Foreign Direct Investment (FDI) is about establishing lasting economic connections with Korean enterprises. With incentives like tax breaks, guaranteed transfers, and streamlined visas, Korea beckons investors. Its skilled workforce, cutting-edge research, and strong financial standing make it an attractive destination. Explore diverse sectors for investment, from IT to renewable energy. Setting up a business is straightforward, with support from regulatory frameworks. Discover Korea's dynamic economy and embark on a journey of growth.
Foreign Direct Investment (FDI) involves a foreign entity creating a new establishment in Korea or purchasing shares or equity in an existing Korean company. It aims to forge a lasting economic connection with Korean enterprises, often involving participation in management or collaboration on technological advancements.
FDIs can manifest in diverse ways, such as establishing a new entity in Korea, acquiring shares or equity in a Korean company, contributing to non-profit entities, or providing long-term loans, among other methods.
- Assured overseas wire transfer/remittance: Companies registered as FDI entities are guaranteed the ability to transfer or remit profits, dividends, liquidation proceeds, share sales proceeds, as well as principal, interest, and commissions, among other funds, overseas.
- Tax incentives: The Korean government and local administrations provide tax breaks on corporate taxes, income taxes, local taxes, and customs duties, subject to relevant laws and conditions.
- Visa and residency privileges: Officers and employees of FDI companies are eligible for D-8 visas, enabling them to freely enter, exit, and reside in the country.
- A well-educated and skilled workforce, supported by the nation's highly effective educational system.
- Cutting-edge research and development capabilities.
- A leading position in advanced electronics manufacturing.
- Exceptional infrastructure, including robust shipping and air cargo facilities.
- A highly efficient banking sector.
- Strong international financial standing, demonstrated by substantial currency reserves and minimal external debt.
- Asia's emergence as a primary center for economic growth and technological innovation.
- Discerning consumers with considerable disposable income, inclined to invest in premium-quality goods.
- Tax support, which includes reductions in corporate and income taxes, as well as reductions in acquisition and property taxes, along with exemptions from customs duties.
- Cash grants for land purchases or leases, and employee training or education.
- Industrial site support, such as location assistance and subsidized purchase prices or rents.
Promising sectors for foreign direct investment in South Korea encompass a diverse range, including IT, aerospace, biotechnology, cybersecurity, renewable energy, semiconductors, displays, environmental industries, real estate development, and venture capital.
However, certain sectors are off-limits to foreign investment entirely, such as nuclear energy, broadcasting (TV and radio), water and thermal energy, newspaper publications, and telecommunication services. Moreover, there are sectors where FDI is subject to varying degrees of restriction, with limits ranging from 25% to 49%, while some sectors cap FDI at 50%. The government retains authority over approving FDI in defense-related domains.
Setting up a business in Korea is considered
relatively favorable for international companies, with the country ranking 5th
out of 190 economies for overall ease of doing business, according to the World
Bank. Factors evaluated include economic and political stability, ease of
business initiation, infrastructure, taxation, and the proportion of educated
employees.
To initiate and formalize a business presence in Korea, adherence to the stipulations of the Foreign Investment Promotion Act (FIPA) is mandatory.
The process typically spans four to six weeks and involves the following steps:
- Notifying authorities of foreign investment
- Remitting investment capital
- Incorporating the company in South Korea
- Registering the company in South Korea
- Transferring paid-in capital to a corporate account
- Registering the company as a foreign-invested entity
Except for industries with restricted foreign direct investment (FDI) in Korea, foreign companies are permitted to establish branches in the country. This entails registering with the appropriate tax office and court registry. However, depending on the sector, further approval from relevant ministries may be necessary.
Foreign companies have the option to create liaison (representative) offices in Korea. However, these offices are subject to stricter regulations compared to joint stock and limited liability companies. Additionally, they are prohibited from engaging in commercial activities or generating revenue within Korea.
- Investment totaling at least KRW 100 million from a single foreign investor
- Ownership of 10% or more of the total issued shares in the established company
- Investments in sectors such as the central bank, media, and postal services are strictly prohibited.
- However, investments are permissible within defined limits, provided the sales of the target company in sectors restricted to foreign investment (e.g., nuclear generation, newspaper publication, radio broadcasting) do not exceed 1% of total sales.
- The Minister of Trade, Industry and Energy, in consultation with the Foreign Investment Committee, holds the authority to restrict foreign investments on national security grounds.
- Foreign investment in defense industry companies necessitates clearance from the Minister of Trade, Industry, and Energy, with consultation from the Minister of Defense.
Korea experienced minimal economic slowdown
until 1997; however, the Korean financial crisis of that year prompted a
significant reevaluation of the nation's restrictive policy approach. As a
result, Korean laws governing foreign investment underwent substantial
revisions to attract more foreign capital and revitalize the economy.
Previously, foreign investment in Korea required approval from the Ministry of Finance and Economy. Following the overhaul, foreign investment became more liberalized, subject to compliance with either the Foreign Investment Promotion Act (FIPA) or the Foreign Exchange Transactions Act (FETA). Under the FIPA, approvals are overseen by the Minister of Trade, Industry, and Energy, while reporting obligations under the FETA generally fall to foreign exchange banks, except in extraordinary circumstances, where reports are directed to the Bank of Korea.
The FETA governs foreign currency transactions and cross-border transactions, particularly when the investment amount falls below 100 million won or involves minority interest acquisitions below 10%.
Foreign Direct Investment (FDI) in Korea presents lucrative opportunities for investors, with incentives like tax breaks and streamlined processes. Korea's strong workforce, advanced technology, and favorable business environment make it an attractive destination. Despite some sectoral restrictions, setting up a business is straightforward, fostering growth and innovation in the region.
Interested in expanding your global reach? Contact us to tap into the opportunities presented by Foreign Direct Investment (FDI) in Korea and capitalize on the potential for growth in Asia's thriving economy.