FDI incentives serve as a means to compensate foreign investors in Korea for their economic contributions, while reducing the cost of their establishing new business operations. The government currently offers tax relief to foreign companies with the potential to make major contributions to the Korean economy, provides them with industrial sites or assists them with site location and acquisition, and provides cash grants and other types of financial support.

Starting from 2009, foreign investment that has great potential to create jobs, along with high-degree technology businesses, has become eligible for cash grants. Beneficiaries of rent reduction was expanded to include foreign investment zones exclusively reserved for parts and materials companies. Foreign investors may receive financial support by provincial governments for expansion or establishment of International schools under local government ordinances. 

Tax Relief

Foreign companies in industry support services or high-degree technology businesses specified by the Ministry of Strategy and Finance, or foreign investment in manufacturing, logistics, R&D, leisure & hotel businesses based in foreign investment zones or free economic zones are eligible for tax relief on corporate, income, local, and dividend income taxes for five to seven years. Customs duty reduction or exemption is also available on capital goods whose import declaration is completed within three years from the date of investment notification. Prospective investors may figure out in advance whether their line of business is eligible for the current tax relief program (in other words, whether they qualify as an industry support service or high-tech business) and the extent of the tax benefits they will receive so that they may make an informed decision. Besides tax breaks on FDI, investors may benefit from various incentive programs such as investment tax credit and SME tax support.

Cash Grants

Under the cash grant program aimed at attracting FDI with potentially high economic effects, the government provides eligible companies with grant corresponding to 5 percent or more of their total investment in Korea. The amount of the cash grant is determined through negotiations between the investor and the government.

To be eligible for cash grants, a foreign investor must own at least 30% of the equity and invest at least US$10 million in an industry support service or high-tech business, or in a greenfield investment project in parts and materials manufacturing. R&D labs or construction/expansion projects with significant prospect of job creation are also eligible for the grant program.

FDI regarding the establishment of the regional headquarters of a multinational corporation or a business pertaining to a regionally strategic industry with the potential to make a significant contribution to the local economy may receive such grants after deliberation by the Foreign Investment Committee, even if the total investment falls below the minimum set under the program.

In an effort to step up foreign investment promotion, the Korean government aims to expand the scope of beneficiaries eligible for cash grant, previously limited to industry support services and high degree technology businesses, to include businesses in green growth industries and new growth engine industries to be incorporate into major areas of FDI promotion. It will provide cash grant through evaluation on the spillover effect of technology transfer regardless of the size of investment and expand the scope of support in a flexible manner (in accordance with the decision made on May 27, 2009 by the 13th meeting of the Presidential Council on National Competitiveness).

Supply of Industrial Sites

The Korean government makes available industrial sites within specially-designated zones to all foreign-invested firms if they meet a minimum set of requirements. Land within these zones is provided either free of charge or at low cost. Stand-alone type foreign investment zones, complex-type foreign investment zones, free trade zones, and free economic zones make up the four main categories of such zones.

** Supply of Industrial Sites Stand-Alone Type Foreign Investment Zones (33 FIZs as of 2009) Companies in FIZs are eligible for a seven-year tax abatement (exemption for five years and 50% reduction for two years), exemption from rent and tariff on capital goods, as well as various subsidies, if they make minimum investment required by industrial sectors, e.g., USD 30 million in manufacturing, USD 20 million in tourism, USD 10 million in logistics, USD 2 million in R&D.     ComplexType Foreign Investment Zones (13 FIZs as of 2009) Complex Type FIZs are public properties reserved for foreign-invested companies within existing industrial complexes. The land is used only on a lease basis for companies with at least 30% foreign ownership. Companies may receive tax incentives for five years, tax exemption for three years and 50% reduction for two years, by industrial sector, if they make minium investment, e.g., USD 10 million in manufacturing and USD 5 million in logistics. Occupants in a complex-type FIZ are also eligible for a three-year tariff exemption on capital goods and affordable rent, usually in the range of less than 1% of the land price for 50 years.   Free Trade Zones (14 FTZs as of 2009) FTZs enable free business activities in manufacturing, logistics, distribution and trade through a special customs regime. They are generally located in the hinterland of a port or backyard of an air port, or areas near a warehouse/distribution center or cargo terminal. All FTZs may benefit from a five-year tax abatement and low rent in addition to exemption from customs duty.   Free Economic Zones (6 FEZs) Three FEZs- Incheon, Busan-Jinhae, Gwangyang- were designated in 2003, and three other FEZs - Yellow Sea, Saemangeum, Daegu-Gyeongbuk -were added to the list. A typical FEZ has a greater size than the basic unit of any local government and may exercise autonomous administrative power mandated by a provincial government. In addition to incentives for business activities with regard to tax, tariff, and rent, a FEZ offers a full suite of support in education, healthcare, housing, and administrative affairs.

Financial Support

Financial support refers to financial aid toward the cost of staff education and training, the cost of hiring staff, and projects to build infrastructure within a foreign investment zone or to enhance the living environment within it. Aid under this program is currently extended to companies in which the foreign equity stake is at least 30 percent or in which a foreign company or individual investor is the largest shareholder.

Other Incentives

Invest KOREA holds Job Fair for Foreign-Invested Companies in Korea, which celebrates the fourth anniversary this year. The job fair serves as valuable opportunities for foreign-invested companies to employ talents and for job seekers to land decent jobs. This in turn raises public awareness on contribution to the national economy by foreign companies.    

 Last Updated in August 2009