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In this page: FDI in Figures | What to consider if you invest in South Korea | Protection of Foreign Investment | Procedures Relative to Foreign Investment | Office Real Estate and Land Ownership | Investment Aid | Investment Opportunities | Sectors Where Investment Opportunities Are Fewer | Finding Assistance For Further Information

 

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.

 
Foreign Direct Investment 202020212022
FDI Inward Flow (million USD) 8,76522,06017,996
FDI Stock (million USD) 260,801280,085272,328
Number of Greenfield Investments* 83103116
Value of Greenfield Investments (million USD) 3,7104,96513,405

Source: UNCTAD, Latest data available.

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

 

FDI STOCKS BY COUNTRY AND BY INDUSTRY

Main Investing Countries 2019, in %
Japan 24.6
United States 16.0
Netherlands 9.2
Singapore 7.4
United Kingdom 7.1
Germany 4.1
Hong Kong 4.0
China 4.0
Main Invested Sectors 2019, in %
Manufacturing 36.8
Financial and insurance 30.3
Wholesale and retail trade 7.6
Accomodation and food service 6.8
Real estate 5.3
Information and communication 3.8

Source: OECD Statistics, Latest data available.

 
Form of Company Preferred By Foreign Investors
Limited Company
Form of Establishment Preferred By Foreign Investors
Greenfield investment (for manufacturing, this differs from other investments in new facilities, because it not only includes factory establishment but sales facilities as well).
Main Foreign Companies
Consult the successful stories of FDI on Invest Korea.
Sources of Statistics
Statistics from Invest Korea
Ministry of Commerce, Industry and Energy (MOCIE)
Korea National Statistical Office

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What to consider if you invest in South Korea

Strong Points

South Korea's strong points include:

  • Highly skilled workforce thanks to an efficient education system
  • Advanced R&D capabilities
  • Dominant position in high-end electronics
  • High quality infrastructure
  • Solid banking sector
  • Strong international financial position (currency reserves and low external debt)  
  • Growth of investment in Asia
  • Brand savvy consumers willing to spend on quality products
  • High level of disposable household income
  • Strong shipping and air cargo infrastructure
Weak Points

South Korea's weak points include:

  • Regulatory frameworks can be restrictive and opaque
  • Dominance of big industrial groups (chaebols)
  • Cost of manpower is comparatively high
  • Ageing population
  • Frequent contract negotiations throughout a business relationship are common
  • Property (leased or owned) is expensive
  • Unique industry standards
  • Dependence to raw materials imports  
  • Household indebtedness and high unemployment rate among young people
  • Regional tensions with North Korea and competition from China (steel, shipbuilding, electronics)
Government Measures to Motivate or Restrict FDI
The Foreign Investment Promotion Act was enacted to support and facilitate efforts to attract foreign investment. 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)

Nevertheless, some restrictions and interdictions exist in public administration, education, national defence, energy, media sectors.
For more information, visit the Invest Korea website.
The South Korean government significantly increased cash incentives for foreign companies to encourage more investment at home. In 2021, FDI flows to South Korea recorded a historical high of USD 29.51 billion.

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Protection of Foreign Investment

Bilateral Investment Conventions Signed By South Korea
Korea is a signatory to many conventions - a full list can be found at UNCTAD.
International Controversies Registered By UNCTAD
The ISDS Navigator contains information about known international arbitration cases initiated by investors against States pursuant to international investment agreements. The Republic of Korea is involved in 7 cases as Home State of claimant and in 7 cases as Respondent State.
Organizations Offering Their Assistance in Case of Disagreement
ICCWBO , International Court of Arbitration, International Chamber of Commerce
ICSID , International Center for Settlement of Investment Disputes
Member of the Multilateral Investment Guarantee Agency
Korea is a member of MIGA.
The MIGA website gives a detailed description of all the guarantees it proposes.
 
Country Comparison For the Protection of Investors South Korea OECD United States Germany
Index of Transaction Transparency* 8.0 6.5 7.0 5.0
Index of Manager’s Responsibility** 6.0 5.3 9.0 5.0
Index of Shareholders’ Power*** 8.0 7.3 9.0 5.0

Source: The World Bank - Doing Business, Latest data available.

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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.

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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.

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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.
 
 

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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

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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. 

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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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Latest Update: April 2024