Inversió estrangera directa (IED) a Corea del Sud

FDI in Figures

According to UNCTAD's World Investment Report 2024, FDI to the Republic of Korea reached USD 15.1 billion, down from the 25 billion recorded the previous year. At the end of the same period, the total stock of FDI stood at USD 284.1 billion. According to the Ministry of Trade, Industry, and Energy (MOTIE), FDI pledges to South Korea increased by 5.7% in 2024, totalling USD 34.5 billion, with the manufacturing sector seeing a 21.6% rise to USD 14.49 billion. FDI in materials, parts, and equipment surged 52.7% to USD 11.13 billion, while semiconductor investments rose 46.5% to USD 1.33 billion and bio-health pledges more than tripled to USD 1.23 billion. FDI in the service sector edged up 0.3% to USD 17.83 billion, driven by real estate and communication industries. Inflows from the United States dropped 14.6% to USD 5.24 billion, while those from China, Hong Kong, and Taiwan surged 125% to USD 7 billion. FDI from the European Union fell 18.1% to USD 5.1 billion. As per OECD figures, FDI stocks are mainly oriented towards financial and insurance activities (31.4%), followed by manufacture of petroleum, chemical, pharmaceutical, rubber and plastic products (13.2%), wholesale and retail trade; repair of motor vehicles and motorcycles (11.6%), manufacture of metal and machinery products, except electrical equipment (10.4%), information and communication (6.8%), real estate activities (4.4%). Japan (21%), the United States (16.3%), Singapore (8.7%), the Netherlands (7.1%), the United Kingdom (5.8%), and Hong Kong (5.8%) hold the majority of stocks.

South Korea's appeal in terms of foreign direct investment is the result of the country's rapid economic development and its specialisation in new information and communication technologies. The World Bank qualifies the Republic of Korea as a country with a highly developed business environment. However, despite the economy's sophistication and complexity, foreign investors encounter difficulties due to South Korea's intricate, opaque, and country-specific regulatory framework. Additionally, the competitiveness of the country's manufacturing sector has been undermined notably by low-cost producers like China. Both foreign and domestic private entities are permitted to establish and own business enterprises and participate in profit-making activities across numerous sectors of the economy. Nonetheless, limitations on foreign ownership persist for 30 industrial sectors under the Foreign Exchange Transaction Act (FETA). Notably, three sectors, including nuclear power generation, radio broadcasting, and terrestrial broadcasting, remain closed to foreign investment. The Ministry of Economy and Finance (MOEF) oversees tax incentives and other measures to promote advanced technology transfer and investment in high-tech services. There are three types of special areas for foreign investment: Free Economic Zones, Free Investment Zones, and Tariff-Free Zones, offering favourable tax incentives and support for investors. South Korea ranks 6th among the 133 economies on the Global Innovation Index 2024 and 14th out of 184 countries on the latest Index of Economic Freedom. Moreover, it is at the 20th place in Kearney's Foreign Direct Investment Confidence Index 2024.

What to consider if you invest in South Korea

Strong Points

South Korea's strong points include:

• Highly skilled workforce thanks to an efficient education system
• Advanced R&D capabilities
• Dominant position in high-end electronics
• High quality infrastructure
• Solid banking sector
• Strong international financial position (currency reserves and low external debt)  
• Growth of investment in Asia
• Brand savvy consumers willing to spend on quality products
• High level of disposable household income
• Strong shipping and air cargo infrastructure

Weak Points

South Korea's weak points include:

• Regulatory frameworks can be restrictive and opaque
• Dominance of big industrial groups (chaebols)
• Cost of manpower is comparatively high
• Ageing population
• Frequent contract negotiations throughout a business relationship are common
• Property (leased or owned) is expensive
• Unique industry standards
• Dependence to raw materials imports  
• Household indebtedness and high unemployment rate among young people
• Regional tensions with North Korea and competition from China (steel, shipbuilding, electronics)

Government Measures to Motivate or Restrict FDI

The Foreign Investment Promotion Act was enacted to support and facilitate efforts to attract foreign investment. Most of FDI incentives offered by the Korean government are provided via:

• Tax support (corporate tax and income tax reduction, acquisition tax and property tax reduction, exception from custom duties)
• Cash grant (land purchase expense, lease expense, employment/education/training subsidy)
• Industrial Site Support (location support, subsidy for difference of sale price, rent reduced-subsidized)

Nevertheless, some restrictions and interdictions exist in public administration, education, national defence, energy, media sectors.
For more information, visit the Invest Korea website.
The South Korean government significantly increased cash incentives for foreign companies to encourage more investment at home. In 2021, FDI flows to South Korea recorded a historical high of USD 29.51 billion.

Bilateral investment conventions signed by South Korea

Korea is a signatory to many conventions - a full list can be found at UNCTAD.