[in South Korea]Understanding South Korea’s Foreign Investment Promotion Act (FIPA) for Foreign Businesses

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South Korea’s Foreign Investment Promotion Act (FIPA) was established in 1998 to promote and protect foreign investment in Korea. The act sought to restructure the previous foreign investment policy, providing enhanced support and benefits for foreign investors looking to contribute to the national economy. Through tax reductions and exemptions to eligible businesses, providing assistance with site selection, sponsoring cash grants, and facilitating the establishment of research and development (R&D) centers, the South Korean government aimed to attract international businesses and investment. 


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How to Invest


Foreign individuals or entities interested in investing in the South Korean economy, whether through a company or purchasing stocks, one must first prepare and submit an investment report detailing their investment plans, finances, and relevant documentation to the Minister of Commerce, Industry, and Energy for certification and approval. The Foreign Investment Support Center at the Korea Trade and Investment Promotion Agency provides comprehensive services such as consultations, advertisements, research, and assistance with civil petitions for foreign investments.


Depending on the chosen investment vehicle and sector, there are various regulations, labor laws, and compliance requirements to be aware of. Businesses must ensure their company is registered and holds the required permits and licenses before investing. It is also recommended to seek guidance from professional companies or experts who can assist with the legal and regulatory processes.


Fortunately, the FIPA streamlines administrative procedures for companies seeking to establish themselves and invest in South Korea. These processes include expediting registration and licensing and reducing governmental obstacles during the approval phase. The act also simplifies the remittance of funds for foreigners and facilitates the repatriation of profits and capital gains when setting up operations.


FIPA Incentives & Support 


Companies that successfully navigate these processes and establish their business or investments in South Korea can benefit from ongoing FIPA incentives and support. Foreign companies contributing to specific industries or regions, such as introducing new technologies, may be eligible for tax benefits, reductions, or exemptions under the Restriction of Special Taxation Act. These tax benefits include corporate tax reductions, investment tax credits, deductions or credits for R&D expenses, VAT reductions, and customs duty exemptions for imported goods or equipment. 


To help foster innovation and advancement, businesses may also qualify for government-sponsored financial assistance, land and rent subsidies, employment searches, education, and training. Cash grants are also available for foreign-invested companies that meet specific eligibility requirements, which vary based on the provided incentives and criteria. 


The general categories of international businesses and investments eligible for tax benefits or financial assistance include high-tech and R&D sectors, strategic industries that contribute to national and economic development, investors who create jobs and promote regional growth and knowledge-based services such as technology-driven developments. For detailed criteria based on unique situations, it is advised to consult relevant government agencies or companies that can provide additional information about the benefits offered by FIPA. 


Security & Protections 


Once established and receiving applicable benefits, FIPA provides a series of protections to secure investments and prohibit the government from nationalizing or expropriating assets without appropriate compensation. The act also enables international companies facing unfair treatment to seek international arbitration. 


Under the principle of national treatment, foreign investors and foreign direct investment companies are to be treated the same as Korean nationals and corporations. Foreign nationals are also free to engage in direct investment activities in Korea without restraint unless otherwise directed by the Foreign Investment Commission. Certain restricted or regulated sectors, such as national security, public safety, or public health, may be subjected to specific regulations and require FIC approval. These protections help to generate investor confidence and support from foreign countries. It is important to check whether the chosen sector or investment has any sector-specific authorizations that may affect investment activities. 


By implementing FIPA, foreign investors gain the necessary tools to make well-informed investment decisions and operate on a level playing field with other market participants. South Korea's commitment to upholding these benefits and support positions itself as a reliable and conducive investment market for international businesses seeking to contribute to its dynamic economy. 


For further details on FIPA, refer directly to the act published by South Korea’s Ministry of Legislation here. 


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Head Office 1F, 25, Beobwon-ro 3-gil, Seocho-gu, Seoul, 06595 Republic of Korea

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