Foreign Direct Investment

Ever since 1960s, the Korea government has been active to promote foreign direct investment (FDI, 외국인직접투자) into Korea. It is not an exaggerated statement at all that foreign direct investment as well as foreign trade have been a prime mover of economic development of Korea.

Key words
foreign direct investment (FDI), green growth, accountability, free economic zone, tax relief, cash grants

Overview
In 2009, in preparation for a global economic recovery, the government established a plan to expand inbound FDI into Korea as follows: First, among all industrial sectors, areas with a focus on green growth were selected and 17 new industrial growth engines have been given full government support, substantially raising the competitiveness of Korea as an attractive destination for FDI. Second, the Prime Minister has been named the Chairman of the Foreign Investment Committee, and an accountability system placing responsibility on Korea’s ministries and foreign investment-related agencies was adopted so as to focus the full capacity of the government on FDI attraction. A high level team has been organized to improve the investment environment for foreign capital in order to address issues that deterred investment on the spot. Third, in order to facilitate investment into Korea’s Free Economic Zones at an earlier point, the government has eased regulations on development procedures, provided assistance for early construction of infrastructure, and allowed early development of available land on a large-scale basis, as well as increasing the acceptable proportion of students of Korean nationality in foreign educational institutions.

Incentives for foreign companies investing in Korea
The purpose of offering FDI incentives is to compensate foreign companies which decide to invest in Korea for their economic contributions and to assist them with costs related to establishing new business operations in the country.

The government currently offers tax relief to foreign companies with the potential to make major contributions to the Korean economy, provides them with industrial sites or assists them with site location and acquisition, and provides cash grants and other types of financial support. Cash grants have been available from 2009 for foreign investment in high-tech industries and in sectors that are likely to create new jobs. Land within Foreign Investment Zones designated to the parts and material industries can be rented with a higher level of discount.

Financial support for the construction and extension of international schools are available in the acquisition of sites and construction costs according to ordinances set by local governments.

For further information in general, you're requested to visit the KOTRA Website (Korea Trade-Investment Promotion Agency) or to download and read KOTRA Booklets.

Legal Aspects of FDI in Korea
It is recommendable to look into an article by KLRI specialist, who has demanded the various roles of the Korean Government while examining economical and legal design and developments of investment environment after 1997 financial crisis in Korea:
 * A new paradigm in foreign investment promotion includes:
 * 1) Change from control and regulation to promotion and support; and
 * 2) Drastic change in the 1998 Foreign Investment Promotion Act providing equal treatment to foreign and domestic companies, one-stop service through the Invest Korea and designation of Foreign Investment Zones, and promoting the implementation of a transparent, consistent and integrated system regarding foreign investment, and simplifying and streamlining existing complicated administrative procedures, and reducing and excepting of corporate tax, income tax, registration tax, property tax, tariffs, aggregate land tax, special consumption tax and value-added tax.
 * Significant legislation in recent years are typified by:
 * 1) Act on the Designation and Operation of Free Economic Zones; and
 * 2) Foreign Investment Promotion Act and its Presidential Decree and Implementation Rules revised in 2003, 2004 and 2005, respectively:
 * a. Provide foreign investors with cash grants equivalent to a max. of 15 percent of the value of their investment in consideration of the excepted contribution to the local economy.
 * b. Grant a devidend declared deduction to a project financing special purpose company.
 * c. Deductions on items of such as rent and installment payment for purchasing or leasing of private contracts.
 * d. Reductions or exemptions of land conversion fee in the case of a foreign-invested company-led conversion of a farm or forest land into a factory site.
 * e. Expansions of tax benefits from eight years to ten years.

Also it is noteworthy that Korea's Investment Treaties with such major trading partners as the United State, Canada and Japan provide for pre-entry national treatment, whereas European treaties generally avoid such treatment. It is meaningful to differentiate between a pre-entry and post-entry national treatment, i.e., whether national treatment is accorded with respect to entry or acquisition of assets by the foreign investor in Korea versus whether such treatment is accorded to on-going operations or extant assets under foreign control.