Understanding Foreign Direct Investment (FDI) in Korea

Introduction: Foreign Direct Investment (FDI) plays a pivotal role in fueling South Korea’s economic growth and development. In recent years, the Korean government has actively promoted and facilitated FDI to attract foreign capital and expertise. Whether you are considering investing in South Korea or establishing a business here, understanding the FDI regulations is paramount. This article explores the key aspects of FDI in South Korea, encompassing investment requirements, types of FDI, and relevant regulations.

Investment Requirements: To qualify as FDI in South Korea, the investment must be made by non-Koreans and be at least KRW 100 million. This threshold ensures the injection of substantial foreign capital into the country’s economy.

Types of FDI:

  1. Acquisition of Stocks: Foreign investors can participate in South Korean corporations by acquiring stocks of domestic companies. Owning at least 10% of the voting stocks issued by a domestic corporation grants foreign entities the recognition of FDI participants.
  2. Long-term Loans: Foreign companies can provide long-term loans to their subsidiaries or affiliates in South Korea, with a minimum loan duration of five years. These loans must originate from parent companies located outside of South Korea.
  3. Investments in Non-profit Corporations: FDI is also encouraged in the fields of science and technology through investments in non-profit corporations operating in these areas.

Additional Considerations from 2020: Since 2020, cases where foreign companies use unappropriated earned surpluses to construct new or additional factories in South Korea are also considered FDI. This aims to promote capital reinvestment and technological advancement in the country.

Objects of Investment: Foreign investors can utilize various assets as objects of investment to acquire stocks or shares. These include foreign currency, capital goods, proceeds from acquired stocks, industrial property rights, and other valuable resources.

Recognition as FDI: For recognition as FDI in South Korea, foreign investors need to fulfill specific criteria. At least 10% of the voting stocks issued by a domestic corporation should be foreign-owned, or at least 10% of the total investment amount should be contributed by foreign investors. Alternatively, even if foreign investors hold less than 10% of the stocks or invest less than 10% of the total amount, they must dispatch or appoint an executive member who has the authority to participate in major decision-making and management processes of the corporation or company.

Obtaining D-8 Visa: Foreign shareholders or executives who establish a subsidiary in South Korea can apply for the D-8 Visa. The D-8 Visa is designed for shareholders or executives to manage or operate the subsidiary and allows them to stay in South Korea periodically to carry out their business activities.

Corporate Establishment Benefits: When a foreign company establishes a subsidiary in South Korea, the subsidiary can enjoy the same corporate benefits as other domestic companies in South Korea. This enhances the competitiveness of the subsidiary in the Korean market.

Improved Business Environment: The South Korean government actively seeks to attract foreign investment, providing a favorable business environment for foreign investors. This, in turn, facilitates the attraction of foreign investment and contributes positively to the growth and development of the subsidiary.

International Tax Treaties: In cases where South Korea has tax treaties with the country in which the subsidiary is established, double taxation can be avoided, resulting in improved tax efficiency. This can significantly impact the subsidiary’s business operations.

Technology Transfer and Collaboration: South Korea is known for its technological advancements, and establishing a subsidiary can facilitate technology transfer and collaboration within the country. This helps the subsidiary enhance its technological capabilities and competitiveness.

It is important to note that the benefits and tax incentives mentioned above are general examples that foreign shareholders or executives may enjoy when establishing a subsidiary in South Korea. However, actual benefits can vary depending on individual circumstances and government policies. For precise information, it is recommended to consult with the Korean National Tax Service or professional experts. You can also reach out to Korean Tax Expert through their contact page at Korean Tax Expert.

Defining Terms:

Foreigner: An individual with foreign nationality, a corporation established in accordance with foreign law, or an international economic cooperative organization.

Foreign Investor: A foreigner who holds stocks or similar financial instruments or has contributed as prescribed under the Foreign Investment Promotion Act.

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