Korea’s free economic zones number nine, and what they confer in 2026 is narrower than the promotional material implies. The Special Act delivers land on long public leases, rent reductions, infrastructure funding and a set of regulatory carve-outs, nearly all of them keyed to registered foreign investment. The national income tax holiday closed years ago. A sales entity with no site, no imported capital goods and an investment below the Article 116-2(5) thresholds gains close to nothing.
This guide sits under the guide to starting a business in South Korea, which covers entity types, capital and the registration sequence. Korea FDI incentives covers cash grants, Foreign Investment Zone types and clawback, and business address options in Korea covers the registered office, so I will not repeat either. Statutory text is from the Korea Law Information Center as of September 2026.
Which Nine Free Economic Zones Exist, and What Is Each Built For?
Most were designated around an industrial asset that already existed, and the later designations were policy-led. The Ministry of Trade, Industry and Resources, known in English as the Ministry of Trade, Industry and Energy until the October 2025 government reorganization, counted nine zones comprising 101 districts on 2 September 2026, with about 8,500 companies operating in them and some 250,000 jobs created. The Free Economic Zone Planning Office publishes each zone’s designation date and orientation:
- Incheon (IFEZ), designated 11 August 2003, 122.33 square kilometers across Songdo, Yeongjong and Cheongna. Aviation logistics, bio, and international business, anchored on Incheon International Airport and port.
- Busan-Jinhae (BJFEZ), designated 30 October 2003, 50.29 square kilometers. Built around the new port, with shipbuilding equipment, automotive and machinery clusters alongside logistics.
- Gwangyang Bay Area (GFEZ), designated 30 October 2003, 57.08 square kilometers. Functional chemicals and advanced materials on the POSCO Gwangyang and Yeosu industrial base, with a secondary battery materials cluster forming around POSCO Future M.
- Daegu-Gyeongbuk (DGFEZ), designated 6 May 2008, 18.41 square kilometers across Technopolis, Suseong, Sinseo and the Pohang and Yeongcheon districts. IT convergence, transport components and medical.
- Gyeonggi (GGFEZ), designated 6 May 2008. Pyeongtaek Poseung BIX at 2.046 square kilometers and Hyeondeok at 2.316 square kilometers sit on Pyeongtaek port, with Siheung Baegot for unmanned vehicle research.
- Gangwon, formerly East Coast (GSFEZ), designated 4 February 2013, 4.33 square kilometers across Bukpyeong, Mangsang and Okgye. Tourism, hydrogen energy and advanced materials.
- Chungbuk (CBFEZ), designated 14 February 2013, 4.96 square kilometers. Osong Biovalley and Cheongju Aeropolis, meaning bio, aviation maintenance and repair, and semiconductor and solar manufacturing.
- Gwangju (GJFEZ) and Ulsan (UFEZ), both designated in 2020 with their authorities launched in January 2021. Gwangju runs future automotive, smart energy and AI convergence; Ulsan runs hydrogen, with more than 80 companies and institutions including the Korea Institute of Energy Research and UNIST.
Two things date faster than the list. First, zones change by ministerial notice and the English portal trails the Korean one. MOTIR Notice 2026-004 of 15 January 2026 added the Ansan Science Valley district to the Gyeonggi zone, giving it a fourth district the English pages still omit, and a new Incheon district at Ganghwa South was reported to the 146th Free Economic Zone Committee on 15 December 2025, which starts inter-ministerial consultation and expert evaluation rather than finishing it.
Second, districts come out as well as go in, and the clearest case sits inside the list above. Article 8 of the Special Act lets the minister release a zone, or drop a single district from one, where development has stalled, where another designation overlaps it, or where foreign investment is too weak for the designation to meet its purpose, and Article 8-2 of the same Act deems a district de-designated where nobody applies for implementation plan approval within three years. The Gyeonggi zone is the zone designated in 2008 as the Yellow Sea free economic zone. Korea’s government policy briefing service reported on 9 August 2013 that the ministry had released its 1.063 square kilometer Han-China district, in Poseung-eup in Pyeongtaek, after more than five years of stalled development on weak viability, following deliberation by the Free Economic Zone Committee. The same report describes a zone launched across 55.1 square kilometers as five mini industrial cities, Pyeongtaek carrying the Han-China, Hyeondeok and Poseung districts, Hwaseong carrying Hyangnam, Asan carrying Inju, Dangjin carrying Songak and Seosan carrying Jigok, whose planned development area had already been cut by 14.9 square kilometers, with restructuring of the districts that still had no developer to follow by August 2014 on the premise of de-designation. The zone authority’s own district table now lists four districts totaling about 6.9 square kilometers: Poseung and Hyeondeok, both designated 6 May 2008, Siheung Baegot from 11 June 2020 and Ansan Science Valley from 15 January 2026. Every Chungnam and Hwaseong district in the original plan is gone, and the released Han-China ground sat in the same township as Poseung BIX, which is the district this post later points semiconductor suppliers at. Annex 1 to the Seoul Metropolitan Area Readjustment Planning Act Enforcement Decree writes the possibility into its Incheon carve-out, which expressly includes areas released from the free economic zone. Ask each zone authority about the development plan status of your specific district, not just the zone.
What Does the Free Economic Zone Act Actually Confer?
The Act confers land economics, funding and regulatory relief. It confers no tax by itself. Article 16(1) of the Special Act on Designation and Management of Free Economic Zones says the State and local governments may reduce national and local taxes on resident foreign-invested and returning companies “as prescribed by” the Restriction of Special Taxation Act, the Customs Act and the Restriction of Special Local Taxation Act. Every tax question therefore resolves in a different statute, which is where most zone marketing quietly loses accuracy.
One distinction decides which instrument you should be chasing, and the two are routinely conflated. A free economic zone is a geographic designation: under Article 4 of the Special Act, the Minister of Trade, Industry and Resources designates it on the request of the competent metropolitan mayor or provincial governor, after consulting the relevant ministries and obtaining a resolution of the Free Economic Zone Committee. Article 4(1) requires a joint request where the target area spans more than one city or province, and five of the nine zones are named for metropolitan cities, so the requesting office is a mayor as often as a governor. A Foreign Investment Zone is a designation attached to a complex, a project site or a building under Article 18 of the Foreign Investment Promotion Act, made by that same mayor or governor after deliberation by the Foreign Investment Committee. The two coexist on the same ground, and Article 15(2) of the FEZ Enforcement Decree stops the two support regimes being funded twice at the government level: where a Foreign Investment Zone inside the free economic zone already draws State funds under Article 14 of that Act, the State does not separately fund the zone support. Foreign Investment Zone types carry their own rent reductions against their own investment bars, set out in the Korea FDI incentives guide, so a manufacturer clearing those bars should price both routes before committing to one.
Three provisions move a number for a zone tenant. Article 16(4) of the Act allows reductions of national property fees up to the expiry date scheduled in the National Property Special Cases Restriction Act and of local public property fees until 31 December 2028, while Article 16(2) of the Enforcement Decree lets the managing central agency set the national reduction anywhere up to 100 percent and Article 16(5) of the Decree leaves the eligible businesses and the public property rate to local ordinance. Read that last sentence twice before modeling anything: the number that decides your rent is written by the municipality, not by the Act. Article 17(6) allows leases of national or public land within 50 years and permanent structures, subject to a possible condition to donate the building or restore the land. Article 18 of the Act has the State fund up to 50 percent of listed access road, water, rail and port construction costs, rising to the full cost with Committee approval. The rest is mechanics, including private contract in place of competitive tender under Article 16(6) of the Act and installments of up to 20 years on national property at no more than 4 percent interest under Article 16(6) of the Decree.
Who Qualifies as a Free Economic Zone Tenant, and Who Does Not?
The benefits attach to defined categories, and the definitions are narrower than “a company in the zone”. Article 2(4) of the Act defines a foreign-invested company by reference to the Foreign Investment Promotion Act, so the KRW 100 million and 10 percent recognition threshold covered in the pillar guide is the entry gate before any zone provision applies.
Article 16(2) of the Act lets a local government fund preparation of the land it leases and reduction of the rent on it, and it confines that funding to four groups of “principal tenant companies”: resident foreign-invested companies, resident returning companies, companies investing in advanced technology and advanced products confirmed by MOTIR under Article 2(7), and companies investing in a core strategic industry. The third and fourth groups are excluded where the zone sits in the capital region, so a Korean-owned advanced technology firm gets the funded rent in Gwangyang or Ulsan and does not get it in Incheon or Gyeonggi. Foreign-invested tenants keep it in every zone.
The land provisions run to those same principal tenant companies, and for a resident foreign-invested company Article 16(4) and Article 16(6) of the Act require a foreigner to hold at least 10 percent of the voting shares or total contribution, and that ratio to hold for the lease term or for five years after a sale. Article 16(6) also bars providing the property to specially related persons other than foreign-invested companies. Cash grants run on a higher bar, a 30 percent foreign investment ratio, worked through in the Korea FDI incentives guide.
The tax-side definitions are stricter again. Article 116-2(5) of the Restriction of Special Taxation Act Enforcement Decree sets the qualifying zone investment at USD 10 million for a new manufacturing plant, USD 10 million for the listed tourism and international convention categories, USD 10 million for engineering, telecommunications, computer programming and system integration, information services and other scientific and technical services, USD 5 million for the listed logistics categories including port and airport hinterland logistics, and USD 1 million for a research facility employing at least 10 full-time researchers holding a master’s degree or higher with three years of research experience. A two-person sales office clears none of these. The list also carries USD 5 million for a foreign medical institution, which Article 23(1) opens only to a foreigner or a company at least 50 percent foreign-invested, on a permit from the Minister of Health and Welfare that Article 23(3) conditions on a Committee resolution, so treat it as an enabling power whose practical uptake is worth checking with the zone authority before it enters a plan.
Core strategic industries are a statutory designation with a procedure behind them. Under Article 7-7 a zone authority asks MOTIR to designate one with the approval of the competent mayor or governor, and MOTIR designates and publishes it after consulting related ministries and obtaining a Committee resolution. MOTIR’s January 2026 tenant survey recorded core strategic industry firms growing 6.8 percent year on year, with employment in them up 27.0 percent.
What Happened to the Tax Package, and What Survives in 2026?
Three separate application deadlines govern this, and two of them have passed. Article 121-2(2) of the Restriction of Special Taxation Act grants the corporate and income tax reduction only to a foreign-invested company that filed its reduction application by 31 December 2018, and Article 121-2(4) and (5) grant the acquisition and property tax reduction under that Act only for applications filed by 31 December 2019. This is the repeal that the Korea FDI incentives guide dates to 2019, read from the operative text.
The local tax route needs care in 2026. Article 78-3(1) of the Restriction of Special Local Taxation Act grants a full acquisition tax reduction and a full property tax reduction for three years for zone businesses, because it cuts its headline five-year period to three where the business falls under Article 121-2(1)2-2 of the Restriction of Special Taxation Act, which is the zone tenant category, then 50 percent for two more, with ordinances able to extend to 15 years. It conditions all of it on a reduction application filed by 31 December 2025 and a reduction decision issued on it. That date still stands in the consolidated text promulgated on 2 June 2026, and it was not moved by the year-end amendment promulgated on 31 December 2025 and effective 1 January 2026. No amending Act has moved it either: the consolidation promulgated on 8 September 2026, which takes effect on 9 September 2027, still reads 31 December 2025. An extension to the end of 2029 was asked for in a public comment of 3 September 2026 on the Government’s legislative notice of 27 August 2026, which did not itself propose one, so confirm the position in writing with the competent local government and Korean counsel before assuming either outcome.
What plainly survives is the customs duty exemption, and its scope is commonly overstated. Article 121-3(1) exempts customs duties, individual consumption tax and value-added tax on capital goods, and it covers the categories in Article 121-2(1)1 and 2. The zone tenant category sits at Article 121-2(1)2-2, which Article 121-3(2) covers, and paragraph 2 exempts customs duties alone. A plain zone tenant therefore gets the tariff relief and still pays import VAT. The fuller exemption runs through the Article 121-2(1)2 route, which for a zone project requires deliberation by the Free Economic Zone Committee. Where a source describes the broader package of duty, import VAT and individual consumption tax as available to qualifying foreign investment generally, that is the Article 121-2(1)2 route, and zone tenancy by itself does not reach it.
Two mechanics decide whether the exemption arrives at all. Article 116-5(2) of the STA Enforcement Decree limits the eligible capital goods to those directly used in a business whose taxes are reduced under Article 121-2 or under Article 78-3, imported within five years of the Foreign Investment Promotion Act notification and extendable to seven on approval, which is the operative text of the Enforcement Decree in force from 1 July 2026 rather than the proposal it is sometimes described as. That points back at the two regimes whose application windows have closed or are in question, which is the reason to use Article 121-2(7) of the Restriction of Special Taxation Act and ask the Minister of Finance and Economy, renamed from Minister of Economy and Finance in the January 2026 reorganization, to confirm eligibility in advance, before filing the investment notification, with a decision due in 20 days. What is granted is also recoverable: Article 78-3(12) recaptures the local reductions on a share transfer to a Korean buyer, a fall in the foreign ownership ratio, cancelled registration, closure of the business, a missed investment or employment standard, or property not used for its stated purpose within three years.
The Carve-Outs That Are Worth More Than the Tax
For most qualifying companies the regulatory relief in Article 17 is worth more than the remaining tax relief, and it is rarely quantified in pitch documents. Resident foreign-invested and returning companies are exempt from four statutory employment quota provisions: Article 33-2 of the Act on Honorable Treatment of Persons of Distinguished Service, Article 39 of the Veterans Compensation Support Act, Article 28 of the Employment Promotion and Vocational Rehabilitation of Persons with Disabilities Act, and Article 12 of the Age Discrimination Prohibition Act. Article 17(4) permits unpaid holidays notwithstanding Article 55 of the Labor Standards Act, and Article 17(5) lets the Minister of Employment and Labor widen the permitted occupations for dispatched workers or extend dispatch periods, limited to specialized occupations resolved by the Committee.
Article 17(3) disapplies Articles 7, 8, 12, 18 and 19 of the Seoul Metropolitan Area Readjustment Planning Act to those same companies, covering the action restrictions in the overconcentration control and growth management regions and the overconcentration charge. Separately, Annex 1 to that Act’s Enforcement Decree excludes the Incheon Free Economic Zone from the overconcentration control region altogether, which removes the tripled registration and license tax on incorporating in a large city that the business address options in Korea guide prices out. For a capitalized manufacturing entity, that single exclusion can outweigh the rent reduction.
Smaller provisions round it out. Article 21 allows direct settlement of current transactions up to USD 100,000 per case in foreign means of payment, and Article 20 requires official documents and responses in English. Article 24-3 lets the Minister of Justice set different visa procedures and maximum stay periods for foreigners working at resident foreign-invested companies, which is an authority worth testing with the zone authority before you assume a benefit, and Article 28 places an ombudsman inside each zone authority.
What Should a Foreign Company Do Next Quarter?
Start by disqualifying yourself cleanly, because that is the most common correct answer. If the Korean plan is a sales, marketing or services subsidiary with a handful of staff, no site, no imported capital goods and an investment below the Article 116-2(5) thresholds, the zone package confers close to nothing, and a zone address buys a commute instead of a benefit. MOTIR’s January 2026 survey counted 690 foreign-invested companies among 8,590 businesses in the zones, so the zones are overwhelmingly tenanted by domestic firms using land, not by foreign entrants collecting incentives.
Four situations justify the work. You are importing production equipment and can use the customs exemption. You need land on a long public lease, and the annual fee starts from 1 percent of the value of the national or public property under Article 16(5) of the Act, before any reduction the managing agency or the municipal ordinance applies, so the comparison against a commercial lease turns on the assessed value of that parcel and the reduction rate the zone actually grants. You are capitalized above the Article 116-2(5) level for your category, which is USD 10 million for a manufacturing plant and USD 5 million for the listed logistics categories, and the site is genuinely movable between regions. Or you need the Seoul Metropolitan Area relief, which is decided by the boundary rather than by negotiation.
If you are in one of those four, sequence it in this order. Ask each candidate zone authority what land is available in the district, in what registered use, on what price or fee basis, and on what delivery date, because a district with nothing to lease until 2029 ends the analysis in week one. Match your Korean Standard Industrial Classification code against Article 116-2(5) before shortlisting sites, since the category decides the threshold, and ask for the ordinance that sets public property reduction rates and target businesses. File the foreign investment notification before the equipment ships, because the five-year import window runs from that date. Use the advance confirmation in Article 121-2(7), get the Article 78-3 position in writing, and run two zone authorities in parallel, since the local government funds part of every package. For suppliers weighing Pyeongtaek Poseung BIX against non-zone sites in the semiconductor corridor, the customer geography in the Yongin semiconductor cluster guide usually decides the question before the incentives do.
Frequently Asked Questions
Do free economic zones still offer a corporate tax exemption in Korea? No. Article 121-2(2) of the Restriction of Special Taxation Act grants the corporate and income tax reduction only to foreign-invested companies that filed a reduction application by 31 December 2018, and the acquisition and property tax reduction under the same Act closed to applications after 31 December 2019. What remains at the zone level is customs duty relief, land and rent support, funding, and regulatory exemptions.
What is the minimum investment to qualify for free economic zone tax benefits? Article 116-2(5) of the STA Enforcement Decree sets the qualifying levels: USD 10 million for a new manufacturing plant, USD 10 million for listed tourism and convention businesses, USD 5 million for listed logistics businesses, USD 5 million for a foreign medical institution, and USD 1 million for a research facility employing at least 10 qualified full-time researchers. Recognition as a foreign-invested company comes first.
Can a Korean-owned company get free economic zone benefits? Partly, and location decides it. Article 16(2) of the FEZ Act includes companies investing in advanced technology and advanced products and companies investing in a designated core strategic industry among the principal tenant companies eligible for funded site preparation and rent reduction, then excludes both groups where the zone is in the capital region. The same company qualifies in Gwangyang or Ulsan and does not in Incheon or Gyeonggi.
How long can a company lease land in a Korean free economic zone? Up to 50 years. Article 17(6) allows leases of national or public property for terms within 50 years and permits permanent structures, subject to a possible condition to donate the building or restore the land at the end of the term. Article 16(5) of the Act sets the annual fee at the value of the property multiplied by an annual rate of at least 10/1,000, with reductions set by the managing agency or by local ordinance.
Choosing a Zone on the Operating Case
A free economic zone is a land and regulation instrument that rewards companies with a physical footprint and qualifying registered investment. Model the Korean business with no zone benefit at all, then test whether the rent reduction, the customs exemption and the capital region relief change the answer. If the site is only viable inside a zone, the zone is subsidizing a decision the operating case has already declined.
Joon K Lee works with international companies on where a Korean operation should sit and what it should commit to, with Inquivix delivering Korea market entry and digital growth once the entity is standing, and its guide to setting up a business in Korea covering the registration and setup mechanics at the tactical layer. Nothing here is legal or tax advice; confirm current provisions with Korean counsel, the zone authority and the competent tax office before filing. To pressure-test a zone package against your operating plan, reach out at joon@joonklee.com.
