South Korea: Investing

FDI in Figures

Under the effect of the world's recession, the flows of foreign direct investment (FDI) have diminished in 2009; since then they have started to again increase, registering a growth of 4.6% in 2011, despite the unfavorable international context. It is nevertheless expected that FDI flows will slow down in 2012.

South Korea's appeal in terms of foreign direct investment (FDI) is the result of the country's fast economic development and the specialization of its industry in new information and communication technologies. However, the lack of general transparency in regulations is a major concern to foreign investors.

Foreign Direct Investment	2008	2009	2010
FDI Inward Flow (million USD)	8,409	7,501	6,873
FDI Stock (million USD)	94,680	117,732	127,047
Performance Index*, Ranking on 141 Economies	123	124	-
Potential Index**, Ranking on 141 Economies	16	-	-
Number of Greenfield Investments***	86	96	-
FDI Inwards (in % of GFCF****)	3.1	1.3	-
FDI Stock (in % of GDP)	10.2	13.3	-

Source: UNCTAD - Last Available Data.

Note: * The UNCTAD Inward FDI Performance Index is Based on a Ratio of the Country's Share in Global FDI Inflows and its Share in Global GDP. ** The UNCTAD Inward FDI Potential Index is Based on 12 Economic and Structural Variables Such as GDP, Foreign Trade, FDI, Infrastructures, Energy Use, R&D, Education, Country Risk. *** Green Field 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. **** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets Purchased By Business, Government and Households Less Disposals of Fixed Assets Sold Off or Scrapped.

FDI Inflows By Countries and Industry

Main Investing Countries	2010, in %
Japan	24.1
USA	21.1
Netherlands	11.9
UK	8.3
Germany	4.8
France	4.0
Belgium	2.8
Singapore	2.6

Main Invested Sectors	2010, in %
Manufacturing	29.1
Financial Intermediation	15.6
Real estate, renting and business activities	15.4
Trade and maintenance	11.3

Source: OECD Stat Extracts - Last Available Data.

Form of Company Preferred By Foreign Investors: Limited Company
Form of Establishment Preferred By Foreign Investors: Greenfield investment (that for manufacturing differs from others Greenfield investment because it includes now only factory establishment, but also sales facilities).
Main Foreign Companies: Click here for the succesful stories of FDI on Invest Korea.
Sources of Statistics: Statistics from Invest Korea
Ministry of Commerce, Industry and Energy (MOCIE)
Korea National Statistical Office

Why You Should Choose to Invest in South Korea

Strong Points: The Korean workforce is highly skilled. The R&D capabilities, as well as the quality of the infrastructures are deciding strong points for investors.
Weak Points: The laws and national regulations are restrictive and the manpower cost is high. Private real estate, as well as renting office or shop premises is expensive. Lastly, competitiveness is relatively restrained.
Government Measures to Motivate or Restrict FDI: Korea has implemented measures in order to protect Foreign Investment:
- External Remittance guarantees;
- Identical treatment to domestic firms with regard to business operations;
- Tax deductions provisions.

However, there are restrictions or prohibitions in terms of foreign investment in sectors of public administration, educational organizations, national defense, etc. For more information, see the Invest Korea website.

Protection of Foreign Investment

Bilateral Investment Conventions Signed By South Korea: Korea is a signatory to many conventions.
UNCTAD allows you to visualize the list of conventions signed by Korea, and to download these conventions .
International Controversies Registered By UNCTAD: Korea has been involved in no case of disagreement concerning foreign investment and up to now, bilateral disagreements have given rise to no expropriation. UNCTAD offers a database listing disagreements and the countries involved , complementary information about the evolution of settlement of international disputes concerning investment.
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*	7.0	6.0	7.0	5.0
Index of Manager’s Responsibility**	2.0	5.2	9.0	5.0
Index of Shareholders’ Power***	7.0	6.8	9.0	5.0
Index of Investor Protection****	5.3	6.0	8.3	5.0

Source: Doing Business - Last Available Data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action. **** The Greater the Index, the Higher the Level of Investor Protection.

Procedures Relative to Foreign Investment

Freedom of Establishment: Guaranteed.
Acquisition of Holdings: Possible.
Obligation to Declare: Acquisition of the stocks or shares of a domestic enterprise:
-Minimum initial investment to qualify as foreign investment: 50 million won;
-Foreigner's investment hold 10% or more of the total shares along with voting rights or total equity investment.

Long-term loan provided by a foreign investor:
- A firm that owns 50% or more of the total issued shares or equity investment of its foreign parent firm;
- A firm that owns 10% or more of the total issued shares or equity investment of its foreign parent firm;
- A firm of which 50% or more of its total issued shares or equity investment is owned by its foreign parent firm; or -
- A firm of which 50% or more of its total issued shares or equity investment is owned by a firm that owns 50% or more of the foreign parent firm's total issued shares or equity investment.
Competent Organization For the Declaration: Invest Korea or KOTRA trade offices in Korea
Requests For Specific Authorizations: Government's approval is required in agriculture, forestry, fishing, power generation, publishing, Telephone and other communication services, broadcasting, air transportation, coastal transportation, etc.
Click here for more info.

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: Yes.

Clik here for Info on Land Acquisition by Foreigners and Foreigner's Land Acquisition Act.
Risk of Expropriation: The foreign investors have the compensation right if they are victim of expropriation.

Investment Aid

Forms of Aid: Tax Abatement, Exemption of Customs, Cash Grant, Location Incentive, Other supports (Renting).
Click here for more info.
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 the businesses within it to engage in foreign trade, International airport area, Distribution complex or cargo terminals, etc.

Each local government is suggesting its own projects of development by giving investment incentives like tax reduction ,etc. to foreign investors including Jeju Special Self-Government province, Incheon, Busan -Jinhae, Ulsan, Gwangyagng, etc.

Click here for the local government IR list.
Free Zones: Busan-Jinhae Free Economic Zone (BJFEZ),
Gwangyang Free Economic Zone (GFEZ),
Incheon Free Economic Zone (IFEZ)
Organizations Which Finance: Ministry of Commerce, Industry and Energy (MOCIE), Local governments.

Investment Opportunities

The Key Sectors of the National Economy: Shipbuilding, Semiconductor, Automobile, Electronics (TV, Mobile phone,etc), Textile.
High Potential Sectors: Aerospace, Automobile & Auto parts, Biotechnology, Display, Environmental Industry, IT Industry, Logistics, Nano Industry, New and Renewable Energy Sources, R&D, Real Estate Development, Semiconductor, SOC, Tourism, Venture Industry.
Privatization Programs: The privatization of state-owned banks such as the Korea Development Bank and Woori Bank.
Tenders, Projects and Public Procurement: Service des marchés publics, Tenders
Asian Development Bank, Procurement Plans in Asia
DgMarket, Tenders Worldwide

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors: - Postal service, Railroad, Energy, Water
- Telecommunication services
- Educational institutions
- Arms, explosives, atomic energy,
Sectors in Decline: Agriculture

Finding Assistance For Further Information

Investment Aid Agency: Invest Korea
Korea Trade Investment Promotion Agency (KOTRA)
Office of the Investment Ombudsman (OIO)
Invest Korea Plaza
Other Useful Resources: Hi Korea e-Government for foreigner
Seoul Global Center
Free Economic Zone Planning Office
Doing Business Guides: Korea - Your Fast Tack to Success by Invest KOREA
Starting a Business in Seoul
South Korea Commercial Guide 2010 - Buy USA

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Learn more about Investing in South Korea on Globaltrade.net, the Directory for International Trade Service Providers.

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