Just one decade after the first of two major government-led liberalisations of Korea’s foreign direct investment (FDI)-related policy, which were spurred by the onset of the Asian financial crisis, FDI remains critically important to the country, accounting for 14% of GDP and 8% of manufacturing employment in 2006. However, as cumulative stock of FDI represents just 8 % of national GDP, compared to the global average of 24.8%, Korea is currently operating far below its potential in attracting this vital form of capital.

Elected to office on a pro-business platform, the Lee Myung-Bak administration is seeking to make Korea more business-friendly through the implementation of a three-year plan. By its conclusion in 2010, it will bring about marked improvements in the foreign investment environment and send a strong signal to the world that Korea is an open market that welcomes FDI and fully recognizes the important contribution that the 15,300-plus foreign-invested companies currently operating in the country make to the domestic economy.


Strengthened Incentives


To be implemented by the Ministry of Knowledge Economy (MKE), the plan involves a broad range of initiatives, the product of a significant amount of deliberation between officials from the Ministry of Knowledge Economy, the Committee for National Competitiveness – a special council directly under the office of the president – and the valued opinions of a wide cross-section of the foreign investment community. The government will now offer foreign investors incentive packages tailored to their individual needs without any prohibition of ‘overlap’ of benefits as was the case before, while cash grants will be provided to defray costs related to employment support and training, land purchase or lease, construction, and capital goods or the purchase of research equipment for large-scale investment projects that create a significant number of new jobs. The number of foreign investment zones (FIZs), areas which offer foreign investors significant tax breaks and reduced or waived rental fees, will increase from the current 12 to 20 by 2010. Furthermore, selecting an industrial site nationwide in Korea will be even easier by 2010 when a comprehensive online service detailing information about all such sites will become available.

Slashed Taxes, Better IPR Protection and Reporting Standards

To make Korea more competitive against its east Asian rivals, which include among others Hong Kong, Vietnam and Singapore, the corporate income tax rate will be cut from 25% to 22% by end-2009, and to 20% by 2010. New initiatives by the National Tax Service, including English language tax-related consultations, will offer foreign taxpayers a speedier response to their inquiries and grievances once specially trained officials are deployed to the nation’s tax offices. Next year, foreign-invested enterprises will be free to adopt International Financial Reporting Standards (IFRS).

With the cap on funds subject to integrated management increased to $30m, most loans and debts arising from transactions between a foreign-invested enterprise and its overseas head office will no longer have to be reported to the government. The government will enhance intellectual property rights protection through measures to quash the domestic trade in and production of counterfeit items, and in cases where a patent registration process is ongoing, the patent in question will automatically remain in effect.

In regard to communications, usage of the BlackBerry – the world’s leading wireless smart phone – will soon become available in Korea. Helping to introduce the foreign community to Korea’s unique online culture and thus allowing it to further integrate into Korean society will be the introduction of the G-PIN (Government Personal Identification Number) system which will permit access to web portals requiring an identification number including online movie reservation services in addition to internet-based communities.

Labour Relations Support

The further need to address labour-management issues has been pointed out by foreign investors to make Korea a more attractive destination for foreign investment. To this end, the government will provide tailored solutions for foreign-invested enterprises experiencing labour relations difficulties. For the general guidance of FDI companies, two manuals have been published in English and Japanese: one on personnel management and the other on negotiating with unions. Support on the labour front is also available in the form of employment subsidies, which are now provided for employees of new research centres as well as newly established factories.

Improved Education, Healthcare and Housing

As a way of addressing the educational needs of foreign investors who come to Korea accompanied by family members, the government will support the establishment of additional international schools in Seoul and one each in Daejeon, Daegu and Busan. Such schools will receive additional financial support if they decide to introduce internationally standardised programmes such as the International Baccalaureate (IB).

As the size of the foreign population residing in Korea continues to expand, more hospitals and clinics will be designated to provide services in foreign languages. This initiative will be complemented by a 24-hour emergency medical assistance service that will operate in several languages. Guidebooks published in several foreign languages on Korean healthcare services and the facilities equipped to provide them will be made available at medical centres.

In areas favoured by foreign nationals, the government will continue to press for the eradication of the jeonse or ‘key money’ system for leasing accommodation, and its replacement by the payment of monthly rent. More residential complexes will be established exclusively for foreign nationals within the nation’s Free Economic Zones (FEZs), beginning with 150 new units in New Songdo City, Incheon FEZ, by 2009.

Enhanced Immigration Procedures


In order to make residing in Korea more convenient, any foreign investor who invests more than $500,000 and employs more than five Korean citizens will be eligible to apply for permanent residency. In addition, the recently unveiled Investor Express Card will be issued to executives of foreign-headquartered companies that have invested a pre-determined amount in the manufacturing, logistics or R&D sectors, as well as to executives of foreign economic organisations in Korea or foreign investment-related delegations invited by the central and local governments. Holders of the card will be able to utilise lines at airport immigration specifically set aside for use by foreign investors to ensure quick passage.

Overcoming the Language Barrier

In order to provide up-to-date information on weather and traffic in addition to entertainment, English-language FM broadcasting will be made available in areas with relatively high foreign populations such as Seoul, Busan and Gwangju by end-2008. English-language event ticketing services will be enhanced to provide non-Korean speakers with easier access to cultural performances and exhibitions. To make the use of public transportation easier, more English signs will be placed on bus routes, and more city buses will announce each stop in English.

Continued Provision of One-stop Service by Invest KOREA

In addition to the aforementioned initiatives set for implementation by the Korean government, Invest KOREA, the national investment promotion agency, will continue to solidify its efforts to serve as Korea’s one-stop provider of FDI-related assistance. Through its 40 Korea Business Centres located in the world’s major financial and manufacturing centres and Invest Korea Plaza, Korea’s first business incubation centre for foreign businesses, in Seoul, Invest KOREA, together with the Office of the Investment Ombudsman, stands ready to address the comprehensive needs of the foreign investment community through every stage of the investment process.

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