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
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
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
Article 19. The registered capital of a foreign-invested enterprise
may be increased by agreement between contracting parties, but shall not be
Article 20. Property contributed by the investors shall be
recognized as the assets of the foreign-invested enterprise only in the following
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
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’
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
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
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
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 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
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
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
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
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
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’
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
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
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
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
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
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
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
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
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
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.