hankyoreh

The government said Sunday that it plans to offer tax benefits to companies that order original equipment manufacturer (OEM) products from businesses operating at the Kaesong industrial complex in North Korea.

The Ministry of Strategy and Finance said the move is expected to provide the 50-plus companies currently based in the complex with more work and bolster local interest for the joint-venture project that aims to help both South Korean businesses and North Korean workers.

Most South Korean companies in Kaesong, just north of the demilitarized zone that separates the two countries, are small- and medium- sized enterprises (SMEs) that moved their factories to take advantage of low wages in the communist country.

The complex is considered the crowing achievement of the historic 2000 summit between the leaders of the two Koreas.

The ministry said local companies that sign OEM deals with counterparts in Kaesong could benefit from special corporate tax deductions that are currently offered within the country.

At present, if a company arranges an OEM deal with a small-sized manufacturer in the Seoul region, the company pays 10 percent less in both income and corporate taxes, while this is extended to 15 percent if a similar deal is signed with a SME in the provinces.

The ministry, in addition, said efforts are underway to get owners of foreign real estate to report their holdings to local tax offices.

It said the measures are needed as a reference to track the taxable income of Korean nationals who are increasingly buying property abroad.

In 2005, the government tallied 29 cases of overseas real estate purchases by South Korean nationals totalling US$9 million.

This has ballooned to 1,268 cases worth $514 million in 2006, as restrictions on investments were lifted.

Policymakers said the planned revisions to the tax rules will go into effect after consultation with related ministries and a review by the Government Legislation Office.

SEOUL Yonhap