Korea’s free zones: free economic zones, free trade zones and the rest

Foreign founders often ask where the Korean free zone is, expecting something like the free zones of the Gulf: a separate company register, 100% foreign ownership, no corporate tax, a visa package. Korea needs none of that. Foreigners can already own 100% of a Korean company almost anywhere, register it in days and obtain an investor visa through the ordinary incorporation process. Corporate tax applies nationwide. Korea’s zones exist for a different purpose: to give land, customs freedom, tax relief and regulatory exceptions to projects the government wants — usually manufacturing, logistics and research — in places it wants them.

There are several overlapping regimes, each under its own statute: the Special Act on the Designation and Management of Free Economic Zones, the Act on the Designation and Management of Free Trade Zones, the Foreign Investment Promotion Act for foreign investment zones, the regional balanced-development law for opportunity development zones, the Special Act on Jeju, and the Customs Act for bonded areas. The table puts them side by side.

Simplified. Benefits depend on the project and are agreed case by case.

Free trade zones

A free trade zone (자유무역지역, jayu muyeok jiyeok) is an area treated, for customs purposes, as outside Korea. Korea has thirteen, covering about 35 km²: seven industrial zones run by the trade ministry — Masan, the first, opened in 1970, and others including Gunsan, Daebul, Donghae, Yulchon, Ulsan and Gimje; five port zones run by the maritime ministry at Busan, Incheon, Gwangyang, Pyeongtaek-Dangjin and Pohang; and the Incheon Airport zone run by the land ministry. Busan New Port and Incheon Airport were expanded in 2020 for transhipment and e-commerce cargo.

Inside the zone, foreign goods can be brought in, stored, processed, assembled and manufactured into products without customs duty or import VAT; duty and VAT arise only if goods are taken into the Korean market. Goods supplied from the rest of Korea into the zone are treated as exports and zero-rated, so domestic suppliers can sell to tenants without VAT. Exports from the zone need no further duty procedures. A single management office handles permits, tenancy and customs coordination in one place.

Zone lists per the trade, maritime and land ministries.

Admission is selective. Manufacturers must export a minimum share of sales — 50% for large companies, 40% for mid-sized and 30% for small and medium-sized companies — and foreign-invested companies, high-tech businesses and logistics or trade companies in port and airport zones are preferred. Land has always been leased, not sold, at around 1% of the official land price a year, with reductions for foreign-invested companies above investment thresholds; in 2024 the government announced plans to allow selective sales to tenants, subject to legislation. Tenants must keep inventory records that match customs data; goods leaving the zone without declaration are treated as smuggling.

Free economic zones

Free economic zones (경제자유구역, gyeongje jayu guyeok) were created from 2003 to attract foreign investment with an international business and living environment. There are nine: Incheon, the first and largest, including Songdo, Cheongna and Yeongjong; Busan-Jinhae; Gwangyang Bay; Gyeonggi; Daegu-Gyeongbuk; the East Coast in Gangwon; Chungbuk; Gwangju; and Ulsan. Each has a basic plan listing target industries — biopharmaceuticals and logistics in Incheon, port logistics and machinery in Busan-Jinhae, materials and chemicals in Gwangyang, hydrogen and offshore wind in Ulsan — reviewed every five years. By 2023 the zones had attracted USD 223 billion of cumulative foreign direct investment and hosted more than 7,600 companies.

The incentives are land, local tax, cash and rules, not national tax holidays. Corporate tax reductions for foreign-invested companies in FEZs ended with the general abolition of foreign-investment tax holidays for applications from 2019. What remains, depending on the project and local ordinances:

• Land: leases of state and public land for up to 50 years at around 1% of land value, with 50–100% rent reductions for qualifying foreign-invested companies.
• Local taxes: acquisition and property tax reductions or exemptions for up to 15 years by local ordinance.
• Customs: duty exemption on imported capital goods for qualifying projects.
• Cash grants: for foreign-invested companies with at least 30% foreign ownership, negotiated on technology and jobs; see incentives in 2026.
• Labour and planning exceptions: wider use of dispatched workers, relief from some mandatory hiring quotas, and for foreign-invested companies in Incheon and Gyeonggi, exemption from certain capital-region concentration controls.
• Living environment: foreign schools, foreign universities and foreign-run hospitals are permitted; foreigner-only casinos for very large tourism projects.

Each zone has its own authority — Incheon Free Economic Zone Authority (IFEZ) is the best known — which acts as the one-stop office for investors. Songdo in particular is home to biopharma clusters, international organisations and a large expatriate community, and is a common choice for foreign companies wanting a modern office near the airport even when they do not claim any zone incentive.

Foreign investment zones

A foreign investment zone (외국인투자지역, oegugin tuja jiyeok) under Article 18 of the Foreign Investment Promotion Act is either a site designated for a single large foreign project — thresholds of USD 30 million for manufacturing, USD 20 million for tourist hotels, USD 10 million for logistics and USD 2 million for R&D facilities — or plots in industrial complexes reserved for foreign-invested companies at reduced rent. Benefits are reduced rent on public land and local tax relief. It is the route for a large factory that does not fit an FEZ or FTZ; the incentives article covers the thresholds.

Opportunity development zones

Opportunity development zones (기회발전특구, gihoe baljeon teukgu) are the newest and, for tax, the most generous. Designated from 2024 by agreement between provinces and investing companies, they lie outside the Seoul capital region and target specific industries — hydrogen in Donghae-Samcheok, batteries, semiconductors, biotech and others elsewhere. A business started or a new workplace opened in the zone gets 100% income or corporate tax exemption for five years and 50% for two more under the Restriction of Special Taxation Act; acquisition tax relief on property, property tax exemption for five years and 50% for five more; deferral of capital gains tax when a company sells property elsewhere to move into the zone; an extra 5 points on regional investment subsidies; and, for foreign investors, an extra 5 points on cash grants.

The catch is that the holiday attaches to the new business in the zone, with conditions on investment and employment and recapture if they are broken. For a manufacturer choosing between a site near Seoul and one in a regional zone, it can decide the location; for an office business, it rarely applies.

Jeju Free International City

Jeju is governed by its own special act, which makes the island a self-governing province and a free international city focused on tourism, education, health and clean industries. Investors in designated projects can obtain tax and charge reductions and land through the Jeju Free International City Development Center. Jeju is also known for two things foreigners ask about: visa-free entry for many nationalities arriving directly, and residence through property investment — a foreigner investing at least the prescribed amount in designated resort property can obtain an F-2 residence visa and, after five years, permanent residence. The amounts and designated areas have been revised over time; check current rules before relying on them.

Regulation-free special zones

Regulation-free special zones (규제자유특구, gyuje jayu teukgu) are regional sandboxes, introduced in 2019, in which specific rules are suspended or eased so companies can demonstrate and commercialise new technology — autonomous driving, drones, hydrogen, digital health, e-mobility, blockchain-based services. A company joins a zone’s approved special project, operates under its conditions for a set period, and the government then decides whether to change the national rules. For a foreign technology company whose product is blocked by Korean regulation, a zone or the national regulatory sandbox can be faster than waiting for a law to change. Tax benefits are secondary.

Bonded warehouses and factories: zone benefits without a zone

Many of the customs benefits of a free trade zone are available anywhere through bonded areas (보세구역, bose guyeok) licensed by Korea Customs. A bonded warehouse (보세창고, bose changgo) under Article 183 of the Customs Act stores foreign goods with duty and import VAT suspended; a bonded factory (보세공장, bose gongjang) under Article 185 lets a manufacturer process foreign materials into products under customs control, paying duty only on what enters the Korean market. For an exporter with its own plant, a bonded factory licence or ordinary duty drawback often gives most of what an FTZ would, without moving. Licensed third-party bonded warehouses in Busan and Incheon serve smaller traders; see Korea as a trading link.

Korea’s zones answer one question each: land, customs, tax or rules. Work out which one you are asking before choosing the zone.

Voixa Korea

Tax and customs side by side

Simplified; each benefit has conditions, applications and clawback rules.

How to get into a zone

1. Define the project: activity, investment, jobs, export share, timetable.
2. Talk to Invest Korea and the zone authority together: they pre-screen, propose sites and explain local ordinances.
3. Apply before investing: tenancy or occupancy applications, incentive applications and capital goods exemptions are all granted in advance.
4. Form or register the Korean company: the tenant is the Korean entity, registered as a foreign-invested company; see foreign investment registration.
5. Sign the tenancy or land agreement with the management office, with obligations on investment, start of operations and use.
6. Build, import, start: customs procedures for zone goods, environmental and building permits, staff.
7. Report and keep the conditions: export share, employment and investment are checked; benefits are recaptured if broken.

A reality check for small foreign companies

Most foreign-owned companies in Korea are sales, service and trading businesses with an office in Seoul. For them the zones offer little: FTZs admit manufacturers and logistics operators, FEZ incentives target large projects in listed industries, and ODZ tax holidays need a new business outside the capital region. A Songdo or Busan address inside an FEZ is perfectly usable as a registered office, and IFEZ’s services for foreign residents are good, but registering there does not by itself reduce tax.

What a small company can use: bonded warehouses through a logistics provider, zero-rated exports and early VAT refunds, the general tax credits, and if it hires, the employment subsidies. A good address near customers and staff is worth more than a zone address. See registered offices in Seoul and commercial leases.

Two worked examples

A battery-materials plant. A Japanese chemicals company plans a USD 80 million plant to supply cathode materials to Korean battery makers, with 120 jobs. It compares a site in the Gwangyang Bay free economic zone with one in an opportunity development zone. The FEZ offers a 50-year lease of public land at low rent, local tax relief and a cash grant negotiated with the trade ministry. The ODZ adds a corporate tax holiday — five years at 100% and two at 50% — for the new business, an extra five points on the grant and property tax relief, with conditions on investment and jobs. Because the plant will be profitable from year three, the tax holiday decides it: the company chooses the ODZ site and plans hiring to meet the conditions. Imported production equipment is exempted from duty under the capital goods rules in both cases.

An e-commerce fulfilment hub. A Dutch cross-border e-commerce company wants to serve customers in Japan, Taiwan and Southeast Asia from one stock point. It leases space from a logistics operator in the Incheon Airport free trade zone, where its European goods sit duty- and VAT-free until shipped to customers abroad; orders for Korean customers are declared for import individually under the e-commerce customs procedures. It forms a small Korean company with KRW 200 million of capital to contract with the operator and Korean service providers, and earns a service margin.

Mistakes we see

1. Looking for a Gulf-style free zone to register a tax-free company.
2. Investing first and applying later — most zone benefits must be agreed in advance.
3. Missing the export-share rule in an FTZ and losing tenancy.
4. Expecting FEZ tax holidays that ended in 2019.
5. Treating zone stock loosely — goods out of an FTZ without declaration are smuggled goods.
6. Ignoring clawback periods on local tax relief and ODZ holidays when restructuring.
7. Choosing a zone for the address rather than for land, customs, tax or rules the project needs.

Korean terms you will meet

Questions readers ask

About the author

Alexander Baranov

Founder of the BCA Group · cross-border corporate and tax adviser since 2008

Alexander advises foreign founders and groups on company formation, tax structuring and corporate law in more than 40 jurisdictions across Europe, the Gulf, Asia and Latin America. He is the author of nine books on international business and tax and writes regularly for professional finance and tax journals. He works in English, German, Spanish and Russian.

This guide is based on the Korean statutes cited in the text and on our own filings. It is reviewed when the law or official rates change.

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