This guide outlines South Korea's industrial strategies for international investors. It highlights incentives like monetary perks, tax benefits, and support for land leasing. South Korea prioritizes renewable energy and eco-friendly transportation, showing commitment to sustainability. Rigorous data privacy laws protect personal information, aligning with global standards.
The South Korean government offers various incentives to attract foreign investors:
1. Cash rewards for eligible foreign investments in free trade zones, foreign investment zones, free economic zones, industrial complexes, and similar areas.
2. Tax breaks and financial rewards for establishing and expanding workplaces in high-tech sectors, factories, and research and development centers.
3. Reduced land rental fees and assistance with site preparation.
4. Grants for setting up community facilities for foreign residents.
5. Reduced rental fees for state-owned or public properties.
6. Special financial aid for investments in significant infrastructure ventures.
Furthermore, the government encourages investments aimed at boosting local production in key industries such as semiconductors, displays, automobiles, electronics, machinery, and chemicals. The Seoul Metropolitan government also extends support to small and medium-sized enterprises (SMEs), high-tech enterprises, and the biomedical sector.
It's important to note that corporate tax exemptions for foreign direct investment are applicable only to firms registered by the end of 2018. Additionally, the South Korean government does not provide guarantees or co-finance foreign direct investment projects.
The Renewable Portfolio Standard (RPS) serves as the primary tool employed by the South Korean government since 2012 to advance renewable energy initiatives, supplanting the feed-in tariffs (FITs) program. Within the RPS framework, both state-operated generation entities (GENCOs) and independent power producers (IPPs) generating more than 500MW must produce a specific portion of their electricity from renewable sources. Initially set at 10 percent in 2022, this mandate is anticipated to escalate gradually. In instances where GENCOs and IPPs fail to meet the stipulated quota, they are obligated to procure renewable energy certificates (RECs) to offset the deficit. To alleviate financial burdens on power operators, the government applies multipliers to RECs and revises them triennially to bolster distinct renewable energy technologies and sources. In a bid to stimulate small-scale solar power projects, the South Korean government reintroduced the "Korean FITs" in 2018, entailing a 20-year contractual agreement with GENCOs at a fixed rate. Moreover, aiming to foster the adoption of clean hydrogen, the government intends to exclude hydrogen from the RPS and introduce a novel Clean Hydrogen Energy Portfolio Standard (CHPS) in 2023, mandating power producers to utilize clean hydrogen.
To encourage the adoption of low-carbon transportation and fuels, South Korea provides interest subsidies for loans extended to eco-friendly vehicle manufacturers, charging station operators, companies purchasing eco-friendly vehicles, entities transitioning to eco-friendly vehicle fleets, and firms involved in eco-friendly vehicle recycling. Additionally, the government extends tax benefits, including excise tax exemptions, acquisition tax reductions, and education tax incentives, alongside subsidies for purchasers of electric cars, fuel cell electric vehicles, and hybrid vehicles under the Act on Promotion of Development and Distribution of Environmentally Friendly Automobiles.
The Ministry of Economy and Finance (MOEF) oversees tax incentives and other measures aimed at encouraging the transfer of advanced technology and investment in high-tech services. South Korea offers three distinct types of special zones for foreign investment – Free Economic Zones, Free Investment Zones, and Tariff-Free Zones – each providing favorable tax benefits and support for investors. With the goal of attracting more foreign investment, South Korea is actively promoting nine Free Economic Zones strategically located across the country, including areas near major transportation hubs such as airports and ports. Further details can be found at http://www.fez.go.kr/global/en/index.do. Additionally, there are 26 Foreign Investment Zones designated by local governments to facilitate industrial sites for foreign investors, each offering specific advantages tailored to investor needs. Moreover, Gyeonggi Province hosts four industrial complexes exclusively for foreign investors, offering affordable land and various forms of governmental assistance such as discounted leasing and sales rates.
There are no mandates in South Korea requiring companies to hire local employees. Individuals from other countries intending to work in South Korea must apply for a visa as per legal requirements. Employers sponsoring foreign workers are responsible for submitting work permit and visa applications. Before extending a job offer, employers must ensure that foreign candidates possess a valid work permit.
Upon approval, the Ministry of Justice issues a Certificate of Confirmation of Visa Issuance (CCVI) to the foreign employee. This certificate, along with the necessary visa application forms, is then submitted to the South Korean embassy or consulate in the applicant's home country. Typically, work visas are valid for one year, and the issuance process usually takes two to four weeks. It's important to note that changing a tourist visa to a work visa within South Korea is not permitted; individuals seeking work visas must apply through a South Korean embassy or consulate abroad.
Since 1992, South Korea has not enforced performance requirements on new foreign investments, including stipulations related to local content, employment of local personnel, research and development activities, or domestic ownership in the company's capital. Further conditions for investing in South Korea are outlined in the Foreign Investment Promotion Act (FIPA).
ROK-specific security regulations regarding cloud computing use by public services have long prevented U.S. firms from providing cloud services in South Korea. In January 2016, the ROK government introduced guidelines mandating Cloud Security Assurance Program (CSAP) Certification for cloud computing services used by ROK government agencies or public institutions. To obtain CSAP Certification, the IT Security Certification Center demands source code disclosure. Despite recent reform efforts, such as introducing different tiers for data sensitivity, CSAP continues to hinder the participation of U.S. and other international cloud service providers in South Korea's public cloud market.
South Korea's stringent data privacy legislation regulates any entities involved in the collection, utilization, transfer, delegation, or handling of personal data. The Personal Information Protection Act (PIPA) imposes stringent prerequisites on the transfer of personal data outside the country, mandating that data controllers secure consent from each end-user before exporting personal data from South Korea. However, concerning the international transfer of personal data for Information and Communications Technology (ICT) outsourcing purposes, data controllers may bypass individual consent if they disclose certain details about the overseas transfer in their privacy policy, such as its purpose and destination. Comparable requirements are applicable to the transfer of personal data of end-users to a third party within South Korea.
In November 2022, the Financial Services Commission eased restrictions that previously prohibited financial institutions in South Korea from exporting customers' personal information and associated financial transaction data abroad without written consent. It issued guidelines in its new Electronic Finance Supervisory Regulation to clarify the circumstances under which data can be transmitted and to which foreign entities. Despite this, the private credit data of retail consumers still necessitates local storage within South Korea. The Financial Services Commission formulates South Korea's financial policies and oversees their implementation through the Financial Supervisory Service.
Moreover, the South Korean government and legislature are contemplating additional limitations on the usage of personal data. In February 2023, the National Assembly ratified a revised version of the Private Information Protection Act, relaxing regulations on cross-border data transfers to better align with global standards.
South Korea presents itself as an attractive destination for foreign investors, offering a wide array of incentives. As South Korea continues to refine its industrial policies and regulations, it remains a promising investment destination for those looking to engage in its dynamic economy.
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