The National Tax Service said Wednesday it would exempt smaller foreign firms operating in Korea from tax audits as part of efforts to encourage foreign direct investment.

Foreign companies whose yearly income is less than 10 billion won ($8.7 million) would qualify for the tax audit exemption.

“As with Korean conglomerates, big foreign companies in Korea are subject to regular audits, but smaller foreign units would be excluded from the required audits,” said an official at the NTS.

The move came as Korea is keen to draw as much foreign investment as possible at a time when the broader economy is in the doldrums, hurt by the mix of lackluster domestic demand at home and the eurozone fiscal crisis abroad.

The number of foreign businesses in Korea has surpassed 11,000. Non-Korean workers are also estimated at around 400,000. The steady growth of foreign workforce and business units is attracting more attention from policymakers.

The NTS estimates that both Korean and foreign companies here would face more obstacles and challenges in the first half of this year due to the global growth concerns, and the tax agency’s softening posture is aimed at helping companies better fight the slowdown.

The NTS plans to simplify auditing methods for foreign firms whose annual income is less than 100 billion won.

As of end-2010, the number of companies set up through direct foreign investment is 7,751 while there are 1,605 branches of foreign businesses and 1,554 liaison offices. The total stands at 10,910, up 1,282 from 2006.

The number of foreign workers who submitted the year-end tax settlement documents also rose to about 400,000 in 2010.

Last week, the NTS rolled out the English-language year-end tax guides and related documents for foreign workers in Korea.

By Yang Sung-jin (insight@heraldcorp.com)