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November 18, 2009
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| North Korea is offering incentives for foreign companies to invest in Pyongyang while South Korean companies in the Kaesong Industrial Complex are being asked to pay more in corporate income taxes and land use fees, the JoongAng Ilbo has learned. According to South Korean government sources, North Korea is giving tax breaks and other benefits to foreign companies. At the Northeast Asia Investment and Trade Expo in Changchun, China, in September, North officials offered to lower the corporate income tax rate from 25 percent to 10 percent in high-tech fields. Also, companies are exempt from income tax for the first three years after they began turning profits. And companies will only have to pay half of their income tax for two years after that. North Korea has also offered to pay for the land used by foreign companies and agreed not to import the same types of products manufactured by foreign companies operating in North Korea. A government official in Seoul said, “This represents the most detailed and practical incentive package since North Korea began trying to attract foreign investments in the 1990s.” In contrast, North Korea has made life difficult for South Korean firms north of the border with some pricey demands. Last June, the North asked that the monthly wages for North Korean employees in Kaesong be raised from $55.13 to $300. Under the current agreement on labor at the Kaesong complex, reached in September 2003, the minimum monthly salary may not be raised by more than 5 percent. North Korea withdrew the wage demand in September, settling for the 5 percent raise to $57.88. It’s still a high figure when compared to the $44 monthly wage foreign firms are paying their North Korean workers. In addition, the North requires firms from the South to pay 15 percent of the wages in social insurance, whereas foreign companies are only asked to pay 7 percent for the same purpose. Also in June, the North demanded the South pay $500 million for 330 hectares (815.4 acres) of land in Kaesong. In September 2004, the South paid $16 million to use the plot. Pyongyang has yet to officially drop this request. In comparison, foreign companies are required to pay between $52 and $90 per square meter in Pyongyang, and as little as $11 per square meter in other places. For 330 hectares in Pyongyang, the maximum fee would be $297 million. Cho Bong-hyun, a researcher at Industrial Bank of Korea’s economic research institute and an expert on inter-Korean business projects, said such discrepancies must be discussed at the government level. “North Korea considers the South’s investment to be part of this grand ‘nationalistic’ project and discriminates against us,” he said. “This must be raised at future inter-Korean talks.” Kim Young-yoon, a senior researcher at the Korea Institute for National Unification agreed that the North regards inter-Korean affairs as “special dealings” that don’t warrant incentives. “It’s important to ensure the North understands how the capitalist market economy operates,” Kim said. By Lee Young-jong [jeeho@joongang.co.kr] |
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