TITLE : Business in Korea 2024 PART 1 - FOREIGN INVESTMENT PROMOTION POLICY - Liberalization of FDI
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■ Business in Korea 2024
PART 1
Foreign Investment Promotion Policy
Except as prescribed by other Acts, foreign investorsare guaranteed a legitimate right to manage theirbusiness operations in Korea freely. To this end, theKorean government has prepared a system to protectforeign investors.Korea’s foreign investment policy is in accordancewith global standards based on the recommendationsand agreements of international organizations suchas the OECD, UNCTAD, and WTO. It provides variousincentives to foreign investors that create high-qualityjobs or encourage domestic economic growth. Assuch, the Korean government constantly strives tocreate a business-friendly investment.
01 | Liberalization of FDI |
The Republic of Korea is a country which welcomes foreign direct investment and has a foreigninvestment promotion policy focusing on investor support. Foreign investors and foreign-investedcompanies can conduct business in Korea without restraint, except as otherwise prescribed by law
Restricted Business Categories
Out of a total of 1,196 business categories listed under the Korean Standard IndustrialClassification (KSIC), FDI in Korea is permitted in 1,135 categories. Foreign investment isprohibited in 61 business categories including legislation, public administration, diplomacy, andnational defense. Among the permitted business categories, restrictions on shareholding ratio,etc. apply in 29 categories and there are three prohibited business categories - nuclear powergeneration, radio broadcasting, and terrestrial tv broadcasting.
02 | Foreign Investor Protection |
- Guarantee of Remittance to Foreign Countries
Remittance of proceeds accruing from the stocks, etc., acquired by a foreign investor,proceeds from the sale of stocks, and the principal, interest, and service charges paidunder a loan contract shall be guaranteed in accordance with the details of the report orpermission of the foreign investment at the time of remittance.
- National Treatment
Except as otherwise prescribed by law, foreign investors and foreign-invested companiesshall be treated in the same manner as nationals of the Republic of Korea and Koreancorporations in respect to their business operations.
- Exceptions to the Safeguard Clause on Foreign Exchange Transactions
For foreign exchange and overseas transactions of foreign exchange, the Foreign Exchange TransactionAct is applied unless otherwise prescribed by the Foreign Investment Promotion Act. Foreign exchangetransactions may be temporarily suspended or restricted under the Foreign Exchange Transaction Act ifsuch measures are deemed inevitable due to natural calamities, war, armed conflict, grave and suddenchanges in domestic and foreign economic conditions, or other situations equivalent thereto. However,such measures shall not apply to foreign investment.
※ Related law: Article 6 (4) of the Foreign Exchange Transactions Act - Equal Application of Tax Abatement Regulations, etc.
Unless otherwise prescribed by the laws of the Republic of Korea, the provisions concerning theabatement of taxes applied to nationals of the Republic of Korea or Korean corporations shallalso apply to foreign investors and foreign-invested corporations.
※ Related law: Article 3 (3) of the Foreign Investment Promotion Act
03 | FDI Incentives |
- The Roles of FDI
Foreign direct investment offers various internal and external economic benefits,including securing stable foreign capital in the long term, creating jobs, transferringadvanced technology and management techniques, and joining the global valuechain, all of which contribute to potential economic growth. Korea seeks to upgrade itsindustrial structure by attracting FDI in new growth engines and high-tech industries,while focusing national policy on boosting technology transfer by promoting Koreaas a global hub for foreign-invested companies through the establishment ofregional headquarters and R&D centers, and by expanding the domestic productioninfrastructure for core material and components in key industries.
- FDI Incentives
The Korean government provides various incentives to foreign investmentaccompanying high value-added business and job creation effects. These incentivesserve as a catalyst for foreign direct investment.
IN DETAIL
Korea’s Incentive Policies for FDI Attraction
The criteria for granting incentives were revised to give priority on job creationeffects and employment. The government will enhance support to foreign-investedcompanies which make Korea their regional hub by investing in R&D centers orestablishing local headquarters. For customized support, the government willexpand the eligibility for cash grants to high-tech industries and considerablyincrease relevant budgets.
[Ministry of Trade, Industry and Energy, Jan. 22, 2019] - Summary of FDI Incentives
- Tax Reduction and Exemption
Foreign-invested companies operating in newgrowth engine industries with technology essentialfor upgrading the domestic industrial structureand strengthening international competitiveness,or those located in a foreign investment zone, aregranted reduction/exemption of customs dutiesand local tax. In addition, income tax is reducedor exempted for foreign engineers and employeesprescribed by the relevant law.
- Cash Grant
Where a foreigner operates in a new growthdriver industry prescribed by law or theparts and materials industry, or makesan investment that creates jobs or aninvestment that accompanies the installationof R&D facilities in the new growth driverindustry, cash grants for purposes prescribedby law shall be provided.
- Site Support
In order to attract quality foreign investment,the government has designated foreigninvestment zones (FIZ), free trade zones(FTZ), and free economic zones (FEZ), whichoffer reduced rent, tax reduction/exemption,and location support, among otherincentives.
- Additional Incentives
Foreign-invested companies can receiveemployment and training subsidies dependingon their contribution to the national economyin regard to job creation, technology transfer,and factory location. In regard to foreigninvestments that meet certain requirements, leaseand sale of state and public property is permitted,and rent reduction or exemption is also granted..
- Tax Reduction and Exemption