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New Policy Woos Foreign Investors - International Law Office

International Law Office

Company & Commercial - South Korea

New Policy Woos Foreign Investors

May 17 2004

Cash Grants
Project Managers
Rent
Foreign Investment Zones


Earlier this year the Korean government published the revised Enforcement Decree to the Foreign Investment Promotion Act, which implements new measures to attract greater foreign investment into Korea. Such measures include more specific regulations concerning the so-called 'cash grant' and 'project manager' policies. The decree took effect on January 13 2004.

Cash Grants

Under the new cash grant policy, the government is authorized to negotiate with foreign investors and provide cash grants to those who meet certain requirements under the act and the revised decree. In order to receive a cash grant a foreign investor must invest a minimum of $10 million to construct new or additional plant facilities and carry out (i) certain designated high-tech or industrial support service businesses, or (ii) certain designated parts or material production businesses. In addition, where the foreign investor invests in a research and development facility, the threshold investment amount for receiving a cash grant is reduced to $5 million, provided that the facility (i) is for certain designated high-technology or industrial support service businesses, and (ii) employs at least 20 researchers who have postgraduate degrees in relevant fields and at least three years' research experience. Moreover, the cash grant must be used for the following purposes:

  • to purchase land for the installation of a factory or research facility, or to pay rent;
  • to pay for the construction of a factory or research facility;
  • to purchase capital goods or research equipment;
  • to pay for employment and training; or
  • to pay for the construction of infrastructure such as telecommunications equipment.

The specific amount of the grant will be determined through negotiations between the Korean government and the foreign investor, and upon review by the Foreign Investment Committee. Factors such as the degree of accompanying technology and the number of jobs to be created will be taken into account. Where a foreign investor fails to perform any of his/her obligations under the negotiated contract, the government may reclaim the grant.

Project Managers

A project manager system is introduced with the aim of providing a one-stop service to foreign investors. Under the system an individual will be designated to oversee a foreign investor's entire investment process. Project managers are employees of Invest Korea, a non-profit organization that is supervised by the Ministry of Commerce, Industry and Energy. A taskforce composed of members from central government, Invest Korea and regional government will work alongside project managers in each foreign investment project. Project managers who perform well will enjoy rewards and promotions. Civil servants in regional government and other service members in private organization can also reap rewards.

Rent

Prior to the revision of the act and the decree, only foreign investors investing in certain zones (the exclusive foreign companies zone, the national industry zone and the foreign investment zone) were entitled to a reduction or exemption in their rent on a real property lease. Pursuant to the revised decree, foreign investors in regional industrial areas also enjoy rent reductions and exemptions. Moreover, whereas previously this benefit applied only to facilities that were directly related to business (eg, factories) it is now extended to facilities that enhance the foreign investment environment (including foreign schools, hospitals and houses).

Foreign Investment Zones

Various special benefits are granted to foreign investments that are made in foreign investment zones. Foreign investors engaged in the manufacturing business must now invest $30 million, reduced from $50 million. For tourism-related business, the threshold amount is reduced to $20 million from $30 million and for logistics businesses the amount is reduced to $10 million from $30 million. Moreover, the scope of logistics business to be designated as a foreign investment zone is expanded to include aviation logistic businesses and build-operate-transfer projects carried out by commercial companies.


For further information on this topic please contact Hee-Chul Kang or Hye Sun Choi at Woo Yun Kang Jeong & Han by telephone (+822 528 5200) or by fax (+822 528 5300) or by email (hckang@wooyun.co.kr or hschoi@wooyun.co.kr).




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