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 Expanded Investment Opportunities in Korean IT Companies
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| Powerhouses: Korea's IT Companies |
Korea's IT companies have experienced vigorous growth over the last decade. This growth was particularly apparent in the areas of semiconductors, mobile telecommunication handsets, TFT-LCDs and digital TVs. Five Korean companies,
- Samsung Electronics, KT, KTF, LG Telecom and LG Electronics - were included in Business week's list of the "Top 100 IT Companies of 2005." Smaller, nimble ventures such as iriver MP3 maker ReignCom, antivirus institute Ahnlab and game maker NCSoft are diversifying the corporate landscape. While only 49 IT companies were listed on Korea's secondary KOSDAQ market in 2000, this number grew eight-fold to 398 in 2004.
Furthermore, the government is actively nurturing such areas as intelligent robots, next-generation semiconductors, intelligent home networks and digital content?software solutions. As a result, the potential for greater investments in Korean companies is huge and their prospects, bright. |
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| A Great Environment for Equity Investors |
The Korean government has abolished laws and regulations that discriminated against foreigners in acquiring securities. In 1998, Korea removed caps on foreign investment in domestic stocks, index futures prices and option prices and beneficiary certificates for non-public corporations. Also, it permitted investment in non-listed stocks as well as the acquisition of securities from the stock market. There were 17,446 foreign investors registered in Korea as of May 2005 and the figure is growing at an average of over 10 percent a year.
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Korea Welcomes Foreign Partners
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| Expansion of Foreign Direct Investment |
In 2004, the officially-registered aOverseas IT Support Centernt of foreign direct investment was US$12.7 billion. This is a whopping 98 percent increase from US$6.5 billion in 2003. The fact that new investments took up 48 percent of this aOverseas IT Support Centernt clearly demonstrates the sharp rise in overseas interest in the Korean economy. |
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- Growth in ICT-related Parts & Material Investments
In 2004, foreign investment in the parts and materials industry, such as semiconductors, LCDs and auto parts, skyrocketed, growing 233 percent against the previous year. Some of the major investors included S-LCD (Sony-Samsung joint venture in LCD manufacturing), Korea's MagnaChip Semiconductor and Japan's Asahi Glass (LCD parts).
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- Growth in R&D Center Investments
Between 2004 and 2005, Intel, IBM, Siemens, Microsoft, Sun Microsystems and HP opened R&D centers in Korea, each with the goal of developing next- generation ubiquitous technology. These moves demonstrate how these major IT companies value the benefits of Korea as a global test bed.
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| Activating Foreign Stock Investments |
| Since Korea removed virtually all caps on foreign investments in the domestic stock market - with certain exceptions in national or strategic areas - in 1998, the number of registered foreign investors has been continuously growing. As of May 2005, the number of foreign investors registered with the Financial Supervisory Service stood at 17,446; the market value of stocks they held aOverseas IT Support Centernted to KRW187 trillion. Naturally, investment in key ICT companies is also expanding. |
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Investment Incentives
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| Support for International Joint R&D Projects |
Foreign companies that build R&D centers can receive "matching funds" ? i.e. funds equal to the aOverseas IT Support Centernt invested by the company, from the Korean government. |
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Eligible R&D centers are those in the nine new ICT growth engines areas, the convergence areas of telecommunications and broadcasting, areas where new ICT demand is created, and areas of source technologies. |
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The fund for this support stands at some KRW25 billion (US$24.3 million) as of 2005, and will be increased to KRW150 billion (US$146 million) by 2007. The Korean government provides up to 50 percent of R&D expenses in the form of a matching fund - equivalent to some KRW5 billion (US$4.87 million) per R&D center annually.
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| Financial Support for R&D |
| R&D programs are supported via the Ministry of Information and Communication (MIC), the Ministry of Science & Technology (MOST) and the Ministry of Commerce, Industry and Energy (MOCIE). |
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- Information Technology Promotion Fund: MIC
The MIC supervises and operates this fund in order to secure source technologies as well as to develop technology, produce human resources and lead the standardization efforts in the new ICT growth engine areas. The actual aOverseas IT Support Centernt of the fund for 2005 is KRW1.56 trillion (US$1.51 billion), with KRW633.7 billion (US$616 million) earmarked for R&D support. |
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- Science and Technology Promotion Fund: MOST
The MOST supports companies involved in R&D projects for the development of the nation's science and technology and the improvement of its competitiveness, firms conducting important R&D projects in promising technologies such as IT and BT, and corporations engaged in building infrastructure for R&D services. The fund stands at KRW475.7 billion (US$462 million).
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- Technology development is also promoted through financing programs provided by the Korea Development Bank (KDB), the Industrial Bank of Korea (IBK), Kookmin Bank (KB), and KDB Capital.
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| Cash Grant System |
| This program is designed to provide a negotiated portion of foreign direct investment in cash to foreign investors when they invest in construction or expansion of manufacturing and R&D facilities. Only companies with the following qualifications will be selected through an evaluation process that considers the industrial and economical effects that each company produces. |
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- Companies that invest in construction or expansion of manufacturing facilities in advanced technology businesses and industry-supporting services (more than US$10 million in foreign direct investment)
- Companies that invest in construction or expansion of R&D facilities in advanced technology businesses and industry-supporting services (more than US$5 million of foreign direct investment)
- Parts- and components-related companies that invest in construction or expansion of manufacturing facilities (more than US$10 million in foreign direct investment)
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| Tax Benefits |
| Companies in advanced technology industries or industry-supporting services and companies located in foreign investment zones are eligible for exemptions from tariffs and national and regional taxes, as follows: |
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- Applied to equipment, parts and components, and raw materials imported by eligible companies
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- Exemption/Reduction of National Taxes (Corporate Tax, Income Tax)
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| - For seven years (100 percent for the first five years, 50 percent for the next two years or less) |
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- Exemption/Reduction of Regional Taxes (Acquisition Tax, Registration Tax, Property Tax, Aggregate Land Tax)
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| - For seven years (100 percent for the first five years, 50 percent for the next two years or less) |
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| Free Lease of Land in Foreign Investment Zones (FIZ) |
| This program supports foreign companies that move into areas designated as Foreign Investment Zones by exempting/reducing taxes and granting other benefits. |
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- Companies that invest in construction or expansion of R&D facilities in advanced technology businesses and industry-supporting services (more than US$5 million of foreign direct investment, more than 30 percent foreign share in total investment)
- Companies that invest in construction or expansion of manufacturing facilities in advanced technology businesses and industry-supporting services (more than US$30 million in foreign direct investment, more than 30 percent foreign share in total investment) |
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- Central and local governments will purchase land and lease it free of charge.
- National and regional taxes will be exempted or reduced. (100 percent for five years, 50 percent for the next two years or less)
- Traffic generation charges will be exempted. |
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Support for Equity Investments
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| Foreigner's Stock Purchase Process in Korean IT Companies |
The Korean stock market is open to foreign investment, and under the related laws and regulations, foreigners get the same treatment as nationals. The procedure for non-Koreans to purchase stocks of Korean companies is as follows:
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-Open an "Stock Investment External Account" and an "Stock Investment Non-resident KRW Account" at the designated foreign exchange bank in Korea
- Register with the Financial Supervisory Service as a foreign investor and get an investor registration number (ID)
- Designate a permanent proxy and place orders via securities companies. Domestic stocks can be purchased once the payment has been made via the "Stock Investment External Account."
- In case of sales of stocks, first deposit the returning money into the "Stock Investment Non-Resident KRW Account." transfer the respective aOverseas IT Support Centernt to the "Stock Investment External Account" and then recover the invested aOverseas IT Support Centernt.
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| Remittance of Income |
Korean laws and regulations protect the proceeds of foreign direct investment. The related laws and regulations guarantee remittances by foreign investors to foreign countries in accordance with the contents of the contract for foreign investment or for the introduction of technology at the time of the said remittance.
Also, except as otherwise prescribed by specific laws and regulations of the Republic of Korea, foreign investors and foreign-capital invested companies and corporations shall be treated equally as Korean nationals and Korean companies and corporations in all their business operations.
Rules and regulations on tax benefits that apply to Korean nationals and Korean companies and corporations shall be applied equally to foreign investors and foreign-capital invested companies and corporations, except as otherwise prescribed by specific laws and regulations. Foreign investment protection items permitted for foreign remittance are:
- Income incurred by acquired stocks, etc.
- Proceeds from sale of stocks, etc.
- Principal, interest and commission paid according to relevant loan agreement(s).
- Royalties on technology introduction
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| Restrictions on Investments in ICT Companies |
| Foreigners receive the same treatment as nationals for their equity share in domestic companies. However, as of May 31, 2005, there exists a cap of 15~49.99 percent ownership on certain corporations in the defense, broadcasting and telecoms sectors, as per the related laws and regulations. When it comes to ICT companies, there is no difference between foreigners and nationals regarding stock acquisition. However, a 49 percent cap is applied on foreign acquisition of seven backbone telecommunications companies, such as KT, SKT and DACOM. |
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