Policies Towards Foreign Direct Investment

The ROK government’s approach toward FDI is positive, and senior policymakers realize the value of foreign investment.  In a March 28, 2019, meeting with the foreign business community, President Moon Jae-in equated their success “with the Korean economy’s progress.”  Foreign investors in the ROK still face numerous hurdles, however, including insufficient regulatory transparency, inconsistent interpretation of regulations, ongoing regulatory revisions that the market cannot anticipate, underdeveloped corporate governance structures, high labor costs, an inflexible labor system, burdensome Korea-unique consumer protection measures, and market domination by large conglomerates, known as chaebol.

The 1998 Foreign Investment Promotion Act (FIPA) is the basic 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 features include:

• Simplified procedures, including those for FDI notification and registration;
• 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;
• Establishment 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) actively facilitates foreign investment through its Invest Korea office (on the web at http://m.investkorea.org/m/index.do ).  For investments exceeding 100 million won (about USD 88,000), KOTRA assists in establishing a domestically-incorporated foreign-invested company. KOTRA and the Ministry of Trade, Industry, and Energy (MOTIE) organize a yearly Foreign Investment Week to attract investment to South Korea.  KOTRA also recruits FDI by participating in overseas events such as the March 2019 “South by Southwest Festival” in Austin, Texas, to attract U.S. startups and investors. The ROK’s key official responsible for FDI promotion and retention is the Foreign Investment Ombudsman. The position is commissioned by the President and heads a grievance resolution body that: collects and analyzes information concerning problems foreign firms experience; requests cooperation from and recommends implementation of reforms to relevant administrative agencies; proposes new policies to improve the foreign investment promotion system; and carries out other necessary tasks to assist investor companies.  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 almost all forms of remunerative activity.  The number of industrial sectors open to foreign investors is well above the Organization for Economic Cooperation and Development (OECD) average, according to MOTIE.  However, restrictions on foreign ownership remain for 30 industrial sectors, including three that are closed to foreign investment (see below). Under the KORUS FTA, South Korea treats U.S. companies like domestic entities in select sectors, including broadcasting and telecommunications.  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, but some implementation problems remain.

The following is a list of restricted sectors for foreign investment.  Figures in parentheses generally denote the Korean Industrial Classification Code, while those for the 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)

• Publishing of daily newspapers (58121)  (Note: Other newspapers with the same industry code 58121 are restricted to less than 50 percent foreign equity)

Restricted Sectors (no more than 30 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)

• Program 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 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 area (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://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=233680,233681,230967,230984,94925,
104614,89233,66927,82162,84639&CurrentCatalogueIdIndex=1&FullText
Hash=&HasEnglishRecord=True&HasFrenchRecord=True&HasSpanishRecord=True  .  The ROK has not undergone investment policy reviews or received policy recommendations 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) rated Smart Biz a low 2.5 on its 10-point evaluation scale and suggested improvements to provide clear and complete instructions for registering a limited liability company.  The GER rated the InvestKorea information portal even lower at 2.0/10. The Korea Commission for Corporate Partnership (http://www.winwingrowth.or.kr/  ) and the Ministry of Gender Equality and Family (http://www.mogef.go.kr/)seek to create a better business environment for minorities and women but do not offer any direct support program for those groups.  Some local governments provide guaranteed bank loans for women or disabled people, but a lack of data on those programs makes it difficult to measure their impact.

Outward Investment

The ROK does not have any restrictions on outward investment.  While Korea’s globally competitive firms complete their investment procedures in-house, the ROK has several offices to assist small business and middle-market firms.

• 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 ROKG-funded, provides counseling and matchmaking support to Korean SMEs interested in investing in the Association of Southeast Asian Nations (ASEAN) region.
• The Defense Acquisition Program Administration in 2019 opened an office to advise Korean SME defense firms on exporting unrestricted defense articles.