Policies Towards Foreign Direct Investment

The ROK government welcomes foreign investment.  In a March 2019 meeting, President Moon Jae-in equated the foreign business community’s success with the Korean economy’s progress.  The ROK government offers incentives to foreign companies bringing in technology and investments contributing to the ROK’s manufacturing sector.  Hurdles for foreign investors in the ROK include regulatory opacity, inconsistent interpretation of regulations, unanticipated regulatory changes, underdeveloped corporate governance, rigid labor policies, Korea-specific consumer protection measures, and the political influence of large conglomerates, known as chaebol.

The 1998 Foreign Investment Promotion Act (FIPA) is the principal law pertaining to foreign investment in the ROK.  FIPA and related regulations categorize business activities as open, conditionally- or partly-restricted, or closed to foreign investment.  FIPA also includes:

• Simplified procedures to apply to invest in the ROK;
• Expanded tax incentives for high-technology investments;
• Reduced rental fees and lengthened lease durations for government land (including local government land);
• Increased central government support for local FDI incentives;
• Creation of “Invest KOREA,” a one-stop investment promotion center within the Korea Trade-Investment Promotion Agency (KOTRA) to assist foreign investors; and
• Establishment of a Foreign Investment Ombudsman to assist foreign investors.

The ROK National Assembly website provides a list of laws pertaining to foreigners, including FIPA, in English (http://korea.assembly.go.kr/res/low_03_list.jsp?boardid=1000000037).

The Korea Trade-Investment Promotion Agency (KOTRA) facilitates foreign investment through its Invest KOREA office (also on the web at http://investkorea.org).  For investments exceeding 100 million won (about USD 88,000), KOTRA helps investors establish domestically-incorporated foreign-invested companies.  KOTRA and the Ministry of Trade, Industry and Energy (MOTIE) organize a yearly Foreign Investment Week to attract investment to South Korea.  In February 2021, Trade Minister Yoo Myung-hee met with representatives of foreign-invested firms in the ROK and noted the critical role they play in the ROK economy and job creation.  The ROK’s key official responsible for FDI promotion and retention is the Foreign Investment Ombudsman.  The position is commissioned by the ROK President and heads a grievance resolution body that collects and analyzes concerns from foreign firms; coordinates reforms with relevant administrative agencies; and proposes new policies to promote foreign investment.  More information on the Ombudsman can be found at http://ombudsman.kotra.or.kr/eng/index.do.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities can establish and own business enterprises and engage in remunerative activity across many sectors of the economy.  However, under the Foreign Exchange Transaction Act (FETA), restrictions on foreign ownership remain for 30 industrial sectors, including three that are closed to foreign investment (see below).  Relevant ministries must approve investments in conditionally- or partially-restricted sectors.  Most applications are processed within five days; cases that require consultation with more than one ministry can take 25 days or longer.  The ROK’s procurement processes comply with the World Trade Organization (WTO) Government Procurement Agreement.

The following is a list of restricted sectors for foreign investment.  Figures in parentheses generally denote the Korean Industrial Classification Code, while those for air transport industries are based on the Civil Aeronautics Laws:

Completely Closed

•  Nuclear power generation (35111)
•  Radio broadcasting (60100)
•  Television broadcasting (60210)

Restricted Sectors (no more than 25 percent foreign equity)

•  News agency activities (63910)

Restricted Sectors (less than 30 percent foreign equity)

• Newspaper publication, daily (58121)  (Note: Other newspapers with the same industry code 58121 are restricted to less than 50 percent foreign equity.)

• Hydroelectric power generation (35112)
• Thermal power generation (35113)
• Solar power generation (35114)
• Other power generation (35119)

Restricted Sectors (no more than 49 percent foreign equity)

• Newspaper publication, non-daily (58121)  (Note: Daily newspapers with the same industry code 58121 are restricted to less than 30 percent foreign equity.)
• Television program/content distribution (60221)
• Cable networks (60222)
• Satellite and other broadcasting (60229)
• Wired telephone and other telecommunications (61210)
• Mobile telephone and other telecommunications (61220)
• Other telecommunications (61299)

Restricted Sectors (no more than 50 percent foreign equity)

• Farming of beef cattle (01212)
• Transmission/distribution of electricity (35120)
• Wholesale of meat (46313)
• Coastal water passenger transport (50121)
• Coastal water freight transport (50122)
• International air transport (51)
• Domestic air transport (51)
• Small air transport (51)
• Publishing of magazines and periodicals (58122)

Open but Separately Regulated under Relevant Laws

• Growing of cereal crops and other food crops, except rice and barley (01110)
• Other inorganic chemistry production, except fuel for nuclear power generation (20129)
• Other nonferrous metals refining, smelting, and alloying (24219)
• Domestic commercial banking, except special banking areas (64121)
• Radioactive waste collection, transportation, and disposal, except radioactive waste management (38240)

Other Investment Policy Reviews

The WTO conducted its seventh Trade Policy Review of the ROK in October 2016.  The Review does not contain any explicit policy recommendations.  It can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp446_e.htm

The ROK has not undergone investment policy reviews from the OECD or United Nations Conference on Trade and Development (UNCTAD) within the past three years.

Business Facilitation

Registering a business remains a complex process that varies according to the type of business being established, and requires interaction with KOTRA, court registries, and tax offices.  Foreign corporations can enter the market by establishing a local corporation, local branch, or liaison office.  The establishment of local corporations by a foreign individual or corporation is regulated by FIPA and the Commercial Act; the latter recognizes five types of companies, of which stock companies with multiple shareholders are the most common.  Although registration can be filed online, there is no centralized online location to complete the process.  For small- and medium-sized enterprises (SMEs) and micro-enterprises, the online business registration process takes approximately three to four days and is completed through Korean language websites.  Registrations can be completed via the Smart Biz website, https://www.startbiz.go.kr/.  The UN’s Global Enterprise Registration (GER), which evaluates whether a country’s online registration process is clear and complete, awarded Smart Biz 2.5 of 10 possible points and suggested improvements in registering limited liability companies.  The Invest KOREA information portal received 2 of 10 points.  The Korea Commission for Corporate Partnership and the Ministry of Gender Equality and Family (http://www.mogef.go.kr/) are charged with improving the business environment for minorities and women.  Some local governments provide guaranteed bank loans for women and/or the disabled.

Outward Investment

The ROK does not have any restrictions on outward investment.  The ROK has several institutions to assist small business and middle-market firms with such investments.

• KOTRA has an Outbound Investment Support Office that provides counseling to ROK firms and holds regular investment information sessions.
• The ASEAN-Korea Centre, which is primarily funded by the ROK government, provides counseling and business introduction services to Korean SMEs considering investments in the Association of Southeast Asian Nations (ASEAN) region.
• The Defense Acquisition Program Administration opened an office in 2019 to advise Korean defense SMEs on exporting unrestricted defense articles.