Amendment to the Korean Foreign Investment Promotion Act 2019 – Investment Incentives in Korea

The Korean Foreign Investment Promotion Act (hereinafter as “FIPA”) is intended to support foreign investment in Korea by providing investment incentives to investors in the Korea market. The Korean National Assembly amended the FIPA this year.

Foreign investment in Korea

Key-facts about the Korean FIPA

The Korean FIPA shall “…promote foreign investment in Korea by providing necessary support and benefit and to contribute to the sound development of the nation’s economy.” (FIPA Art. 1). FIPA may benefit foreign investors, including, individual investors, companies established in foreign jurisdictions, local companies owned by foreign companies and, also, international economic cooperative organizations.

Foreign investments” under FIPA Art. 2

  • Where a foreigner holds stocks or shares […] of a Korean corporation (including a Korean corporation in the process of establishment; […]) or a company run by a national of the Republic of Korea, […], by any of the following methods in order to establish a continuous economic relationship with the Korean corporation or company, such as participating in the management of such Korean corporation or company in accordance with this Act.”, or
  • A loan with maturity of not less than five years […], which is provided to a foreign-capital invested company by…” the overseas parent company of the foreign-capital invested company or a foreign investor, or
  • Where a foreigner contributes to a nonprofit corporation pursuant to this Act in order to establish a continuous cooperative relationship with the corporation […] in terms of research personnel, facility, etc. and which is a corporation (including a corporation in the process of establishment) of the Republic of Korea in the field of science and technology;”.

Benefits for Investors in the Korean Market under Korean FIPA:

  • Tax reductions or exemptions for corporate tax, income tax, acquisition tax, registration tax, property tax and aggregate land tax for a specified period of time.
  • Cash grants for certain investments, such as installing new factory facilities or expanding existing factory facilities, expanding factory facilities, employing new employees or larger investments that are considered to have a major effect on the domestic economy
  • Monetary rewards may be granted, for example, to a person recognized as having greatly contributed to inducing foreign investment in proportion to the outcomes of inducing foreign investment.

New Focus on the Amendment to the Korean FIPA

The amendment to the Korean FIPA is in force since March 2019 and stipulates that the Korean Minister of Trade, Industry and Energy shall conduct a survey of employment by foreign-invested companies in Korea every three years. This new established regulation is intended to analyze if foreign investment, under FIPA, has a positive effect on the Korean economy and especially if this foreign investment has a positive impact on the Korean job-market. Seemingly, this analysis may lead to changes in the scope of incentives for foreign companies in future amendments to FIPA or in relevant regulations.

We shall update the reader when more is known on the changes to the FIPA.

by Barbara Goiser

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