South Korea: Foreign investment

FDI in Figures

According to UNCTAD's World Investment Report 2023, FDI to the Republic of Korea fell by 18.4%, to USD 18 billion in 2022, when the country was the 20th-largest recipient worldwide. In the same year, the total stock of FDI stood at USD 272.3 billion, around 16.4% of the country’s GDP. According to the Ministry of Trade, Industry, and Energy (MOTIE), FDI pledges to South Korea surged by 7.5% year-on-year in 2023, reaching an unprecedented peak of USD 32.7 billion, driven by the strong performance of the chip, battery, and transportation sectors. In manufacturing, FDI dropped by 4.5% to USD 11.9 billion, while the service sector saw a 7.3% rise to USD 17.8 billion, led by investments from Saudi Arabia's sovereign wealth fund and financial firms. From the EU, investments fell by 17% to USD 6.2 billion due to previous large investments. However, Korea saw significant increases from countries like France. Combined EU and UK investments reached USD 9.8 billion, up 21.6% year-on-year. Meanwhile, FDI from the U.S. and Japan decreased to USD 6.1 billion (-29.4%) and USD 1.3 billion (-14.7%), respectively, while those from Greater China surged to USD 3.1 billion, up 65.6% from the previous year, rebounding to pre-2022 levels after a decline during the COVID-19 pandemic. In terms of stock, Japan, the U.S., the Netherlands, Singapore and the UK hold most of the FDI, according to data from OECD. Investments have been mainly oriented towards manufacturing, finance and insurance, trade, hospitality, and real estate.

South Korea's appeal in terms of foreign direct investment is the result of the country's rapid economic development and the country’s 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. Recently, the Republic of Korea has opted to offer a cash reimbursement of up to 50% for foreign investments in critical sectors like chips, batteries, and vaccines. 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. South Korea ranks 10th among the 132 economies on the Global Innovation Index 2023 and 14th out of 184 countries on the 2023 Index of Economic Freedom. Moreover, it is at the 19th place in Kearney's Foreign Direct Investment Confidence Index 2023.

What to consider if you invest in South Korea

Protection of Foreign Investment

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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