South Korea has undergone a remarkable economic transformation over the past 60 years. This ascent to economic prominence has been supported by a diverse geography, excellent infrastructure, and a high-income status achieved within just one generation.
Famous for its leadership in electronics, shipbuilding, steel, and automotive industries, South Korea exemplifies innovation on the global stage. The allure doesn’t end there – a global influx of people worldwide are drawn to South Korea, captivated by their strong interest for Korea culture, K beauty trends and K-pop. The nation’s robust GDP growth (see table below) reflects its dynamic economy, which adeptly navigates evolving global trends. Several chaebols (large industrial South Korean conglomerate run and controlled by an individual or family) and companies in Korea, have been instrumental in propelling South Korea’s extraordinary growth over the past five decades, including Samsung, Hyundai, LG and Lotte.
From overcoming the challenges of a war-torn past to becoming a high-income economic powerhouse, South Korea stands as a testament to resilience, adaptability and unwavering commitment to progress. If expanding into the market is in the books for your business, we tell you the key reasons below and why it’s a good idea.
What are some key reasons to tap into the South Korea market?
– Free Trade Agreement
South Korea has signed 21 Free Trade Agreements, covering 59 countries (as of December 2023) positioning its business landscape to expand its reach into the world’s largest consumer markets.
South Korea has Free Trade Agreements with:
- New Zealand
- The European Union
- The European Free Trade Association (Norway, Switzerland, Iceland and Liechtenstein)
- United States of America
For the complete list, please refer to the Korean Ministry of Foreign Affairs: https://www.fta.go.kr/main/situation/kfta/ov/.
– Foreign Direct Investment Benefits
Foreign-invested corporations, especially in the high-tech sectors, enjoy tax breaks and special concessions, such as exemptions from property tax, company tax, value-added tax, acquisition tax, customs duty, and corporate tax.
Additionally, there are other incentives that make South Korea an attractive business expansion spot for foreign investors including:
- Cash grants – The requirements include a foreign investment by acquisition of new stocks, with a foreign investment ratio of 30% or more, or newly installing or expanding a factory, a place of business or a research & development facility.
- Free trade zones – In Korea, there are seven industrial complex-type zones located in Masan, Iksan, Gunsan, Daebul, and other areas, and six airport-type and seaport-type zones including those located in Incheon International Airport, the Pohang Port, the Pyeongtaek-Dangjin Port, and the Gwangyang Port.
- Land and Site Support – Another Foreign Direct Investment benefit offered by the Korea government is location support, subsidised rent and subsidy for a difference of the sale price.
- Lower start-up costs – Initial costs, including incorporation expenses, founders’ salaries, and registration fees and taxes, can be deducted if they are documented according to the articles of incorporation and have been genuinely paid. Additionally, interest incurred in the ordinary course of business is deductible if the related loan is used for business purposes.
– Government Incentives and Support
On August 30, 2023, the Ministry of SMEs and Startups in South Korea unveiled the ‘Startup Korea’ plan, designed to elevate the nation to a prominent position among global innovation leaders. The plan introduces the Startup Korea Fund with a substantial budget of 2 trillion won, emphasising its commitment to fostering entrepreneurial growth.
A key focus of the initiative is to facilitate global expansion, offering incentives and robust support measures to encourage international entrepreneurs to establish businesses in the nation, building companies in Korea.
Additionally, the plan prioritises the easing of visa regulations for global talent, reflecting South Korea’s dedication to creating an environment that attracts and welcomes diverse expertise.
Read more about the latest labour law updates in South Korea: Labour Law Insider – APAC 2024 Q1 Legislation Update
– Tech-savvy Customer Base
Market research firm, Telecompaper, reported that Korea smartphone penetration nears 95% as of January 2024.Additionally, the Korea Communications Commission explains that smartphone adoption is on a rapid increase in South Korea, advancing 1.4 percentage points in the past year. This makes South Korea’s consumers some of the post tech-savvy in the world.
– Tax Support for Foreigners
Foreign employees / expats who commence employment in South Korea on or before 31 December 2023 can apply for a fixed income tax rate of 19% for their employment income, excluding local income tax. This advantageous flat tax rate remains applicable for a period of 20 years, providing stability and predictability for qualifying foreign employees in their taxation matters.
By submitting an application to the Korean tax authorities, the employee can opt for the 19% flat tax rate to be implemented as a monthly employment income withholding tax (WHT) rate.
What are the top industries to tap into in 2024?
The South Korean Ministry of Trade, Industry and Energy (MOTIE), reported that semiconductors have been South Korea’s biggest export for the past 11 years, boasting 16% of exports and around 10% of the nation’s GDP – making it the world’s 3rd largest semiconductor manufacturing facility. Global companies all around the world are taking this opportunity to tap into the field of semiconductor materials, parts, and equipment.
A prime example is Lam Research, a US semiconductor equipment marker, who established their operations, Lam Research Manufacturing Korea in 2011. Since then, they have not only seen rapid growth but also:
- 2021 – Launched a new facility in Hwaseong, Gyeonggi
- 2022 – Launched the Lam Research Technology Center
- Essential to South Korea’s semiconductor ecosystem
Another player in the market is Onsemi, a US developer of power semiconductors, who has invested KRW 1.4 trillion in South Korea to build a SiC power semiconductor plant and launch a research center in the nation.
- Service Sector
Statista reports that, 2022 saw 58.03% of South Korea’s GDP contributed by the service industry.
Additionally, The National Atlas of South Korea explains that service industries are growing swiftly in the nation and has become a strong and prime foundation for the economy. South Korea’s service industries cover food, tourism, finance, communication, real estate, shopping, commerce, and more.
As South Korea’s economy continues to grow and the standard of living improves, the demand for services continue to increase, as well.
Read also: Guide to Hiring in South Korea
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