Back Focus on FDI quality, not quantity
D. Murali
The book, distributed by Bharat Book Bureau (www.bharatbook.com), has chapters on corporate restructuring, mergers and acquisitions (M&A), securitisation, property, telecom, insurance, intellectual property, taxation and so on.
The foreword, by Mr Chil Doo Kim, Vice Minister of Commerce, Industry and Energy, is not complacent with Korea's strengths as a producer of household digital electric appliances, semiconductors, automobiles, steel and ships; it emphasises the need for foreign direct investment (FDI) to add to the economy's competitive strength.
The vision they are working with is, "a good country to do business in", after recovering fast from the 1997 Asian financial crisis. "Hostile M&A activity by foreigners has been legalised, as has foreign ownership of land. Ceilings on foreign purchases of equities and bonds have been abolished, and lines of business hitherto closed to foreign participation have been opened to achieve a liberalisation ratio of 99.8 per cent," informs the book.
The easiest way to create a presence in Korea is to set up a liaison office, for performing activities such as "sales promotion, product inspection, market research and client solicitation." However, if the office earns income, it will be deemed as a PE (permanent establishment). Business entity (hoesa) may be hapmyung (partnership), hapcha (limited partnership), yuhan (closely held limited liability company), and chusik (joint stock company).
Korea's Commercial Code requires chusik hoesa to have a statutory auditor, whose duties are "distinct from the independent accounting firm retained as the company's external auditor." Real estate investment trusts (REITs) were introduced "to revitalise the dormant real estate sector and assist with the restructuring of large conglomerates (or chaebol) or financial institutions." The REIT Act of 2002 expanded the earlier definition of real estate (as `land and things firmly affixed thereto') to include "a building under construction, any cash invested towards the development of real estate, and any cash invested towards acquiring the right to use real estate."
The target investment yield for REITs is about 9-11 per cent, which is double the interest rate provided by commercial banks. The book explains that REITs provide investment opportunities in real estate through public offerings and ensure liquidity of shares through listing.
Some of the most controversial issues in the new law governing insurance are about bancassurance, states the book. "Bancassurance is a scheme that permits banks and other financial institutions to sell insurance products as agents or brokers of insurance firms." A chapter on `dispute resolution' speaks about the new system for handling civil cases. Accordingly, "hearings are held based on the merits of a case," and both sides are given "the opportunity to impeach witnesses through cross-examination." Korean taxation arena has corporate, capital gains, and branch profits taxes, and also VAT at 10 per cent, and minimum tax at 12-15 per cent. Local taxes include "acquisition and registration tax, resident tax, workshop tax, various property taxes and automobile tax."
Among other taxes are: stamp taxes on `special documents'; special consumption taxes on luxuries and white goods; securities transaction tax `imposed at the time of transfer of securities'; asset revaluation tax `on the net increment resulting from asset re-evaluation; and education tax "levied as a surcharge on certain tax liabilities."
Useful information for expatriates is that wages and salary are classified as Class A and B, "depending on whether they are paid by a Korean company or a foreign company." If the amount of any overseas allowance (for housing and child support) paid to `dispatched employee' does not exceed 40 per cent such person's monthly wages, the same will be exempt from Korean income tax.
The book concedes that many foreign companies and dispatched employees are reluctant to be taxed under Korean tax laws owing to differences in tax rates. "The Korean Government is seeking various ways to reduce tax burdens on foreign-invested enterprises in Korea as a part of its efforts to ease regulations on foreign investment."
From the chapter on `labour and employment', one learns that the Labor Standards Act prohibits termination of employee unless there is `just cause' for the action. But `just cause' is not defined! "Management by harassment is not an uncommon practice to deal with unwanted employees in Korean workplaces, whereby work is made unpleasant enough that the employee quits voluntarily."
A book for the global-minded.
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