The Sensation Of Seoul: Investing In South Korea

The economy of South Korea is a highly developed mixed economy, with the 4th largest economy in Asia and the 14th largest in the world as of 2024. South Korea is renowned for its rapid economic development from an underdeveloped nation to a high-income country in just a few generations, with this period of explosive economic growth referred to as The Miracle on the Han River, according to Rachel Smith.
 

Foreign direct investment has become increasingly important to South Korea over the past decade. In terms of stock, Japan, Singapore, the Netherlands, the UK and the United States hold most of the foreign direct investment in South Korea, according to statistics from the Organisation for Economic Co-operation and Development (OECD). The investments are mainly orientated towards manufacturing, real estate, hospitality, finance and insurance. As a result of the excellent performance of the semiconductor, transportation and battery sectors combined with public-private efforts dedicated toward creating the world’s largest semiconductor mega cluster and nurturing advanced industries, foreign direct investment in South Korea is reaching record levels of success today.
 

Foreign direct investment pledges to South Korea increased 7.5% year-on-year in 2023 to reach an all-time high, according to the Ministry of Trade, Industry and Energy (MOTIE). South Korea’s appeal in the realm of foreign direct investment is also as a result of the nation’s rapid economic development and specialisation in new information and communication technologies, with the World Bank qualifying the Republic of Korea as a country with a highly developed business environment. Seoul, has a history dating back to 18 BC when it was founded by the people of Baekje, a Korean kingdom located in southwestern Korea from 18 BC to 660 AD.
 

The city is the home of the South Korean government, as well as the largest city and capital of South Korea. Seoul is geographically situated in a mountainous and hilly terrain, with Bukhan Mountain placed on its northern edge and possesses three central business districts; the Downtown Seoul, Yeouido- known as ‘the Wall Street of South Korea’ where the headquarters of major securities exchanges, asset management firms and banks are located, and Gangnam, where core competencies include fintech startups, real estate, technology, luxury retail and private education industries. Seoul is also connected to every major city in South Korea by rail. Ditching your automobile may be worth serious consideration in Seoul, as reckless driving can be common among motorists, although the public transportation system in Seoul is fast, affordable, safe, clean and efficient, with roads full of cheap taxes that practically make driving your own car unnecessary.
 

AN EXCITING MARKET WITH POTENTIAL

Some of the main advantages of investing in South Korea include a highly skilled, educated workforce, advanced R&D capabilities, a high level of disposable household income, strong shipping and air cargo infrastructure, quality output of high end electronics, a brand savvy consumer base, solid banking sector and strong international financial standing, with currency reserves and low external debt. Conversely, some of the key disadvantages of investing in South Korea include rather restrictive regulatory frameworks, unique industry standards, a heavy dependence in China for raw materials, market dominance of big industrial groups called chaelbols (large South Korean industrial conglomerates run by one individual or family) an ageing demographic, regional tensions with North Korea and competition from China in areas such as steel, electronics and shipbuilding.
 

Foreign investors can encounter difficulties due to South Korea’s complicated regulatory framework, although the country continues to welcome foreign investment, with the government actively seeking to ease regulations and update the regulatory framework to be in line with international standards. The Foreign Investment Promotion Act (FIPA) was enacted to support and facilitate efforts to attract foreign investment with incentives including tax support, cash grants and industrial site support, however there are restrictions in energy, public administration, education, national defence and media sectors. All foreign direct investments are subject to Foreign Investment Promotion Act (FIPA) or the Foreign exchange Transaction Act (FETA). If a foreign direct investment meets certain prerequisites, and is made pursuant to the FIPA, then this investment is not subject to restrictions under the FETA.
 

The government enables foreign investors the opportunity to register a company in South Korea and businesses registered by foreigners can be wholly-owned, meaning you can have complete ownership of your business. Under local legislation you will be required to invest no less than KRW 100 million (approximately $74,000 USD) into the company you wish to establish, as well as apply for the special entrepreneur visa via the D-8 form. The majority of visitors to South Korea who wish to stay longer than six months must obtain alien registration cards, which are a form of personal identity used by expats in Korea. These come with a Resident Registration Number which is needed to open a bank account or register at your local doctor’s office and is the first step to permanent residency in South Korea. The most popular types of companies that can be established in South Korea include:
 

Limited Liability Company (Yuhan Hoesa) - A minimum of one director and one shareholder. The most common entity structure to register in South Korea for foreign investors who plan on setting up a business here. It is a closely held structure that enables up to 50 shareholders who are not liable for debts or obligations incurred by the company with liability limited to share capital.
 

Limited Liability Partnership (Hapja Hoesa) - This structure requires at least one of the partners to hold unlimited liability for the business while the other holds limited liability. The Hapja Hoesa is not considered as a separate legal entity and is accountable for corporate taxes.
 

Joint Stock Company (Chusik Hoesa) - The most popular business structure for foreign investors to establish subsidiaries in South Korea and the only business entity that may publicly issues shares in the country. A statutory auditor is required to supervise company management and accounts and general shareholder meetings must be held at least once annually.
 

Branch Office - The extension of the parent company that has established a footing in South Korea. The parent company is of course fully accountable for any liabilities incurred by the branch office in South Korea, although is not entitled to the same level of government support or tax incentives as other corporate entities.
 

A BRIGHT FUTURE FOR SOUTH KOREA

Domestic businesses are liable for the corporate tax that applies to their worldwide income, while foreign-owned entities such as the branch office, will pay tax on the income they generate in Korea. There are additional fiscal benefits that come with establishing a corporation in one of the eight free economic zones in South Korea, which includes exemption from corporate and income tax in South Korea for foreigners, as well as exemptions from tariffs on foreign commodities and commodities that are traded within the zone.
 

The foreign investment ombudsman handles all foreign investment related complaints, while Invest Korea acts as an investment promotion agency, offering a range of services to foreign investors such as notification of new investment opportunities, consultations and the formation of new companies in the country. Thankfully, Invest Korea has at least 36 overseas offices and 64 investment experts ready to help foreign investors benefit from all that the nation has to offer.
 

More recently the Republic of Korea has made major progress in improving predictability and transparency, with governmental institutions proactively announcing forward-looking regulatory plans, while keeping businesses in the loop with advance notifications that may affect them. The impressive growth of South Korea has resulted in numerous well-known British companies exporting to the country, including Standard Chartered, Burberry, Jaguar Land Rover and British Airways, which all maintain a strong presence in the region. With the plethora of advantages on offer in the sensation that is Seoul, it is easy to understand why many foreign companies will continue to invest in South Korea in the foreseeable future.   EG