S. Korea Firms in Joint Venture Pay Tax to N. Korea

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South Korean firms at a joint industrial estate in North Korea have paid about $160,000 in tax to the North as their businesses thrive despite political tensions, an official said Wednesday.

South Korean firms at the joint industrial estate of Kaesong in North Korea have paid about $160,000 in tax to the North

SEOUL — South Korean firms at a joint industrial estate in North Korea have paid about $160,000 in tax to the North as their businesses thrive despite political tensions, an official said Wednesday.

The Kaesong Industrial Complex in the namesake city just north of the tightly guarded border opened in 2004 as a symbol of cross-border reconciliation.

It has continued to attract workers despite high political and military tensions in recent years, and is a source of legitimate hard currency for the cash-strapped and sanctions-hit North.

Some 50,000 North Koreans -- mostly women -- work for about 120 South Korean makers of clothes, machinery, utensils and other items.

Under rules to encourage investment, factories are exempt from corporate income tax for the first five years after they begin making profits.

They are given a 50-percent reduction on the 14-percent rate for the following three years.

The first firm to pay tax was a machinery maker which paid $7,000 in respect of earnings in 2010, said a spokeswoman for the South's unification ministry, which handles cross-border affairs.

This year the machinery maker and three other firms paid a total of about $153,000 on profits made in 2011, she said, adding businesses in the complex "are generally doing quite well".

Annual production was worth a record $400 million last year compared to $15 million in 2005.

South Korea cut most trade with the North in May 2010 after accusing it of sinking a warship but exempted Kaesong. Supporters of the project say it serves to educate the communist state about the free-market system.

Companies pay an average $127 a month to state authorities for each worker, covering basic pay, overtime and insurance. The North returns a small percentage of the wage to employees plus food and other perks.