Financing a Business in South Korea
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Financing a Business in South Korea
Investment rules and incentives
Definition of FDI
The South Korean government describes foreign direct investment (FDI) as “an investment made by a foreigner for the purpose of establishing a continued economic relationship with a corporation in the Republic of Korea or a business owned by a citizen of the Republic of Korea”. FDI includes: the acquisition of shares or equity from a Korean corporation or business; providing long-term loans to Korean corporations; contributing to non-profit organisations and other similar activities. FDI differs from a portfolio investment, the purpose of which is to earn margins from stock transactions for short-term profits.
Rules relating to FDI
FDI in South Korea is covered by the Foreign Investment Promotion Act (FIPA). This states that a foreigner may carry out investment activities in South Korea without restriction unless the investment is deemed harmful to national security, public order, the health and wellbeing of Korean nationals or Korea’s environment, or unless it goes against established social morals, customs or laws. The procedures for carrying out FDI are explained in the Market Entry section ofthis guide.
The South Korean government aims to transform the country into one of the top 10 business-friendly economies in the world by 2012. It is keen to encourage foreign investors and has been making stringent efforts to ease excessive regulations and provide incentives for FDI.The incentives include:
Corporate and income tax on business income, dividends, technology introduction considerations and earned income have been reduced for foreign firms and investors. Acquisition tax, registration tax and property tax have also been lowered
.Cash grants – central and local governments provide grants to foreign investors to build new factories, as long as they meet certain criteria. Among the factors taken into account are whether it is a high-tech industry or involves technology transfer and the number of jobs created.
Site location support
Foreign investment zones are designated to attract FDI. Businesses that locate in these zones receive certain incentives.
Land, factories and other national or public properties owned by central or local government may be used, leased or sold to foreign-invested companies through a private contract, with a lease period of up to 50 years.At the end of the lease period, the contract may be renewed for up to a further 50 years .Further information about FDI incentives is available at www.investkorea.org
British Chamber of Commerce in Korea (BCCK)
The BCCK has around 200 members, of which approximately a quarter are Korean. Its aims are to promote the development of British trade, commerce and investment in South Korea; to represent the opinion of the British business community in South Korea on trade, commerce, finance and industry; to help create better understanding between the Korean and British business communities; and to provide opportunities for members to meet for business and social networking.
British Chamber of Commerce in Korea
Regus Business Centre
Korea First Bank Building
Tel: +82 2 720 9407
Fax: +82 2 720 9411
Free economic zones
The South Korean government has established special zones, called free economic zones, in certain areas to encourage FDI. These are self-contained living and business districts, with air and sea transport, logistics, international business centres, financial services, houses, schools, hospitals, shopping and entertainment. There are currently six free economic zones in South Korea, including: Incheon, Yellow Sea, Saemangum/Gunsan, Daegu/Gyeongbuk, Gwangyang, and Busan/Jinhae.