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Foreign investment

South Korea: Foreign investment

FDI in Figures

According to UNCTAD's World Investment Report 2024, FDI to the Republic of Korea reached USD 15.1 billion, down from the 25 billion recorded the previous year. At the end of the same period, the total stock of FDI stood at USD 284.1 billion. According to the Ministry of Trade, Industry, and Energy (MOTIE), FDI pledges to South Korea increased by 5.7% in 2024, totalling USD 34.5 billion, with the manufacturing sector seeing a 21.6% rise to USD 14.49 billion. FDI in materials, parts, and equipment surged 52.7% to USD 11.13 billion, while semiconductor investments rose 46.5% to USD 1.33 billion and bio-health pledges more than tripled to USD 1.23 billion. FDI in the service sector edged up 0.3% to USD 17.83 billion, driven by real estate and communication industries. Inflows from the United States dropped 14.6% to USD 5.24 billion, while those from China, Hong Kong, and Taiwan surged 125% to USD 7 billion. FDI from the European Union fell 18.1% to USD 5.1 billion. As per OECD figures, FDI stocks are mainly oriented towards financial and insurance activities (31.4%), followed by manufacture of petroleum, chemical, pharmaceutical, rubber and plastic products (13.2%), wholesale and retail trade; repair of motor vehicles and motorcycles (11.6%), manufacture of metal and machinery products, except electrical equipment (10.4%), information and communication (6.8%), real estate activities (4.4%). Japan (21%), the United States (16.3%), Singapore (8.7%), the Netherlands (7.1%), the United Kingdom (5.8%), and Hong Kong (5.8%) hold the majority of stocks.

South Korea's appeal in terms of foreign direct investment is the result of the country's rapid economic development and its specialisation in new information and communication technologies. The World Bank qualifies the Republic of Korea as a country with a highly developed business environment. However, despite the economy's sophistication and complexity, foreign investors encounter difficulties due to South Korea's intricate, opaque, and country-specific regulatory framework. Additionally, the competitiveness of the country's manufacturing sector has been undermined notably by low-cost producers like China. Both foreign and domestic private entities are permitted to establish and own business enterprises and participate in profit-making activities across numerous sectors of the economy. Nonetheless, limitations on foreign ownership persist for 30 industrial sectors under the Foreign Exchange Transaction Act (FETA). Notably, three sectors, including nuclear power generation, radio broadcasting, and terrestrial broadcasting, remain closed to foreign investment. The Ministry of Economy and Finance (MOEF) oversees tax incentives and other measures to promote advanced technology transfer and investment in high-tech services. There are three types of special areas for foreign investment: Free Economic Zones, Free Investment Zones, and Tariff-Free Zones, offering favourable tax incentives and support for investors. South Korea ranks 6th among the 133 economies on the Global Innovation Index 2024 and 14th out of 184 countries on the latest Index of Economic Freedom. Moreover, it is at the 20th place in Kearney's Foreign Direct Investment Confidence Index 2024.

Foreign Direct Investment	2020	2021	2022
FDI Inward Flow (million USD)	8,765	22,060	17,996
FDI Stock (million USD)	260,801	280,085	272,328
Number of Greenfield Investments*	83	103	116
Value of Greenfield Investments (million USD)	3,710	4,965	13,405

Source: UNCTAD, Latest data available.

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

FDI STOCKS BY COUNTRY AND BY INDUSTRY

Main Investing Countries	2021, in %
Japan	29.4
Ireland	14.3
United States	10.0
United Kingdom	9.1
Germany	6.0
Belgium	5.1
China	3.3

Main Invested Sectors	2021, in %
Manufacture of petroleum, chemical, pharmaceutical, rubber and plastic products	31.0
Wholesale and retail trade; repair of motor vehicles and motorcycles	24.0
Manufacture of metal and machinery products, except electrical equipment	13.4
Information and communication	8.9
Financial and insurance activities	6.3
Manufacture of food products; beverages and tobacco products	5.1

Source: OECD Statistics, Latest data available.

Form of Company Preferred By Foreign Investors: Limited Company
Form of Establishment Preferred By Foreign Investors: Greenfield investment (for manufacturing, this differs from other investments in new facilities, because it not only includes factory establishment but sales facilities as well).
Main Foreign Companies: Consult the successful stories of FDI on Invest Korea.
Sources of Statistics: Statistics from Invest Korea
Ministry of Commerce, Industry and Energy (MOCIE)
Korea National Statistical Office

What to consider if you invest in South Korea

Strong Points

South Korea's strong points include:

Highly skilled workforce thanks to an efficient education system
Advanced R&D capabilities
Dominant position in high-end electronics
High quality infrastructure
Solid banking sector
Strong international financial position (currency reserves and low external debt)
Growth of investment in Asia
Brand savvy consumers willing to spend on quality products
High level of disposable household income
Strong shipping and air cargo infrastructure

Weak Points

South Korea's weak points include:

Regulatory frameworks can be restrictive and opaque
Dominance of big industrial groups (chaebols)
Cost of manpower is comparatively high
Ageing population
Frequent contract negotiations throughout a business relationship are common
Property (leased or owned) is expensive
Unique industry standards
Dependence to raw materials imports
Household indebtedness and high unemployment rate among young people
Regional tensions with North Korea and competition from China (steel, shipbuilding, electronics)

Government Measures to Motivate or Restrict FDI

The Foreign Investment Promotion Act was enacted to support and facilitate efforts to attract foreign investment. Most of FDI incentives offered by the Korean government are provided via:

Tax support (corporate tax and income tax reduction, acquisition tax and property tax reduction, exception from custom duties)
Cash grant (land purchase expense, lease expense, employment/education/training subsidy)
Industrial Site Support (location support, subsidy for difference of sale price, rent reduced-subsidized)

Nevertheless, some restrictions and interdictions exist in public administration, education, national defence, energy, media sectors.
For more information, visit the Invest Korea website.
The South Korean government significantly increased cash incentives for foreign companies to encourage more investment at home. In 2021, FDI flows to South Korea recorded a historical high of USD 29.51 billion.

Protection of Foreign Investment

Bilateral Investment Conventions Signed By South Korea: Korea is a signatory to many conventions - a full list can be found at UNCTAD.
International Controversies Registered By UNCTAD: The ISDS Navigator contains information about known international arbitration cases initiated by investors against States pursuant to international investment agreements. The Republic of Korea is involved in 7 cases as Home State of claimant and in 7 cases as Respondent State.
Organizations Offering Their Assistance in Case of Disagreement: ICCWBO , International Court of Arbitration, International Chamber of Commerce
ICSID , International Center for Settlement of Investment Disputes
Member of the Multilateral Investment Guarantee Agency: Korea is a member of MIGA.
The MIGA website gives a detailed description of all the guarantees it proposes.

Country Comparison For the Protection of Investors	South Korea	OECD	United States	Germany
Index of Transaction Transparency*	8.0	6.5	7.0	5.0
Index of Manager’s Responsibility**	6.0	5.3	9.0	5.0
Index of Shareholders’ Power***	8.0	7.3	9.0	5.0

Source: The World Bank - Doing Business, Latest data available.

Procedures Relative to Foreign Investment

Freedom of Establishment

Guaranteed

Acquisition of Holdings

Possible

Obligation to Declare

A foreign investment must be reported under the Foreign Investment Promotion Act (FIPA) or the Foreign Exchange Transaction Act. A fast registration process is available for foreign direct investment (FDI) under the FIPA. To apply, an FDI needs to:

invest at least KRW 100 million;
acquire at least 10% of voting shares of a Korean company, or own shares of a Korean company and dispatch or appoint an executive officer to or at such Korean company.

Competent Organisation For the Declaration

Invest Korea

Requests For Specific Authorisations

Most sectors of the economy are open to foreign investment, with the exception of a few key sectors, for example: telecommunications, broadcasting, publishing, banking, naval, aviation, agriculture, natural resources. In these sectors foreign ownership is limited to a percentage ceiling, or subject to regulatory approval for reasons of national security, protection of critical technologies, and so on.

Office Real Estate and Land Ownership

Possible Temporary Solutions: There are several temporary solutions: Office in the president's private house, Office in the business centers, office rent in the privileged foreign investment area, etc.

Invest Korea Plaza (IKP) offers furnished office space and cutting edge conference facilities to foreign investors.
The Possibility of Buying Land and Industrial and Commercial Buildings: Ownership or occupation of real estate by foreigners is not restricted unless it threatens national security or public order. However, a foreign investor must obtain permission from the competent government authorities to purchase land located within an area of military facilities, a cultural property protection zone, an environmental conservation zone or a wildlife conservation zone.

Click here for Info on Foreigner's Land Acquisition Act.
Risk of Expropriation: Under the ROK law, the ownership of a foreign-invested enterprise is protected against expropriation or requisition. When private property is expropriated, it may only be taken for a public purpose and only in a non-discriminatory manner, and claimants are protected by a fair trial. Property owners are legally entitled to prompt compensation at fair market value. There are many cases of expropriation in the ROK, mainly for public reasons.

Investment Aid

Forms of Aid

Most of FDI incentives offered by the Korean government are provided via:

Tax support (corporate tax and income tax reduction, acquisition tax and property tax reduction, exception from custom duties)
Cash grant (land purchase expense, lease expense, employment/education/training subsidy)
Industrial Site Support (location support, subsidy for difference of sale price, rent reduced-subsidized)

Privileged Domains

Industry support service, high-tech industry business, R&D service, manufacturing, tourist service, welfare facilities, etc.

Privileged Geographical Zones

Industrial complex located close to a port or an airport, making it convenient for businesses within to engage in foreign trade, international airport area, distribution complex or cargo terminals, etc.

Korean Free Economic Zones (KFEZs) aim to strengthen national competition for business and promote balanced regional development by enhancing living conditions and business environments for foreigners in South Korea. The KFEZs offer great incentives such as tax benefit, business support, deregulation, administration support and one-stop services for your successful business.

Free-trade zones

There are seven Free Economic Zones: Incheon FEZ, Busan-Jinhae FEZ, Gwangyang Bay Area FEZ, Yellow Sea FEZ, Daegu-Gyeongbuk FEZ, East Coast FEZ and Chungbuk FEZ.
For more information, click here.

Public aid and funding organisations

Ministry of Commerce, Industry and Energy (MOCIE), local governments.

Investment Opportunities

The Key Sectors of the National Economy: Shipbuilding, semiconductors, automobile and automobile components, electronics (TV, mobile phone, etc), cosmetics, education services, defence industry, tv and music production (strong imports of Korean culture), textile.
High Potential Sectors: Aerospace, biotechnology, display, environmental industry, IT industry, logistics, nano-industry, cyber-security, new and renewable energy sources, R&D, real estate development, semiconductors, Smart Production, tourism, chemical, venture industry.
Privatization Programmes: Among the latest privatisations in South Korea are the state-owned banks such as the Korea Development Bank and Woori Bank, partially sold in December 2016. However, the government is currently at a standstill in an attempt to fully privatise Woori Financial Holdings because of the low price of its shares due to the increasing market volatility triggered by the COVID-19 pandemic. The privatisation of shipping company HMM is also scheduled for 2022.
Tenders, Projects and Public Procurement: Public Procurement Service , Tenders
DgMarket , Tenders Worldwide

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors

Some sectors are totally closed to FDI:

Nuclear energy
Broadcasting (TV and radio)

Other sectors have restrictions on FDI (from 25% to 49%)

Water and thermal energy
Newspaper publication
Telecommunication services

Finally, in numerous sectors, FDI cannot exceed 50%. The government has the right to approve FDI in the domain of defence.

Finding Assistance For Further Information

Investment Aid Agency: Invest Korea
Korea Trade Investment Promotion Agency (KOTRA)
Other Useful Resources: Korean Free Economic Zones
Doing Business Guides: Doing business in South Korea (Thomson Reuters Practical Law)
Exporting to Korea (Export.gov)

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