REGULATIONS ON THE FINANCIAL MANAGEMENT
OF FOREIGN-INVESTED ENTERPRISES
Adopted by Decision No. 91 of the Cabinet on December 4, 1999
Chapter 1. General
Article 1. These Regulations are formulated in order to ensure
accurate operational accounting of foreign-invested enterprises and establish
a system and order in their financial management.
Article 2. Financial management includes creation and efficient
utilization of funds required for business operation as well as distribution
of profits and repayment of investments.
Financial management of foreign-invested enterprises shall deal with assets
invested and any increase in the assets occurring during reproduction.
Article 3. Financial bookkeeping of foreign-invested enterprises
shall be done according to the laws and regulations governing the bookkeeping
of foreign-invested enterprise.
Article 4. A foreign-invested enterprise shall keep an account
in a bank engaged in foreign exchange business to undertake financial management.
Article 5. Financial management of a foreign-invested enterprise
shall be undertaken by its financial manager. The first person in charge of
the financial management of a foreign-invested enterprise shall be its chief
executive officer and the second person shall be its chief financial officer.
Article 6. A foreign-invested enterprise shall conduct its
financial management properly so as to improve its profitability.
Article 7. The central financial organ shall be responsible
for a unified control and guidance over the financial management of foreign-invested
Article 8. These Regulations shall apply to foreign-invested
enterprises that are engaged in business activities either inside or outside
the territory of the DPRK.
They may also apply to foreign enterprises doing business in the territory of
Financial management of foreign-invested enterprises based in the Rason economic
and trade zone shall be governed by separate laws and regulations enacted for
Chapter 2. Creation and Utilization of Capital
Article 9. Capital of a foreign-invested enterprise shall
be composed of contributions made by the investors, funds created in the course
of business operation and borrowings.
Article 10. Fixed and current assets required for the establishment
and operation of a foreign-invested enterprise shall be secured by means of
its registered capital.
Registered capital may be increased but may not be decreased during the existence
of the enterprise.
Article 11. A foreign-invested enterprise shall conduct its
pre-incorporation financial management properly.
Pre-incorporation financial management includes financial aspects related to
contributions made by the investors and preparations for the incorporation.
Article 12. Financial management with regard to contributions
shall be conducted separately for different investors.
An investor shall make contributions in the form of fixed or current assets
or cash pursuant to the provisions of the contract.
A document certifying contribution shall be verified by a certified public accountants’office.
Article 13. The price of physical asset, property right or
technical knowhow shall be agreed upon by the parties to the contract on the
basis of an international market price.
Article 14. Fixed assets shall include fixed assets contributed
by the investors, fixed assets procured by the enterprise with its fund and
fixed assets that have been inherited or donated.
Article 15. A fixed asset shall be registered with the central
trade guidance organ within one month of its acquisition.
Article 16. Registration and calculation of fixed assets shall
be done by the relevant financial division, and its physical operation and maintenance
by the relevant operating division or the operator.
Article 17. The initial value of a fixed asset shall be calculated
by adding to its acquisition price such costs as freights, loading and unloading
charges, insurance premium, installation and storage costs.
Article 18. In case a fixed or current asset contributed does
not confirm with the conditions of the contract and therefore cannot be utilized
for production and management of the enterprise, it shall not be calculated
as a contributed asset.
Article 19. Raw and intermediate materials needed for the production
and management shall be purchased by means of liquid fund.
Article 20. A foreign-invested enterprise shall calculate depreciation
cost of fixed assets every month, set it aside by including it in production
cost or marketing cost and use the fund for renewal or maintenance of fixed
Depreciation cost may be used as liquid fund.
Whenever depreciation cost has been used as liquid fund, the amount shall be
made good by the next quarter.
Article 21. A foreign-invested enterprise (excluding wholly
foreign-owned enterprise) may scrap, transfer or mortgage a registered fixed
When a registered fixed asset is to be scrapped, transferred or mortgaged, it
shall be agreed upon with the central trade guidance organ.
Article 22. Capital of a foreign-invested enterprise may be
used for preparation of incorporation or as liquid fund.
Article 23. The fund for preparation of incorporation shall
be spent to cover administrative management expenses, building maintenance expenses
and sample production expenses that are incurred until the foreign-invested
enterprise is incorporated and obtains a business license.
Article 24. Proceeds from the sale of sample products and other
revenues created during pre-incorporation period shall be used as the fund for
preparation of incorporation.
Any revenue remaining after covering the expenses for the preparation of incorporation
shall be set aside as retained profit and may be used later for profit distribution
or for the increase of investment.
Article 25. Pre-incorporation expenditures (remaining after
internal revenues have been deducted) shall be calculated as deferred expenses
and, after incorporation of the enterprise, shall be made good by staggering
it over a certain number of years and including it in production cost.
Article 26. A foreign-invested enterprise shall ensure that
during pre-incorporation period, fixed and current assets, cash and sample products
required for production and management are contributed pursuant to the conditions
of the contract.
Article 27. Assets contributed in cash and in kind shall be
used only to cover pre-incorporation expenses, labour cost, PR expense, taxes
and usage fees or other expenses and costs related to production and management
within the limit of the approved
categories of business.
Article 28. Korean won contributed by a DPRK investor may be
used to cover the costs of raw and intermediate materials, labour, PR expense,
taxes, usage fees and so on in the territory of the DPRK.
Article 29. An investor may transfer or transmit all or part
of his contribution to a third party in agreement with the other investor.
Article 30. Capital of a foreign-invested enterprise shall
not be nationalized or seized and the legitimate rights and interests of the
enterprise shall be under the legal protection of the State.
In case an investment protection agreement has been concluded between the DPRK
government and a foreign government, capital of an enterprise may be protected
under that agreement.
Chapter 3. Financial Planning
Article 31. A foreign-invested enterprise shall prepare its
own financial plan and discuss and adopt it at the board of directors or joint
Article 32. Financial plan of a foreign-invested enterprise
shall be prepared by sectors and on an yearly and quarterly basis according
to the contents of business activity.
Items of a financial plan shall be decided by the central financial organ.
Article 33. In case a business license has not been obtained,
expenditures to be made until the license is obtained shall be planned as part
of pre-incorporation expenditures.
Article 34. Financial plan of a foreign-invested enterprise
shall be registered with the central financial organ via the central trade guidance
Chapter 4. Calculation of Production Cost and Fund Management
Article 35. Production cost includes all the cost items incurred
in the course of producing a product.
Production cost shall be calculated on a regular basis by including all the
costs incurred in the course of production by expenditure items and expenditure
Article 36. A foreign-invested enterprise shall economize on
raw and intermediate materials and lower the cost of production.
Article 37. A foreign-invested enterprises shall calculate
all the costs and expenses incurred for production and management by indices
on the basis of the cost items set by the central financial organ.
Article 38. Any loss incurred as a result of fluctuations in
exchange rates, bad debts that cannot be recovered due to the bankruptcy of
an enterprise, losses resulting from the sale or scrapping of fixed assets and
the like shall be covered by non-production expenses.
Article 39. A foreign-invested enterprise may spend the operating
expenses for nurseries, kindergartens, skilled worker schools, health resorts
and sanitariums as part of enterprise management expenses.
Article 40. Any shortage in inventory-taking, natural decrease
and other similar losses may be made good by adding them to the operation cost
through discussion and decision at the board of directors or joint consultative
Article 41. A foreign-invested enterprise may spend PR expenses
in connection with the marketing of its products and expansion of its market.
PR expenses shall be disbursed according to the standards set by the central
Article 42. A foreign-invested enterprise shall pay social
insurance premium that is payable by the enterprise.
The portion of social insurance premium that is payable by the enterprise shall
be governed by the labour-related laws and regulations applying to foreign-invested
Article 43. A foreign-invested enterprise shall increase production,
expand external markets, reduce non-production expenses and constantly improve
its management so as to increase financial revenue.
Financial revenue shall include the proceeds from sale resulting from business
activities, revenue earned upon the completion of a construction project, freight
fees, labour earnings, revenue from consignment processing and the like.
Article 44. Revenue in Korean won earned from waste and by-products
shall be calculated separately as another revenue and may be used only for designated
Article 45. A foreign-invested enterprise whose only line of
business is consignment processing shall calculate only processing fees paid
by the foreign investor as its financial revenue.
Article 46. Where a contractual joint-venture company is to
repay the investment made by the foreign investor with its products, the amount
of revenue as calculated by a designated ratio shall be calculated as financial
Article 47. Where a foreign-invested enterprise hands over
its products to an institution, enterprise or association of the DPRK (hereinafter
called the institutions and enterprises) in exchange for other goods, which
are to be sold by the enterprise in external markets, the proceeds from the
sale of the goods shall be calculated as its financial revenue and the production
costs shall be covered out of the sales proceeds.
Article 48. A foreign-invested enterprise shall not make or
receive payments under its business directly with the institution or enterprise
but via the materials management institution dealing with foreign-invested enterprise.
Article 49. A foreign-invested enterprise shall meet the fund
required for its management and operation with the contributions by the parties
and may cover any shortage of fund with borrowing.
Article 50. Bank accounts and funds of a foreign-invested enterprise
shall be managed only by the relevant financial manager, who shall be responsible
for all financial transactions.
Article 51. A foreign-invested enterprise shall make or receive
payments under economic transactions with foreign countries in a foreign currency.
Prices to be applied to economic transactions with foreign countries shall be
based on the then international market prices.
Chapter 5. Financial Settlement and Profit Distribution
Article 52. Financial settlement is a review of business activities
whereby implementation of financial plan and financial performance is examined
and assessed numerically on the basis of financial and operational calculations
and figures during a certain period of time.
Article 53. Financial settlement shall be conducted on a quarterly
and yearly basis.
Article 54. Review of annual financial settlement shall be
conducted at the board of directors or joint consultative board.
Article 55. Annual financial report shall be verified by a
certified public accountants’ office.
Quarterly financial report may be verified by a certified public accountants’
office when it is deemed necessary.
Article 56. Quarterly financial report shall be submitted not
later than 15th day of the month following the quarter and annual financial
report within February of next year to the central trade guidance organ.
Article 57. Annual financial settlement shall be made by deducting
expenditures from the annual gross revenue to determine profit.
Article 58. A foreign-invested enterprise may annually set
aside and utilize 5 per cent of its net profit as reserve fund until the amount
of the fund reaches 25 per cent of registered capital and up to 10 per cent
of its net profit as other funds (such as production expansion and technological
development fund, staff bonus fund, cultural and welfare fund and training fund).
Types and sizes of funds and areas and scopes of their utilization shall be
discussed and decided by the board of directors or joint consultation board.
Whenever bonus fund, cultural and welfare fund or training fund is to be disbursed,
it shall be agreed upon with the central financial organ.
Article 59. Profit remaining after deducting taxes and enterprise
funds from the net profit of a foreign-invested enterprise may be distributed
according to the shares of contribution or as stipulated in the contract or
used to repay the investment.
Article 60. A foreign-invested enterprise shall pay taxes according
to the relevant laws and regulations of the DPRK. Where a foreigner who has
made registration for long stay or residence is to leave the DPRK, the immigration
office shall clear him out only if it is satisfied that he has made tax payments.
Article 61. A foreign-investor may reinvest in the territory
of the DPRK all or part of the repayment of his share of investment or profit
that has been distributed.
Article 62. A foreign investor may bring out of the DPRK territory
free of taxation money or goods he has received as repayment of investment or
distribution of profit as well as any other legitimate income.
Chapter 6. Financial Liquidation
Article 63. Financial liquidation shall be done when a foreign-invested
enterprise is dissolved.
Financial liquidation of a foreign-invested enterprise shall be done by the
The liquidation committee shall be composed of the chief executive officer of
the enterprise, representatives of the creditors and of the financial organ,
investors and other necessary people.
Article 64. The liquidation committee shall take over the assets
and official seal and determine the assets of the enterprise as of the date
of the dissolution of an enterprise and prepare the balance sheet and financial
The financial liquidation plan shall receive approval of the central trade guidance
Article 65. Where an enterprise cannot pay taxes due to its
business losses, outstanding taxes shall be paid out of the remaining physical
Article 66. Where a foreign-invested enterprise that has been
exempted from the payment of enterprise income tax is to be dissolved before
its original period of existence expires, it shall pay the enterprise income
tax from which it has been exempted.
Article 67. Where an enterprise is dissolved due to a failure
to perform contractual obligations in relation to investment, the resulting
loss shall be made good by the investor who has failed to perform the obligations.
Article 68. When financial liquidation is over, financial liquidation
report shall be prepared and submitted to the central trade guidance organ and
the account in the bank shall be closed within 10 days of the completion of
Chapter 7. Supervision and Control
Article 69. The central financial organ shall be responsible
for supervision and control over the financial management of foreign-invested
The central financial organ shall intensify supervision and control to ensure
that financial management of foreign-invested enterprises be conducted properly
without any deviation.
Article 70. The central financial organ may examine or inspect
the financial management of foreign-invested enterprises and demand relevant
Article 71. In case of a violation of these regulations, administrative
sanctions may be applied such as arrearage charge, fine, asset confiscation,
suspension of business and forced execution.
A foreign-invested enterprise aggrieved by an administrative sanction imposed
by the central financial organ may submit a complaint or petition.
A complain or petition shall be settled within 30 days of its receipt.