[ Investment > Legal Scene ]

ection 18 of the Foreign Investment Promotion Act (hereinafter referred to as ¡°Section 18¡±) grants authority to local governments to designate a particular area where a foreign investor wishes to invest as a Foreign Investment Zone (FIZ) after receiving approval from the Foreign Investment Committee. In the past, a government or locality would first develop an industrial complex and then attempt to attract foreign investment to it. Foreign investors, however, had difficulties finding complexes that satisfied their particular needs.

  In addition, the ¡°complex method¡± sometimes proved economically inefficient when few investors moved into the zone. To compensate for these short-comings, Section 18 is designed to be more investor-friendly since a foreign investor can request a site to be designated as an FIZ that fits a specific set of requirements. Therefore, Section 18 allows a foreign investor to receive top-level investment incentives at a site whose geographical advantages can maximize the viability of his or her specific project.

  Section 18 (1) stipulates that a mayor or a governor can designate some part of their locality as a Foreign Investment Zone after screening and approval by the Foreign Investment Committee. The section only applies to foreign investments of large scale, i.e., in excess of $50 million and generating jobs for at least 1,000 workers.

  In order for a particular site to be designated as an FIZ, a foreign investor must undertake to build a new plant thereupon. Acquisition of existing shares or acquiring a business entity without the establishment of a new plant is not considered foreign direct investment for the purposes of Section 18. In short, the section only recognizes the ¡°greenfield¡± type of foreign investment.

  The table below indicates the requirements of investments under four major industrial groupings to be eligible for benefits under Section 18.

  Once an area is designated as a Foreign Investment Zone pursuant to Section 18, the investor can then qualify for the various tax benefits as detailed in the following table. For example, a foreign investor can be exempted from rental payments for the first fifty years of site occupation, and can renew the lease on the same terms and conditions for another fifty years. Moreover, a foreign investor in an FIZ-designated site can enjoy numerous infrastructure benefits. For instance, if a Foreign Investment Zone covers an area in excess of 16,000 square meters, the central government will install, free of charge, all necessary utilities and roadways. In addition, the local government and the Korean central government will share the cost of constructing sewage disposal facilities on a 50/50 basis.

  Furthermore, the local and central government will also provide health care and educational services, plus housing and other amenities.

  Once a foreign investor makes an application for a site to be designated as a Foreign Investment Zone, the mayor or governor of the jurisdiction prepares a plan and submits it to the Minister of Commerce, Industry and Energy. After reviewing the same, the minister will introduce the plan to the Foreign Invest-ment Committee. Once the committee approves the plan, the mayor or governor posts notice of the designation.