The recent approval of tax amendments for 2020 by the National Assembly of Korea included the following customs-related changes:

1. New Provision in the Restriction of Special Taxation Act (“RSTA”) – Reduction/Exemption of Customs Duties for Machinery/Equipment for Bonded Warehouse Facilities of Small and Medium-Sized Companies or Middle-Standing Enterprises (“SMEs”)

Article 118 of the amended RSTA includes a new provision (Subparagraph 22) for the reduction/exemption of customs duties for machinery/equipment for bonded warehouse facilities (“Bonded Factories”) of SMEs. The purpose is to encourage them to use the bonded factory system for processing trade.

The new provision states that until December 31, 2022, there will be customs duty exemptions for importing machinery/equipment that are to be used for Bonded Factories of SMEs with a license to establish and operate them under the Customs Act (“CA”), where it is difficult to produce such machinery or equipment in Korea.

Until now, Bonded Factories that imported materials were allowed to receive a tax reduction or exemption; however, they had to pay customs duties on the machinery/ equipment for the facilities (customs clearance) to be able to use them.

2. Broadened Scope of Re-imported Items Entitled to Customs Duty Exemption under the Customs Act1

In principle, items re-imported within two years after they are exported with no manufacturing / processing / repair / use abroad are entitled to customs duty exemption.

As an exception, even if such re-imported items have been used, they are entitled to the customs duty exemption, where they are displayed or used in fairs, exhibitions, competition shows, among others, or where the items have been exported to be temporarily used under certain contracts (e.g., lease agreements).

To support exporters and Korean participation in international athletic events and sporting games, the amended Customs Act broadens the scope of items entitled for the exemption to include: (i) Installation / assembly / unloading equipment; (ii) Items required for the exportation such as quality-measuring equipment; (iii) Athletics-related items temporarily moved out of the country for participation in international athletics events or sporting games; and (iv) Exported items returned within one year due to defects.

3. New Provision in the “Act on Special Cases of the Customs Act for the Implementation of the Free Trade Agreements (“ASC”) – Exception to the Application Period Requirement for Ex Post Facto Application of the FTA Preferential Customs

4. Other Amended Provisions

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