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Untitled Document
REGULATIONS ON FINANCIAL MANAGEMENT OF FOREIGN-INVESTED ENTERPRISES IN THE RASON ECONOMIC AND TRADE ZONE

Adopted by Decision No. 35 of the Cabinet on May 13, 2000

Chapter 1. General

Article 1. These regulations are intended to establish the order of financial management for foreign-invested enterprises to be set up and operated in the Rason economic and trade zone.
Article 2. Financial management is the economic management activity for independent procurement and rational use of property and currency needed for business activities according to the plans of the enterprises.
Article 3. Foreign-invested enterprises comprise the contractual joint-venture enterprises, equity joint-venture enterprises and wholly foreign-owned enterprises in the Rason economic and trade zone (hereinafter called the Zone).
Article 4. The foreign-invested enterprises shall conduct their financial management in accordance with these regulations. The foreign enterprises in the Zone may also conduct their financial management according to these regulations.
Article 5. The foreign-invested enterprises shall carry on their business by opening domestic and foreign currency accounts with the foreign exchange bank of the DPRK in the Zone.
When opening an account with a foreign bank, the foreign-invested enterprise shall have agreement with the institution that manages foreign currency.
Article 6. The foreign-invested enterprise shall manage its finances on the principle of disbursing funds and paying taxes and other money in accordance with its financial plan, and ensuring the rights and interests of its investors.
Article 7. In case there is such a change affecting financial management as business amalgamation, division or bankruptcy, the foreign-invested enterprise shall follow the procedure needed for the change.
Article 8. The accounting of the foreign-invested enterprise shall be conducted in accordance with the laws and regulations for the accounting of the foreign-invested enterprises and the foreign-invested banks and in accordance with the forms defined by the central financial institution or by the central banking institution.
Article 9. The financial institution of the Zone shall establish a correct accounting system for the foreign-invested enterprises.
Article 10. Accounting shall be documented in the Korean language.
In case it is documented in a foreign language, its Korean translation shall be attached to it.
Article 11. The accounting documents shall be kept in accordance with the laws and regulations of the State.
In case of business amalgamation, division or bankruptcy, these documents shall be preserved by agreement with the financial institution of the Zone.
Article 12. The financial management of the foreign-invested enterprises shall be controlled and directed by the financial institution of the Zone under the guidance of the central financial institution.

Chapter 2. Procurement of Capital

Article 13. Capital is an asset for business activities.
The capital of a foreign-invested enterprise includes the contributions of the investors, the money that has been increased through business operation, and the loaned capital.
Article 14. The investors’ contributions make up the registered capital of the enterprise, and loans are the money borrowed from outside by the foreign-invested enterprise.
Article 15. The composition and size of the registered capital shall accord with the provisions of the document that approves the establishment of the foreign-invested enterprise.
Article 16. Capital needed for the establishment and operation of a foreign-invested enterprise shall be disbursed basically from its registered capital.
Article 17. Registered capital may be contributed in the form of currency, property in kind, property rights, and technical know-how needed for the operation preparation and regular business operation according to the contract. The contribution of property rights shall not exceed 20 per cent of the registered capital of the enterprise.
Article 18. Registered capital shall be contributed within the time limit defined by the document that approves the establishment of the enterprise.
Article 19. The registered capital of a foreign-invested enterprise may be increased by agreement between contracting parties, but shall not be reduced.
Article 20. Property contributed by the investors shall be recognized as the assets of the foreign-invested enterprise only in the following cases:
1. When the money has been deposited in or remitted to the account of the bank with which the foreign-invested enterprise has transactions,
2. When the procedure for the transfer of the ownership of fixed property or the right to use it to the relevant institution has been finished,
3. When the property in kind other than fixed property has been brought into the compound of the foreign-invested enterprise and the procedure for the transfer of its ownership or the right to use it has been finished,
4. When the certificate of the ownership of property rights has been transferred to the management of the foreign-invested enterprise, and
5. When the conditions for the transfer of technical know-how as stipulated by the contract have been fulfilled.
Article 21. Property in kind and property rights that are contributed shall be priced by agreement among the investors in accordance with the international market prices.
Article 22. An investor of the foreign-invested enterprise may transfer or pass over inherit once all or part of his share of investment to a third party.
Such transfer or inheritance shall be verified by a certified public accountants’ office.
Article 23. Property that is contributed to the registered capital of the foreign-invested enterprise shall be verified by a certified public accountants’ office.
Property that has not been verified by the accountants’ office shall not be recognized as registered capital.
Article 24. The capital of the foreign-invested enterprises shall not be nationalized or confiscated by the Zone.
Article 25. Foreign-invested enterprises shall redeem their loaned capital by the fixed date. Loaned capital which has not been redeemed due to unavoidable circumstances (only when the creditor has disappeared or when it is impossible to find him out) shall be treated as a business income.

Chapter 3. Financial Plan

Article 26. The foreign-invested enterprise shall draft its financial plan and discuss and decide on it at the board of directors or at the joint consultative board (hereinafter called the board of directors).
Article 27. The foreign-invested enterprise may set the period of operation preparation by agreement with the business-licensing organ.
During operation preparation, only the local taxes shall be paid.
Article 28. The financial plan for the period of operation preparation shall budget only the expenses for operation preparation.
The expenditure for operation preparation shall include overheads, the expenses for equipment assembly, construction and maintenance costs of buildings, rents of leased buildings, sample production costs, skilled-worker training costs and the like.
Article 29. The financial plan (a yearly plan with quarterly sections) shall include different sectors such as industry, agriculture, construction, transport, communications, commerce, foreign trade and public catering.
Article 30. The financial plan shall specify the items such as the plan of capital, the sales (service) revenue plan, the plan of costs (distribution cost, operation cost), the plan of fixed property depreciation money, the plan of profits and their division, and the plan of payments to the State.
Article 31. The financial plan shall be drawn up as follows:
1. The plan of capital shall budget the contributed or loaned assets by their types to be spent only on the approved categories of business,
2. The sales (service) revenue plan (hereinafter called the sales revenue plan) shall estimate the incomes from the number and quantity of the items to be sold (or served) during the planned period according to their unit price in the international market.
The sales revenue plan shall estimate the incomes from the sales in industry, from the delivery of finished structures in the construction industry, and from the services (transport fees, communications fees, reward for work done, service charges, processing fees, and other charges),
3. The plan of costs shall be drawn up to be subdivided into production costs, distribution costs, and operation costs in accordance with the production plan,
4. The plan of fixed property depreciation money shall be made to be subdivided into the plan of accumulation and the plan of its use.
The accumulation plan shall be made according to the method of depreciation, and the plan of its use shall be drawn up based on the source of the accumulated depreciation money,
5. The plan of profits and their division shall be drawn up to be subdivided into the plan of profits-making, the plan of settled profits, and the plan of profit division.
Profit making shall be planned with the estimated sales incomes minus costs, the settled profits shall be planned with the planned profits minus the turnover tax and other expenditure, and the division of the profits shall be planned with the estimated settled profits minus the enterprise income tax and the funds of the enterprise to be reserved. The foreign-invested enterprise which is to divide its profits shall plan their division in accordance with the proportion of contribution or the rate defined by the contract,
6. The plan of payment to the State shall estimate the enterprise income tax, turnover tax and local taxes, the money for cultural work and social welfare, the premium for social insurance, commission and rents for leased lands, which are to be paid to the State as defined by the State, and
7. The floating funds shall be planned to be subdivided into the plan of the standard of holding funds and the plan of sources.
The standard of holding funds shall be planned by the element of disbursement such as stored goods, unfinished goods, finished goods, and unpaid goods and by the method of multiplying the sum of a single day’s disbursement by the number of holding days by different sectors such as industry, agriculture, construction, transport, commerce, foreign trade and catering.
The plan of the sources of floating funds shall drawn up to be ensured by the investors’ contributions, loaned business funds, the enterprise’s own funds, and constant debts.
The constant debts shall estimate the wages to be paid, the fixed property depreciation money, the taxes to be paid to the State, the profits to be divided, and the liabilities related to dealing with goods.
Article 32. The foreign-invested enterprise shall register its financial plan for the next year with the financial institution of the Zone by the 25th of December of the current year.
Article 33. An amendment to the financial plan shall be made by agreement with the financial institution of the Zone and shall be registered with the institution.

Chapter 4. Floating Assets

Article 34. Floating assets are the assets which are spent up for one cycle of production and transfer their values to the new products.
The floating assets include the assets in kind such as raw and other materials, fuel, containers, packing materials, small tools, unfinished goods, semi-finished goods and finished goods as well as currency such as cash and deposited money.
Article 35. The foreign-invested enterprise shall establish the system of managing cash and deposits. Cash shall be deposited in the bank.
Article 36. The foreign-invested enterprise shall include in its expenditure the commission for the settlement of its cheque money, other losses in credits and the losses due to the change in the rate of foreign exchange.
Article 37. To get loans the foreign-invested enterprise shall submit the document on the security of repayment to its bank.
Article 38. The foreign-invested enterprise may get loans on condition that it has obtained business licence after the investors have contributed their shares of investment according to the contract.
Article 39. The products obtained through hired processing shall be priced by the total expenditure for the purchase of the raw materials, semi-finished goods and parts for hired processing plus the costs of their loading and unloading, their transport fees and processing fees.
Article 40. The prices of the invested floating assets shall be valid only when they have been priced by agreement of the investors in accordance with the international market prices at the time and have been verified by a certified public accountants’ office.
Article 41. The foreign-invested enterprise shall take an inventory of its floating assets every month. In case the result of the investigation shows surplus or deficit of the floating assets, the enterprise shall clarify the cause and take necessary measures.
Article 42. The foreign-invested enterprise may evaluate and re-evaluate its floating assets when necessary.
Their evaluated or re-evaluated prices shall be verified by a certified public accountants’ office.

Chapter 5. Fixed Property

Article 43. Fixed property is property which is used at least one year and has the initial value of at least 37,500 won.
Fixed property includes fixed property which has been contributed by investors, which has been procured with the funds of the enterprise, and which has been obtained by transfer.
Article 44. The foreign-invested enterprise shall manage its fixed property by registering it in the ledger by its types.
The ledger for the registration of fixed property shall keep the record of the date and number of registration of fixed property, its name, size, initial value, expected duration of its use, the place of its installation, the date and place of its production, and the date of its procurement.
Article 45. The foreign-invested enterprise shall register its fixed property with the financial institution of the Zone within 1 month from the date of its procurement.
Article 46. Classification of the fixed property, calculation of its value, calculation and accumulation of the fixed property depreciation money, and its use shall be subject to the laws and regulations on the fixed property depreciation money of the foreign-invested enterprises.
Article 47. The foreign-invested enterprise shall take an inventory of its fixed property and re-evaluate it at least once a year.
If the result of inventory taking shows surplus or deficit of fixed property, the enterprise shall clarify the cause and take relevant measures.
Article 48. The foreign-invested enterprise may abandon, transfer or mortgage its registered fixed property by decision of the board of directors.
The piece of fixed property which has been abandoned, transferred, mortgaged or re-evaluated shall be verified by a certified public accountants’ office, and the change shall be registered with the fixed property registration institution.

Chapter 6. Production Expenses

Article 49. The foreign-invested enterprise shall calculate production expenses.
The production expenses shall include the production cost and other expenses. The cost for hired processing may be included in the production expenses.
Article 50. The production costs include the following items:
1. The industrial production costs;
The industrial production costs include the costs for raw and other materials, fuel, power, expenses for purchase, the cost for the development of new product, wages, the premium for social insurance, the fixed property depreciation money, workshop and enterprise overheads, sales cost, and the premium for property insurance,
2. The agricultural production costs;
Agricultural production costs include wages, the premium for social insurance, cost for seeds (including eggs and tree seedlings), cost for fuel and power, cost for feed and stable bedding, cost for insecticide and herbicide, cost for anti-epidemic and veterinary medicines, cost for other materials, irrigation fees, the fixed property depreciation money, cost for the purchase of young domestic animals, expenses for the purchase of materials, expenses for the use of auxiliary branches, general expenses for work teams and other overheads, sales cost, and the premium for property insurance,
3. Construction costs;
Construction costs include the direct and indirect expenses such as expenses for materials and operation of building machines, wages, the premium for social insurance, and the fixed property depreciation money,
4. Transport costs;
The transport costs include the cost for operation materials, fuel and power, wages, the premium for social insurance, the fixed property depreciation money, general expenses, and the premium for property insurance, and
5. Distribution costs;
Distribution cost items include the expenses for the purchase and distribution of goods for the commercial and public catering sectors.
The distribution costs include expenses for transport, storage and packing, the expenses due to wearing down of containers and for their repair, and fuel and electricity for business, the expenses due to the natural decrease in materials and property, wages, the premium for social insurance, the expenses for processing and repair, commission for consignment sale, the expenses for the maintenance of buildings, the fees for the use of water works and illumination, expenses for furniture, the fixed property depreciation money, the expenses for office and communications, travel expenses, funds for trade unions, expenses for bus services to and from work, the premium for property insurance and other expenses.
Article 51. Other expenses include the expenses resulting from the situations that take place outside the normal business such as the losses due to the change in the rate of foreign exchange, and the failure to get its credit paid back because of the debtor’s bankruptcy, the expenses for the re-processing and packing of the products that have not been sold because of the unavailability of the market, the expenses for the payment of various interests and for the obtaining of loans, and losses due to lowering of the prices of unsold goods.
Article 52. The foreign-invested enterprise shall redeem the expenses for operation preparations that have been deferred to the next term of settlement, by including it in the production cost.
Article 53. The foreign-invested enterprise shall include the wages for its employees in the production cost, subtract the money for cultural work and social welfare from the sum, and then pay the remainder to the employees.
Article 54. The foreign-invested enterprises may disburse the expenses for public relations by including them in the production cost. The PR expenses include the expenses for the reception and dispatch of delegations, and entertainment expenses.
The criteria for the disbursement of PR expenses shall be fixed by the financial institution of the Zone by agreement with the central financial institution.
Article 55. The foreign-invested enterprise shall pay its premium for social insurance to the budget of the State.
Article 56. The criteria for the disbursement of PR expenses and the premium for social insurance shall be subject to the relevant laws and regulations or shall be fixed by the financial institution of the Zone by agreement with the relevant central institution.
Article 57. The construction funds which were disbursed before starting the business shall not be included in the expenses for operation preparations, but shall be accounted separately to be disposed of after the construction project is finished.
Article 58. The foreign-invested enterprise shall not include in its costs the property which is in the process of purchase or which is to be invested by contract.
Article 59. The foreign-invested enterprise shall not include in its costs the expenses such as for the meals served to its employees at dining halls in its compound and for their supply service, but shall disburse them from the funds for cultural work and welfare.
Article 60. The foreign-invested enterprise which has different accounts with its bank according to different kinds of convertible foreign currency shall keep regular accounts of the difference due to changes in the rates of foreign exchange, and dispose of the losses by including them in the production cost.
Article 61. The foreign-invested enterprise shall supply the funds for the trade union organization by including them in its costs.
Article 62. The old-age pensions and the wages for seasonal labourers shall be calculated and paid by agreement with the financial institution of the Zone.

Chapter 7. Financial Incomes

Article 63. Financial incomes include the incomes from business operations and from other sources.
Article 64. The incomes from the sale of sample products and the incomes from other sources that have been earned during operation preparations shall be made the source of funds for operation preparations, instead of being included in the incomes from sales.
Article 65. Financial incomes which are earned in connection with the export and import of fixed property, floating property and technology needed for production and business activities shall be priced by agreement in accordance with the international market prices, fees and transport fees.
Article 66. The criteria of commissions to be paid in connection with the foreign-invested enterprises and foreigners shall be defined by the financial institution of the Zone by agreement with the central financial institution.
Article 67. Financial incomes earned through processing for hire shall be calculated to be the processing fees that have been received from those who had ordered it.
Article 68. In case the foreign-invested enterprise exports the goods that have been bartered for its products in the Zone, the sales proceeds of the goods shall be made an item of its financial income, and the production cost shall be redeemed out of the sales proceeds.
Article 69. The turnover tax shall be calculated through the application of the tax rate fixed for the income from the sale of the taxable products or service (hereinafter called the sale).
Article 70. The foreign-invested enterprises shall make payments such as taxes and commissions to the State through the financial institution of the Zone.

Chapter 8. Financial Settlement and Profit Distribution

Article 71. The foreign-invested enterprises shall settle accounts quarterly and annually.
Article 72. The foreign-invested enterprise shall turn in the document of its quarterly settlement of accounts to the financial institution of the Zone by the 15th day of the month following the settled quarter of the year, and the document of its yearly settlement of accounts within February of the next year.
Article 73. The annual settlement of accounts of the foreign-invested enterprise shall be made at its board of directors.
Article 74. The documents of settlement of accounts of the foreign-invested enterprises shall be verified by a certified public accountants’ office.
Article 75. The incomes of the foreign-invested enterprises shall be accounted for by separate items—the profits, settled profits, and profits to be distributed.
Article 76. A profit is the money that remains after deducting the costs from the sales income.
The foreign-invested enterprises shall account for the profits from business operations separately from the profits earned from other sources.
Article 77. The foreign-invested enterprises shall determine their settled profits by deducting the turnover tax and other expenses, and confirm their profits to be distributed by subtracting the enterprise funds and their income taxes from the settled profits.
Article 78. The foreign-invested enterprise shall annually accumulate its reserve funds (as much as 5 per cent of its settled profits every year until an amount equivalent to 25 per cent of its registered capital is reserved).
The reserve funds may be used to make up for its business losses or to increase its registered capital.
Article 79. The foreign-invested enterprise may, in the following four consecutive years, compensate for the previous year’s losses, which have not been made up for with the reserve funds, with the surplus profits after deducting its income tax from the year’s settled profits.
Article 80. The foreign-invested enterprise may reserve its funds within the limit equivalent to 10 per cent of its profits for the expansion of production, and development of technology, for bonuses for its employees, for cultural work and welfare and for training, and use them by carrying them forward to coming years by the decision of the board of directors.
The reserve funds of foreign-invested enterprises may be used for the following purposes:
1. Expansion of production and development of technology;
Invention, contrivances, introduction of new technology, introduction of modern science and technology and advanced method of work, renewal of equipment,
2. Payment of bonuses;
Preferential treatment bonuses for workshops and work teams, bonuses for management officials and workers in indirect and auxiliary sectors, and bonuses for production competition,
3. Cultural work and welfare;
Construction, repair and renewal of hostels, dwellings, nurseries, kindergartens and dining halls, procurement of the instruments for cultural work and recreation, purchase of supplies for employees, and social support, and
4. Training;
Skilled-worker training, and the training of technicians.
Article 81. The foreign-invested enterprises shall use the profits to be divided for the payment of dividends to its investors or to redeem their shares of investment.
Article 82. The foreign investors may re-invest in the Zone part or all of their returned shares of investment and their dividends.
In case of the re-investment of their dividends in the Zone, the re-investors may be refunded part or all of the business income taxes for their shares of re-investment.
Article 83. The contractual joint venture enterprise shall redeem the shares of investment made by foreign investors and pay their dividends basically with products, and, by contract, may redeem their shares of investment or pay their dividends with property other than products.
The products to be used for the redemption of the shares of investment or for the payment of the dividends shall be priced by agreement between the parties concerned in accordance with the international market prices.
Article 84. The foreign investors may send out of the territory of the DPRK tax-free the funds or products which they have received for the redemption of their shares of investment and as their dividends, and other lawful incomes.

Chapter 9. Financial Liquidation

Article 85. The foreign-invested enterprise shall liquidate its finances in case of its dissolution.
Article 86. The finances of the foreign-invested enterprise shall be liquidated by its liquidation committee.
Article 87. The duties and rights of the liquidation committee are as follows:
1. Convene the creditors’ meeting and elect their representative,
2. Take over the property of the enterprise and its official seal and manage them,
3. Confirm the property of the enterprise as of the date of its dissolution,
4. Confirm credits and debts, draw up their lists, and discuss and decide on the method of dealing with them,
5. Draw up the list of financial state and the list of contents of property confirmed as of the date of dissolution,
6. Re-evaluate the value of the property of the enterprise and make the plan of liquidation,
7. Dispose of unsettled business,
8. Notify its bank, the taxation institution, the business registrar and the customs house of its dissolution,
9. Pay taxes, and then liquidate credits and debts and dispose of its remaining property,
10. Pay the liquidators’ wages, travel expenses, office work expenses by including them in the liquidation expenses, and
11. Disposes of other problems arising in connection with the dissolution of the foreign-invested enterprise.
Article 88. Property for liquidation shall be disposed of in the order of the payment of the expenses for liquidation, remuneration for the labour of the employees, the money to be paid to the State, the secured debts and ordinary debts.
The remainder after the payment of these items shall be distributed among the investors according to their shares of investment or shall be used to redeem their shares of investment.
Article 89. In case the enterprise is dissolved because of investors’ failure to implement their duties defined by their contract, the responsible investors shall compensate for the losses.
Article 90. The liquidation committee shall draw up the report on the liquidation and submit it to the central trade guidance institution (or to the relevant court in case the liquidation was caused by bankruptcy) within 10 days from the date of the end of liquidation.
Article 91. When liquidation has been finished, the liquidation committee shall return the certificate of business registration, the business licence, and the certificate of tax registration to the respective institutions and close its account with the bank.

Chapter 10. Supervision and Control

Article 92. The financial institution of the Zone shall regularly supervise and control the financial management of the foreign-invested enterprises in the Zone.
Article 93. The financial institution of the Zone may summon persons or demand information and protocols needed in connection with the financial management of the foreign-invested enterprises in the Zone.
Article 94. Sanctions such as arrearage charge, fine and suspension of business shall be applied in cases of violation of these regulations in accordance with the seriousness of the cases, and serious cases shall be held responsible by the criminal law.


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