2023 Investment Climate Statements: South Korea

Policies Towards Foreign Direct Investment

The ROK government welcomes foreign investment. In a February 2023 meeting with foreign business leaders, Trade Minister Ahn Dukgeun emphasized the ROK welcomed foreign investment and promised to increase tax incentives for foreign firms, especially companies working on critical supply chains and strategic technologies, such as semiconductors, batteries, and vaccines. The ROK government pledged more cash incentives for foreign businesses that invest in these sectors, but it did not specify the amount this year. The American business community, including through the American Chamber of Commerce in Korea’s 2023 Business Environment Scorecard, has indicated that 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 83,577), 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 2023, Trade Minister Ahn met with executives of foreign-invested firms in the ROK and encouraged them to expand their investments, noting the stable environment the ROK provided for businesses throughout the pandemic. 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)
• Terrestrial broadcasting (60210)

Restricted Sectors (no more than 25 percent foreign equity)

• News agency activities (63910)

Restricted Sectors (less than 30 percent foreign equity)

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

Restricted Sectors (no more than 49 percent foreign equity)

• Television program/content distribution (60221)
• Cable broadcasting (60222)
• Satellite and other broadcasting (60229)
• Wired telecommunications (61210)
• Wireless and satellite telecommunications (61220)
• Other telecommunications (61299)

Restricted Sectors (no more than 50 percent foreign equity)

• Raising of beef cattle (01212)
• Electric power transmission and distribution (35120)
• Sale of electricity (35130)
• Wholesale of meat (46313)
• Coastal passenger water transport (50121)
• Coastal freight water transport (50122)
• International air transport (51)
• Domestic air transport (51)
• Small air transport (51)
• Publishing of magazines and periodicals (58122)
• Publishing of newspapers (58121)

Open but Separately Regulated under Relevant Laws

• Growing of cereal crops and other food crops (01110)
• Manufacture of other basic inorganic chemicals (20129)
• Manufacture of smelting, refining and alloys of other non-ferrous metals (24219)
• Domestic commercial banking, except special banking areas (64121)
• Collection, treatment, and disposal of radioactive nuclear waste (38240)

The Special Act to Protect National Strategic Industries took effect on August 4, 2022. The Act requires stricter investment screening on foreign investments into companies with national core and strategic technologies as prescribed in the National Core Technology list.

Other Investment Policy Reviews

The WTO conducted its eighth Trade Policy Review of the ROK in October 2021. The Review does not contain any explicit policy recommendations. It can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp514_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, and requires interaction with KOTRA, court registries, and tax offices. Foreigners can enter the market by establishing a foreign-invested company, an individual business (local corporation), local branch, or liaison office. Each company type has different registration requirements and tax obligations. The establishment of local corporations by a foreign individual or corporation is regulated by the Foreign Investment Promotion Act (FIPA) and the Commercial Act. Branch and liaison offices are regulated by the Foreign Exchange Transaction Act. 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/ . Invest Korea, a national agency established under KOTRA, 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.

Outward Investment

Overseas investments that could directly or indirectly transfer technologies covered by the ROK’s national core technology list require MOTIE approval for outbound investment. Outbound investors toned to demonstrate sufficient control and protection of the core technology can be maintained in the investment destination. Outbound investments that will export technologies derived from government research and development funding, even for technology outside of the national core technology list, also require MOTIE approval.

The ROK has several institutions to assist small business and middle-market firms with outbound 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.

Transparency of the Regulatory System

President Yoon has pursued reforms to simplify regulations and align the regulatory regime with global standards, and the ROK has made progress in improving transparency and predictability, with ministries and regulatory agencies developing and publicizing forward-looking regulatory plans and giving prior notice for new rules and regulations impacting businesses. The foreign business community, however, continues to face numerous rules and regulations unique to the ROK. National Assembly legislation on environmental protection or the promotion of SMEs, while broadly targeting big businesses, has created trade barriers that disadvantage foreign companies. Also, some laws and regulations lack sufficient detail and are subject to differing interpretations by government regulatory officials. In other cases, ministries issue non-legally binding guidelines on implementation of regulations, yet these become the bases for legal decisions in ROK courts. Regulatory authorities also issue oral or internal guidelines or other legally-enforceable dictates that prove burdensome for foreign firms. Intermittent ROK government deregulation plans to eliminate oral guidelines or impose the same level of regulatory review, as written regulations have not led to concrete changes. Despite KORUS FTA provisions designed to address transparency issues, they remain persistent and prominent.

The ROK constitution allows both the legislative and executive branches to introduce bills. Ministries draft subordinate statutes (presidential decrees, ministerial decrees, and administrative rules), which largely govern the procedural matters addressed by the respective laws. Administrative agencies shape policies and draft bills on matters within their respective jurisdictions. Drafting ministries must clearly define policy goals and complete regulatory impact assessments (RIAs). When a ministry drafts a regulation, it must consult with other relevant ministries before it releases the regulation for public comment. The constitution also allows local governments to exercise self-rule legislative authority to draft ordinances and rules within the scope of federal acts and subordinate statutes. The enactment of laws and their subordinate statutes, ranging from the drafting of bills to their promulgation, must follow formal ROK legislative procedures in accordance with the Regulation on Legislative Process enacted by the Ministry of Government Legislation.

Since 2011, all publicly listed companies must follow International Financial Reporting Standards (IFRS, or K-IFRS in the ROK). The Korea Accounting Standards Board facilitates ROK government endorsement and adoption of IFRS and sets accounting standards for companies not subject to IFRS. According to the Administrative Procedures Act, authorities proposing laws and regulations (acts, presidential decrees, or ministerial decrees) must seek public comments at least 40 days prior to their promulgation. Regulations are sometimes promulgated after only the minimum required comment period and with minimal consultation with industry.

The ROK government publishes Korean language text of draft acts and regulations, accompanied by executive summaries, on the websites and relevant ministries and the National Assembly. The Korean Law Information Center provides English translations of promulgated laws. Draft regulations are generally open for a 40-day comment period. Comments are not made public. After the comment period, the Ministry of Government Legislation reviews the laws and regulations to ensure they conform to the constitution and monitors government adherence to the Regulation on Legislative Process. The Regulatory Reform Committee (RRC), co-chaired by the Prime Minister and a non-government sector representative, reviews all laws and regulations to minimize government intervention in the economy and to abolish all economic regulations that fall short of international standards or hamper national competitiveness. The Office for Government Policy Coordination annually conducts an evaluation on regulatory improvements and compliance with RRC recommendations. The Korea Development Institute and the Korea Institute of Public Administration provide cost-benefit analysis support, guidance, and training relating to regulatory policy.

The ROK government has taken major steps to promote the environmental, social, and governance (ESG) practices of companies in the past year with the goal of requiring ESG disclosure for all listed companies with total assets valued at 2 trillion won (about $1.7 billion) or more by 2025, and all listed companies by 2030. In January 2023, the Financial Supervisory Service (FSS) introduced a new guideline designed to apply consistent standards for comparing ESG evaluations by rating agencies. The guideline reflects the International Organization of Securities Commission recommendations for strengthening ESG metrics. The Korea Exchange operates an ESG information platform for listed companies ( http://esg.krx.co.kr/  ).

The ROK government enforces regulations through penalties (fines, enforcing corrective measures, or criminal charges) in the case of violations of the law. The government’s enforcement actions can be challenged through an appeal process or administrative litigation. The CEOs of local branches can be held legally responsible for all actions of their companies and at times have been arrested, charged for company infractions, and placed under repeated travel bans while awaiting or undergoing court procedures. Foreign CEOs have cited this as a significant burden to their business operations in Korea. For large companies with over 5 trillion won of local assets (about $4.2 billion), the ROK government can designate a single person or entity (for example, the largest subsidiary) subject to enhanced regulatory scrutiny. Industry contacts have indicated the Korea Fair Trade Commission (KFTC) is considering making such designations for foreigners or entities based outside of the ROK.

The ROK’s public finances and debt obligations are generally transparent, with the exception of state-owned enterprise debt.

International Regulatory Considerations

The ROK has revised local regulations to implement commitments under international treaties and trade agreements. Treaties duly concluded and promulgated in accordance with the constitution and the generally recognized rules of international law are accorded the same standing as domestic laws. ROK officials consistently express intent to harmonize standards with global norms by benchmarking the United States and the EU. The U.S., U.K., and Australian governments exchange regulatory reform best practices with the ROK government to encourage local regulators to employ more regulatory analytics, increase transparency, and improve compliance with international standards; however, unique local rules and regulations continue to pose difficulties for foreign companies operating in the ROK. In recent years, the ROK has adopted various Korea-unique digital regulations such as the Cloud Security Assurance Program. The ROK is a member of the WTO and notifies the Committee on Technical Barriers to Trade of all draft technical regulations. The ROK is also a signatory of the Trade Facilitation Agreement (TFA). The ROK is a global leader of modernized and streamlined procedures for transportation and customs clearance. Industry sources report the Korea Customs Service enforces rules of origin issues largely in compliance with ROK obligations under its free trade agreements.

Legal System and Judicial Independence

The ROK legal system is based on civil law. Subdivisions within the district and high courts govern commercial activities and bankruptcies and enforce property and contractual rights with monetary judgments, usually levied in the domestic currency. The ROK has a written commercial law and matters regarding contracts are covered by the Civil Act. The Korean judicial system is based on a three-tier trial system, which are handled by the district courts, high courts, and the supreme court. There are also three specialized courts: patent, family, and administrative courts. The ROK court system is independent and not subject to government interference in cases that may affect foreign investors. Foreign court judgments, with the exception of foreign arbitral rulings that meet certain conditions, are not enforceable in the ROK. There is no principle of stare decisis or precedent. The Constitutional Court rules on constitutional issues and is comprised of nine justices. Three are elected by the National Assembly and three are designated by the Chief Justice of the Supreme Court, though they are all appointed by the President.

Laws and Regulations on Foreign Direct Investment

The ROK has a transparent legal system with a strong rule-of-law tradition and an independent judiciary. FIPA is the principal basic law pertaining to foreign investment in the ROK. The Invest KOREA website ( http://investkorea.org  ) provides information on relevant laws, rules, and procedures for foreign investment in the ROK.

Laws and regulations enacted within the past year include:

On August 4, 2022, the “Special Measures Act on Strengthening and Protecting the Competitiveness of National High-Tech Strategic Industry” entered into force. The Act aims to regulate the dissemination of advanced technologies of national strategic importance to foreign countries, and to protect and foster such technologies for the purpose of enhancing the global competitiveness of the Korean high-tech industry. Companies with National High Technologies will be subject to additional government regulations and protective measures relating to M&As and exports of such technologies involving foreign parties.

Key pending/proposed laws and regulations as of March 2022 include:

• On February 27, 2023, an amended Personal Information Protection Act (PIPA) passed to take effect on September 15, 2023. The amended PIPA grants broader rights for data subjects, unifies data privacy rules for all personal information controllers, and replaces criminal punishments with fines. U.S. industry expressed concern over the scale of the new law’s fines of up to “3 percent of total revenue,” as opposed to “3 percent of related revenue.” The final penalty may be adjusted to exclude any revenue that the personal information controller can prove is “unrelated” to the violation.
• As of March 2023, there are several proposed bills in the National Assembly seeking to mandate global over-the-top (OTT) providers pay network usage fees to Korean internet service providers.
• The Ministry of Employment and Labor is considering revisions to the Labor Standards Act to add flexibility to the 52-hour workweek. If passed, employees will be allowed to work up to 69-hours in a week if they work shorter hours in other weeks.
• As of March 2023, the National Assembly is reviewing amendments to the Restriction of Special Taxation Act, which seeks to raise corporate tax breaks for facility investment by small and large companies in national strategic sectors such as semiconductors.

Competition and Antitrust Laws

The Korea Fair Trade Commission (KFTC) reviews and regulates competition and consumer safety matters under the Monopoly Regulation and Fair Trade Act (MRFTA). The amended MRFTA, which came into effect in December 2021, includes strengthened provisions on information exchange between companies, cartel law enforcement, and administrative fine levels.

KFTC has a broad mandate that includes promoting competition, strengthening consumer rights, and creating a suitable environment for SMEs. In addition to investigating corporate and financial restructuring, the KFTC can levy sizeable administrative fines and issue corrective measures for violations of law and for failure to cooperate with investigators. Decisions by KFTC are subject to appeal in Korean courts. As part of KORUS implementation, KFTC instituted a “consent decree” process in 2014, whereby firms can settle disputes with KFTC without resorting to the court system. The KFTC’s 2023 enforcement plan focuses on regulating unfair practices in the digital economy. In January 2023, KFTC introduced strengthened guidelines to regulate abuse of market dominance by online platform operators and reorganized its ICT division to include divisions dedicated to international cooperation and market communication.

Over the last several years, a number of U.S. firms have raised concerns that KFTC targets foreign companies with aggressive enforcement. An amendment to the MRFTA in September 2020 improved the administrative decision-making process by the KFTC, including permitting access to confidential business information, limited to outside legal counsel, in order to protect possible trade secrets.

In 2022, the KFTC accused a U.S. chipmaker of using its market dominance to allegedly pressure a ROK electronics maker into long-term supply contracts for smartphone components. In response, the U.S. chipmaker proposed voluntary corrective measures (January 2023). ROK law allows companies accused of anti-competitive practices to propose corrective schemes without deliberating whether those practices violate competition laws. The system is designed to offer companies the option to promptly resolve cases without entering lengthy legal procedures.

Expropriation and Compensation

The ROK follows generally-accepted principles of international law with respect to expropriation. ROK law protects foreign-invested enterprise property from expropriation or requisition. Private property can be expropriated for public purposes such as urban redevelopment, new industrial complexes, or constructing roads, and claimants are afforded due process and compensation. Private property expropriation in the ROK for public use is generally conducted in a non-discriminatory manner, with claimants compensated at or above market value. Embassy Seoul is aware of one case in which a U.S. investor filed an investor-state dispute lawsuit in 2018 against the ROK government, claiming that the government had violated the KORUS FTA in expropriating the investor’s land. The case was dismissed in the ROK judicial system on jurisdictional grounds in September 2019. The ROK government allotted USD 2.2 billion in its 2023 budget for land expropriation – a 17 percent increase from the previous year.

Dispute Settlement

ICSID Convention and New York Convention

The ROK acceded to the International Centre for Settlement of Investment Disputes (ICSID) in 1967 and the New York Arbitration Convention in 1973. While there are no specific domestic laws on enforcement, South Korean courts have made rulings based on the ROK’s membership in the conventions.

Investor-State Dispute Settlement

The ROK is a member of the International Commercial Arbitration Association and the World Bank’s Multilateral Investment Guarantee Agency. These bodies can call upon ROK courts to enforce an arbitrated settlement. When drafting contracts, some firms choose arbitration by a third party such as the International Commercial Arbitration Association. Companies have access to local expert legal counsel when drawing up contracts with a South Korean entity. The KORUS FTA contains strong, enforceable investment provisions. The United States also has a bilateral Treaty of Friendship, Commerce, and Navigation with the ROK with general provisions pertaining to business relations and investment. Foreign court judgments, with the exception of foreign arbitral rulings that meet certain conditions, are not enforceable in the ROK. There is no history of extrajudicial action against foreign investors. Investor-state disputes are pending before a United Nations Commission on International Trade Law (UNCITRAL) tribunal.

International Commercial Arbitration and Foreign Courts

ROK civil courts can adjudicate commercial disputes, though foreign firms note the following impediments to litigation:

• Civil procedures common in the United States such as pretrial discovery do not exist in the ROK; and
• During litigation of a dispute, the Ministry of Justice may bar foreign citizens from leaving the country until the court reaches a decision.

Due to the expense and time required to obtain judgement, lawsuits are generally initiated only as a last resort, signaling the end of a business relationship. ROK law governs commercial activities and bankruptcies, with the judiciary serving as the means to enforce property and contractual rights, usually through monetary judgments levied in the domestic currency.

As a signatory state to the New York Arbitration Convention, the ROK recognizes foreign arbitral awards. The ROK is also a signatory to the International Centre for Settlement of Investment Disputes (ICSID) Convention. Firms can also bring commercial disputes before the Korean Commercial Arbitration Board (KCAB), the sole body in Korea authorized to settle disputes under the Korean Arbitration Act (KAA). The KAA is modeled after the UNCITRAL model law. The KCAB also has an independent international branch solely committed to international arbitration cases.

ROK authorities emphasize non-discriminatory arbitration of disputes, but statistics on outcomes are unavailable. Embassy Seoul is not aware of statistics on court rulings on investment disputes with state-owned enterprises.

Bankruptcy Regulations

The Debtor Rehabilitation and Bankruptcy Act (DRBA) stipulates that bankruptcy is a court-managed liquidation procedure where both domestic and foreign entities are afforded equal treatment. The procedure commences after a filing by a debtor, creditor, or a group of creditors, and determination by the court that a company is bankrupt. The court designates a Custodial Committee to take an accounting of the debtor’s assets, claims, and contracts. The Custodial Committee may grant voting rights among creditors. Shareholders and contract holders may retain their rights and responsibilities based on shareholdings and contract terms. Debtors may be subject to arrest once a bankruptcy petition has been filed, even if the debtor has not been declared bankrupt. Individuals found guilty of negligent or false bankruptcy are subject to criminal penalties. The Seoul Bankruptcy Court (SBC) has nationwide jurisdiction to hear major bankruptcy or rehabilitation cases and to provide effective, specialized, and consistent guidance in bankruptcy proceedings. Any Korean company with debt equal to or above KRW 50 billion (about USD 41.8 million) and/or 300 or more creditors may file for bankruptcy rehabilitation with the SBC. Thirteen local district courts continue to oversee smaller bankruptcy cases in areas outside Seoul.

Investment Incentives

The ROK government provides the following general incentives for foreign investors:

• Cash incentives for qualified foreign investments in free trade zones, foreign investment zones, free economic zones, industrial complexes, and similar facilities;
• Tax and cash incentives for the creation and expansion of workplaces for high-tech businesses, factories, and research and development centers;
• Reduced rent for land and site preparation;
• Grants for establishment of community facilities for foreigners;
• Reduced rent for state or public property; and
• Preferential financial support for investing in major infrastructure projects.

Additionally, the ROK government provides incentives for investments that would increase ROK-based production of materials, parts, and equipment in six critical industrial sectors: semiconductors, displays, automobiles, electronics, machinery, and chemicals. The Seoul Metropolitan government provides separate support for SMEs, high-technology businesses, and the biomedical industry.

Note that corporate tax exemption for foreign direct investment is limited to firms registered by the end of 2018. The ROK government does not issue guarantees or jointly finance foreign direct investment projects.

The Renewable Portfolio Standard (RPS) is the key mechanism that the ROK government has put in place to promote renewable energy projects since 2012, replacing the feed-in tariffs (FITs) scheme. Under the RPS, state-run generation companies (GENCOs) and independent power producers (IPPs) that generate over 500MW are required to generate a certain percentage of electricity from renewable sources. The RPS mandate is set at 10 percent in 2022 and expected to rise over time. GENCOs and IPPs which cannot meet the quota must purchase renewable energy certificates (RECs) to fill the gap. The government imposes multipliers for RECs to help compensate power operators’ expenses and adjusts multipliers every three years to promote specific renewable energy technologies and sources. The ROK re-introduced “Korean FITs” in 2018 to encourage small scale solar power projects by providing a 20-year contract with GENCOs at a fixed price. To promote the use of clean hydrogen, the government plans to carve out hydrogen from the RPS and introduce a new Clean Hydrogen Energy Portfolio Standard (CHPS) in 2023, requiring power producers to use clean hydrogen.

To promote low-carbon transport and fuels, the ROK offers interest subsidies for loans for eco-friendly vehicle and component manufacturers, charging station operators, eco-friendly vehicle purchasing companies, companies shifting to eco-friendly vehicle fleets, and eco-friendly vehicle recycling companies. The government also provides tax benefits (excise tax, acquisition tax, education tax) and subsidies for buyers of electric cars, fuel cell electric vehicles, and hybrid vehicles under the Act on Promotion of Development and Distribution of Environmentally Friendly Automobiles.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Ministry of Economy and Finance (MOEF) administers tax and other incentives to stimulate advanced technology transfer and investment in high-technology services. There are three types of special areas for foreign investment – Free Economic Zones, Free Investment Zones, and Tariff-Free Zones – where favorable tax incentives and other support for investors are available. The ROK aims to attract more foreign investment by promoting its nine Free Economic Zones: Incheon (near Incheon airport); Busan/Jinhae (in South Gyeongsang Province); Gwangyang Bay (in South Gyeongsang Province); Gyeonggi (in Gyeonggi Province); Daegu/Gyeongbuk (in North Gyeongsang Province); East Coast (in Donghae and Gangneung); Gwangju (in South Jeolla Province); Ulsan; and Chungbuk (in North Chungcheong Province). Additional information is available at http://www.fez.go.kr/global/en/index.do  . There are also 26 Foreign Investment Zones designated by local governments to accommodate industrial sites for foreign investors. Special considerations for foreign investors vary among these zones. In addition, there are four foreign-exclusive industrial complexes in Gyeonggi Province designed to provide inexpensive land, with the national and local governments providing assistance for leasing or selling in the sites at discounted rates.

Performance and Data Localization Requirements

There are no ROK requirements that firms hire local workers. Foreigners planning to work during their stay in the ROK are required by law to apply for a visa. Sponsoring employers file work permits and visa applications. Hiring firms are required to confirm that prospective employees of foreign nationality have a valid work permit prior to making a job offer. Once approved, the Ministry of Justice will issue a Certificate of Confirmation of Visa Issuance (CCVI) to the foreign worker. The worker submits this certificate with the relevant visa application forms to the ROK embassy or consulate in the applicant’s country of residence. Work visas are usually valid for one year, and issuance generally takes two to four weeks. Changing a tourist visa to a work visa is not possible within the ROK; applicants for work visas must submit their applications to an ROK embassy or consulate. The ROK has not imposed performance requirements on new foreign investment since 1992; there are no performance requirements regarding local content, local jobs, R&D activity, or domestic shares in the company’s capital. Other conditions to invest in the ROK are elaborated in FIPA.

Longstanding ROK-specific security regulations on the use of cloud computing by public services (broadly defined) effectively exclude U.S. firms from offering cloud services in the ROK. In January 2016, the ROK government announced guidelines requiring Cloud Security Assurance Program (CSAP) Certification for cloud computing services for ROK government agencies or public institutions; the IT Security Certification Center requires disclosure of source code as part of CSAP Certification. Despite some attempts at reform in the past year, including implementing various tiers for data sensitivity, CSAP still effectively blocks all U.S. or other international cloud service providers from participating in the Korean public cloud market.

Furthermore, restrictive ROK data privacy law governs any companies that collect, use, transfer, outsource, or process personal information. The Personal Information Protection Act (PIPA) imposes strict conditions on transferring personal information out of the country, requiring data controllers to obtain each end-user’s consent to transfer personal information out of the ROK. In the case of overseas transfer of personal information for the purpose of Information and Communications Technology (ICT) outsourcing, the data controller may forgo obtaining each individual’s consent if the data controller discloses in its privacy policy certain information about the overseas transfer, including the purpose and destination of the overseas transfer; similar requirements apply to transfer of personal information of end-users to a third party within the ROK. The Financial Services Commission in November 2022 softened regulations that prohibit financial companies in the ROK from transferring customers’ personal information and related financial transaction data overseas without consumer written consent and issued the guidelines in its new Electronic Finance Supervisory Regulation to specify under what circumstances data can be sent and to which overseas entities. The private credit data of retail consumers still must be stored locally in the ROK. The Financial Services Commission sets Korea’s financial policies and directs the Financial Supervisory Service in the enforcement of those policies. The ROK government and legislature are considering further restrictions on the use of personal information. In February 2023, the National Assembly passed the revision bill of the Private Information Protection Act softening rules on cross-border data transfers more in line with global standards. are forthcoming.

Real Property

Property rights and interests are enforced under the Civil Act. Since the repeal of the Foreigner’s Land Acquisition Act (FLAA) in 2016, there is no discriminatory regulation other than notification of status changes and prior permission for transactions in a few restrictive areas.
The Real Estate Investment Trust (REIT) Act supports indirect investments in real estate and restructuring of corporations. The REIT Act allows investors to invest funds through an asset management company and in real property such as office buildings, business parks, shopping malls, hotels, and serviced apartments. Property rights are enforced, and there is a reliable system for registering mortgages and liens, managed by the courts. Legally purchased property cannot revert to other owners. Squatters may have limited rights to cultivation of unoccupied land.

Intellectual Property Rights

Since being removed from USTR’s Special 301 Watch List in 2009, the ROK has become a regional leader of legal IPR frameworks and enforcement of IPR.

The ROK has a robust legal structure for protecting intellectual property rights (IPR). The country is not listed in the notorious market report. Authorities with IPR enforcement responsibilities in the ROK include: KIPO; MCST, which includes the Korea Copyright Protection Agency (KCOPA); Korea Customs Service (KCS); Supreme Prosecutors’ Office (SPO); and the Korea National Police Agency (KNPA). The Presidential Council on Intellectual Property (PCIP) overseas coordination of Korea’s IP efforts and formulates periodic action plans to strengthen the country’s IP protection and enforcement measures. Industry contacts say the ROK’s strong IPR legal regime is undermined by the country’s relatively lighter sentencing and penalties, which they deem insufficient to deter IP violations.

In 2022, the ROK revised the Design Protection Act, enabling authorities to prosecute alleged IP infringers without a complaint from the victim. Previously, ROK authorities could only prosecute these cases if they received a complaint within six months of an alleged IP violation. Revisions to the Invention Promotion Act also strengthened the enforcement capacity of the ROK’s “tech police,” a group established under the Korea Intellectual Property Office (KIPO) in 2021 to investigate technology and trade secrets.

KIPO suspended 24,687 online transactions in 2022, up from 16,846 cases in 2021, and closed 355 illegal online shopping malls in 2022, slightly down from 451in 2021. Since April 2019, KIPO has operated an “online monitoring team” comprised of private citizens to report online sales of counterfeit goods. The team identified 181,131 cases in 2022, up from 171,606 in 2021. KCS handled 99 border enforcement cases in 2022 for goods worth an estimated $426.8 million. Trademark enforcement accounted for over 86 percent of cases, mostly for counterfeit watches, handbags, and apparel. KCS also promoted IPR protection by posting public service announcements on public transportation and social media.

Stakeholders continue to express concern about Korea’s pharmaceutical reimbursement policy, specifically that it is not conducted in a fair and transparent manner that fully recognizes the value of innovation.

For additional information about national laws and points of contact at local intellectual property offices, please see the World Intellectual Property Organization’s country profiles at http://www.wipo.int/directory/en/  .

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/. 

Capital Markets and Portfolio Investment

The ROK has an effective regulatory system that encourages portfolio investment. The Korea Exchange (KRX) is comprised of a stock exchange, futures market, and stock market following the 2005 merger of the Korea Stock Exchange, Korea Futures Exchange, and Korean Securities Dealers Automated Quotations (KOSDAQ) stock markets. It is tracked by the Korea Composite Stock Price Index (KOSPI). The KRX established the Korea New Exchange (KONEX) in July 2013, a securities exchange exclusively for small and medium-sized enterprises (SMEs) and venture companies, which was modeled after the Alternative Investment Market (AIM) of United Kingdom. There is sufficient liquidity in the market to enter and exit sizeable positions. At the end of February 2023, over 2,579 companies were listed with a combined market capitalization of $1.76 trillion. The ROK government uses various incentives, such as tax breaks, to facilitate the free flow of financial resources into the product and factor markets. The ROK does not restrict payments and transfers for current international transactions, in accordance with the general obligations of member states under International Monetary Fund (IMF) Article VIII. Credit is allocated on market terms. The private sector has access to a variety of credit instruments. While non-resident foreigners can issue bonds in South Korean won, they are otherwise unable to borrow money in local currency. Foreign portfolio investors enjoy open access to the ROK stock market. In January 2023, ROK financial authorities, including the Financial Services Commission (FSC), the Financial Supervisory Service (FSS), and the Korea Exchange (KRX), jointly announced deregulation measures to enhance foreign investors’ accessibility to Korean stock markets. Under these reforms, foreign investors can use their globally standardized Legal Entity Identifier (LEI) or passport numbers to trade Korean stocks, instead of submitting identity registration, as had been required for the past 30 years. Listed corporations with a market cap size of over 10 trillion won ($8.8 billion) will be required to publish a disclosure statement in English beginning in 2024. Aggregate foreign investment ceilings were abolished in 1998, and foreign investors owned 31.5 percent of benchmark KOSPI stocks and 9.03 percent of the KOSDAQ as of February 2023. Foreign portfolio investment decreased sharply over the past year. Foreign investors owned 26.7 percent of benchmark stocks and 9.2 percent of listed bonds, according to the Financial Supervisory Service (FSS). U.S. investors represent 40.4 percent of total foreign holdings, which has been decreasing gradually over the last three years. The ROK Financial Services Commission in March 2020 banned short-selling to stabilize stock price volatility during the COVID-19 pandemic. The ban partially expired only for stocks listed on the KOSPI 200 and KOSDAQ 150 in May 2021. The ban on short-selling stock from other companies was due to expire in May 2022, but has been extended due to financial market instability.

Money and Banking System

Financial sector reforms enacted to increase transparency and promote investor confidence are often cited as a reason for the ROK’s rapid rebound from the 2008 global financial crisis. Since 1998, the ROK government has recapitalized its banks and non-bank financial institutions, closed or merged weak financial institutions, resolved many non-performing assets, introduced internationally accepted risk assessment methods and accounting standards for banks, forced depositors and investors to assume appropriate levels of risk, and taken steps to help end the policy-directed lending of the past. These reforms addressed the weak supervision and poor lending practices in the Korean banking system that helped cause and exacerbate the 1997-1998 Asian financial crisis. The ROK banking sector is healthy overall, with a low non-performing loan ratio of 0.25 percent at the end of 2022, dropping 0.04 percentage points from the prior year. Korean commercial banks held more than USD 2.5 trillion in total assets at the end of September 2022. Foreign commercial banks or branches can establish local operations, which would be subject to oversight by ROK financial regulators. The ROK has not lost any correspondent banking relationships in the past three years, nor are any relationships in jeopardy. There are no legal restrictions on a foreigner’s ability to establish a bank account in the ROK; however, commercial banks may refuse to accept foreign nationals as customers unless they show local residency or identification documents. The Bank of Korea (BOK) is the central bank.

Foreign Exchange and Remittances

Foreign Exchange

All ROK banks, including branches of foreign banks, are permitted to deal in foreign exchange. Applicants must notify foreign exchange banks in advance of applications for foreign investment. In effect, these notifications are pro forma, and can be approved within hours. Applications are denied only on specific grounds, including national security, public order and morals, international security obligations, and health and environmental concerns. Exceptions to the advance notification approval system exist for project categories subject to joint-venture requirements and certain projects in the shipping and distribution sector. According to the Foreign Exchange Transaction Act (FETA, as noted), transactions that could harm international peace or public order require additional monitoring or screening for concerns such as money laundering or gambling. Three specific types of transactions are restricted:

1. Non-residents are not permitted to buy won-denominated hedge funds, including forward currency contracts;
2. The Financial Services Commission will not permit foreign currency borrowing by “non-viable” domestic firms; and
3. The ROK government monitors and ensures that South Korean firms that have extended credit to foreign borrowers collect their debts. The ROK government has retained the authority to re-impose restrictions in the case of severe economic or financial emergency.

Funds associated with any form of investment can be freely converted into any world currency. In 2022, 75 percent of spot transactions in the market were between the U.S. dollar and South Korean won, while average daily transactions (spot and future) equaled USD 62.4 billion, up 7 percent from the previous year. Exchange rates are generally determined by the market.

Remittance Policies

The right to remit profits is granted at the same time as the original investment approval. Banks control the pro forma approval process for FETA-defined open sectors. For conditionally- or partially-restricted investments (as defined by FETA), the relevant ministry must approve both the initial investment and eventual remittance. When foreign investment royalties or other payments are included in a technology licensing agreement, either a bank or the MOEF must approve the agreement and the projected stream of royalties. Approvals are quick and routine. An investor wishing to send a remittance must present an audited financial statement to a bank to substantiate the payment. The ROK routinely permits the repatriation of funds but reserves the right to limit capital outflows in exceptional circumstances, such as situations when uncontrolled outflows skew the national balance of payments, cause excessive fluctuation in interest or exchange rates, or threaten the stability of domestic financial markets. To repatriate funds, firms must also present a stock valuation report issued by a recognized securities company or the ROK appraisal board. There are no time restrictions on remittances. In February 2023, the Ministry of Economy and Finance announced it would submit a bill to revise FETA by September, with revised rules to take effect from July 2024, to further the foreign exchange market liberalization allowing the participation of offshore foreign institutions in the Seoul currency spot market, and softening remittance rules.

Sovereign Wealth Funds

The Korea Investment Corporation (KIC) is a wholly government-owned sovereign wealth fund established in July 2005 under the KIC Act. KIC’s steering committee is comprised of its Chief Executive Officer, the Minister of Economy and Finance, the Bank of Korea Governor, and six private sector members appointed by the ROK President. KIC is on the Public Institutions Management Act (PIMA) list. The KIC Act mandates that KIC manage assets entrusted by the ROK government and central bank; the KIC generally adopts a passive role as a portfolio investor. The corporation’s assets under management stood at USD 175.3 billion at the end of 2022. KIC is required by law to publish an annual report, submit its books to the steering committee for review, and follow all domestic accounting standards and rules. It follows the Santiago Principles and participates in the IMF-hosted International Working Group on Sovereign Wealth Funds. The KIC does not invest in domestic assets, aside from a one-time USD 23 million investment into a domestic real estate fund in January 2015.

Privatization Program

Privatization of government-owned assets has historically faced protests by labor unions and professional associations and has sometimes suffered a lack of interested buyers. The current administration has pursued privatization in line with its fiscal reforms. No state-owned enterprises were privatized between 2002 and November 2016. The ROK sold part of its stake in Woori Bank, recouping USD 2.1 billion in December 2016 and completed this privatization in November 2021 by selling the remaining shares except for a 1.29 percent stake in Woori Financial Holdings, converted from the Woori Bank. The government has also completed the privatizations of Daewoo Engineering & Construction in December 2021 and of Daewoo Shipbuilding in September 2022. Analysts expect the government to privatize KDB Life Insurance and Hyundai Merchant Marine in 2023. Foreign investors may participate in privatization programs if they comply with ownership restrictions stipulated for the 30 industrial sectors indicated in the FETA (see Section 1: Openness To, and Restrictions Upon, Foreign Investment). These programs have a public bidding process that is clear, non-discriminatory, and transparent.

Additional Resources

Department of State

• Country Reports on Human Rights Practices ( https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/)
• Trafficking in Persons Report ( https://www.state.gov/trafficking-in-persons-report/)
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities ( https://www.state.gov/key-topics-bureau-of-democracy-human-rights-and-labor/due-diligence-guidance/)
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises ( https://www.state.gov/u-s-national-contact-point-for-the-oecd-guidelines-for-multinational-enterprises/)
• Xinjiang Supply Chain Business Advisory ( https://www.state.gov/xinjiang-supply-chain-business-advisory/)

Department of the Treasury

• OFAC Recent Actions ( https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions )

Department of Labor

• Findings on the Worst Forms of Child Labor Report ( https://www.dol.gov/agencies/ilab/resources/reports/child-labor/findings  )
• List of Goods Produced by Child Labor or Forced Labor ( https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods )
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World ( https://www.dol.gov/general/apps/ilab )
• Comply Chain ( https://www.dol.gov/ilab/complychain/ )

Climate Issues

The ROK aims to achieve net-zero greenhouse gas emissions by 2050, and in November 2021, the Moon administration strengthened Korea’s 2030 Nationally Determined Contribution (NDC), aiming to reduce emissions by 40 percent from 2018 levels. In March 2022, the ROK Ministry of Environment and the 2050 Carbon Neutral Committee (CNC) announced that the ROKG has approved the enforcement of the Framework Act on Carbon Neutrality and Green Growth, which legislates legal procedures and policies to reach the country’s goal of carbon neutrality by 2050. The law also enshrines the ROK’s updated 2030 Nationally Determined Contribution (NDC) target to cut emissions 40% below 2018 levels by 2030. The ROK released the “First Carbon Neutrality and Green Growth Basic Plan” in April 2023, increasing reliance on nuclear energy to meet emissions targets while relaxing industrial sector targets. The Act includes a comprehensive set of provisions such as establishing a National Carbon Neutral Green Growth Master Plan, policies for greenhouse gas reduction and climate change adaptation across numerous sectors, and policies to promote green growth to foster green industries and a green economy. The government is planning to announce the Carbon Neutrality Basic Plan, an implementation roadmap for next five years, in March 2023.

Authorities have indicated the forthcoming National Carbon Neutral Green Growth Master Plan will present reduction goals and measures by sector. Meanwhile, the 2030 target represents an intermediate step towards carbon neutrality and is driving efforts to change cultural practices, including through incentives for individuals for carbon-neutral practices such as renting zero emission cars.

The government indicated that it plans to establish and operate an integrated information management system for biodiversity and ecosystems, which will aid in investigating the impact of climate change. Additionally, the government introduced an ecosystem service payment system which incentivizes the voluntary protection of ecosystems by raising awareness and compensating local residents for conservation practices. The government designated new ecological protected areas as well as other effective area-based conservation measures (OECMs).

Public procurement policies take into account green growth goals. For example, it is compulsory for public institutions to purchase products deemed green barring certain exceptions.

Resources to Report Corruption

Contact at the government agency or agencies that are responsible for combating corruption:

Anti-Corruption and Civil Rights CommissionGovernment Complex-Sejong (7-dong), 20, Doum 5-ro, Sejong-si 339-012Tel: +82-44-200-7151 (International Relations Division)Fax: +82-44-200-7916Email: acrc@korea.kr 

Contact at a “watchdog” organization:

Transparency International Korea#1006 Pierson Building, 42, Saemunan-ro, Jongno-gu, Seoul 110-761Tel: +82-2-717-6211Fax: +82-2-717-6210Email: ti@ti.or.kr  http://www.transparency-korea.org/