage the foreign-invested company concerned and faithfully carry out the obligations included in the cash grant contract, as well as the investment expenditure plan.
The applicant shall take out an insurance against loss, or take equivalent measures to ensure that all assets (including those under construction) such as buildings, facilities, equipment, etc. are restored or replaced to a satisfactory level. Contracts to acquire assets that receive cash grant shall be designed to efficiently use cash grant through public tenders, official appraisals, request for two or more estimates etc.
A written consent of the Minister of Trade, Industry and Energy shall be secured in advance to use the assets purchased with cash grant for purposes other than the stated business; to transfer, exchange, or lend the assets; or to provide the assets as collateral. Also, cash grant shall not be dealt out as dividends or royalties. The concerned foreign-invested company shall not guarantee liabilities other than for business purposes.
During the contract period, the applicant shall provide enough information for the evaluation of the contract implementation, and submit a report on final accounts and statement of accounts audited externally to the Minister of Trade, Industry and Energy every year.
Lands purchased with cash grant, provided by the central and local governments with an aim to support land purchase and rent, shall not be disposed of within 5 years after the sales contract. If the land is disposed of within 10 years after concluding the contract, proceeds from the sale shall be redeemed in the proportion of the support provided by the central and local governments to the total land purchase cost.
To be eligible for cash grant in education, training, and employment subsidies, the worker concerned shall be employed for three years or longer. Should the concerned worker be dismissed within three years, the subsidy shall be collected pro rata to the period (excluding interns in science &engineering fields).
Where the actual amount of foreign investment is less than the amount stated in the contract for cash support whose purposes are construction costs, purchase costs for facilities and equipment, and installation costs of basic facilities, the amount of cash grant shall be reduced pro rata to the difference.
For cases of application by false and improper methods, non-execution of contract obligations, and where business operation is impossible due to bankruptcy during the contract period, etc., measures may be taken, such as cancellation or withdrawal of cash grant, or reduction or redemption etc. of the amount of cash grant. Initially, requests shall be made to fulfill the contract, and opportunities shall be provided to explain the situation. Afterwards, through deliberation and consultation by the working level committee, measures shall be determined regarding the concerned cash grant and relevant contract.
For cases where business operation is impossible due to bankruptcy, etc., if the applicant requests an extension of the contract period instead of returning the cash grant, the extension shall be granted, barring any special reason. In returning cash grant, the amount shall be the largest among the followings. In such cases, the responsibilities of returning cash grant shall be burdened, jointly or separately, by the foreign investor or the foreign-invested company.
The total amount of cash grant, where business operation has become impossible to execute during the investment period. When the business operation has become impossible to execute during the business operation period, the amount is calculated by multiplying the cash grant by the in transit ratio. The number of people that the foreign-invested company failed to employ during the investment period multiplied by the contracted cancellation charge for each such person, where the contracted minimum employment obligations were not fulfilled during the contract period.
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