Invest Asia Group in South Korea
Last Update: 13th September 2020
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South Korea has transformed itself from one of the poorest countries in the world to a high income, export powerhouse and still remains one of the world's faster growing economies. Following the Korean War (between 1950 - 1953), South Korea rapidly embarked upon a policy of state-led capitalism through investment and exports. This was known as the 'Miracle on the Han River' in relation to this period of rapid economic growth. Moreover, through economic cooperation with Japan (and other countries), South Korea was one of the few countries to successfully escape from the 'middle income trap' as it continues to grow at high levels (compared to Western countries) today.
During the Global Financial Crisis during 2008-2009, South Korea was able to avoid recession through stimulus measures and increased domestic consumption and is considered a likely 'Next Eleven' (N-11) country during the 21st century.
During the Global Financial Crisis during 2008-2009, South Korea was able to avoid recession through stimulus measures and increased domestic consumption and is considered a likely 'Next Eleven' (N-11) country during the 21st century.
South Korea: Overview
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South Korea is a mountainous country occupying the southern section of the Korean Peninsula with the Yellow Sea to its West, Sea of Japan to its East and Southern Tip located at the North of the East China Sea. Despite its mountainous terrain and total area approximately 100,000 square kilometers, South Korea can be divided into four separate regions including:
South Korea is a democratic state with a highly developed economy, globally influential pop culture and is attractive across a number of metrics for investors seeking exposure. |
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South Korea Provinces
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There are 9 different common provinces in South Korea, which are the highest ranked administrative divisions within the country whilst there are also self-governing province, special city, metropolitan city and special self-governing city (which have equal status as common provinces).
To begin with, the 9 x provinces are as follows:
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Seoul, South Korea
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South Korea City Classifications
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In terms of 'special cities/'metropolitan cities'/'special self governing cities' within South Korea, they have equal status compared to the above provinces and are:
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Top 10 Cities in South Korea (by population)
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Whilst the capital city of Seoul is known worldwide, a large number of other cities are largely unknown outside of South Korea among international investors. However, with the market size and high disposable income among South Korean citizens, numerous opportunities are also available in these lesser known cities (e.g. Busan, Incheon, Daegu, Daejeon etc.).
Business Operations in South Korea
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Operating a business in South Korea presents an array of opportunities as well as challenges. Aside from the various business related risks, understanding and working within a foreign system presents numerous different challenges to investors.
However, with an appropriate strategy, professional advice and a dedicated local team, these 'foreign operations' risks can be largely mitigated. Whilst actual details are more complex, we’ve summarized accordingly so readers can gain an understanding of the different options and processes involved in operating a business in South Korea. |
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Forming a Company in South Korea
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Establishing a company in South Korea is fairly straightforward but the necessary steps required to do so depends upon the specific industry and type of enterprise.
With an excellent geographic location between China and Japan, South Korea offers a few different options for foreign investors looking to establish a company within the country. These 3 x options for foreign investors to establish companies within South Korea are as follows:
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Seoul, South Korea
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South Korea Company Formation Procedure
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Depending upon the type of Company formed in South Korea, the steps will vary. For the purposes of this article, we will outline the steps associated with establishing a Local Corporation/FDI company as this is the most common option for international investors. If you're interested in establishing a Branch Office or Liaison Office, please contact us to find out further details.
Aside from the above standard procedures to form a company, there may also additional steps required depending upon the industry. Invest Asia Group strongly advises investors to engage either an experienced local consulting company or an international law firm to navigate these processes. |
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International Investors
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Whilst there are certain restrictions, international investors/companies can operate businesses in South Korea. The Foreign Investment and Promotion Law (FIPL) and Foreign Exchange Transaction Law (FETL) are corresponding regulatory legislation and without being too specific, some of the restricted industries/industries with 'ceilings' on limitation of foreign investment ownership include (for latest updated details, please contact us):
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Corporate Taxes
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There are a number of different corporate taxes within South Korea as outlined below:
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Where to Establish a Company in South Korea
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This depends upon your business type and goals for doing business in South Korea. There are a number of different locations that are popular among investors in South Korea and some of these details are outlined as follows:
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Tax-Friendly Policies in South Korea
Yes – a number of tax-friendly investment policies exist to encourage investment within specific sectors and industries. Further details can be provided, depending upon your specific inquiry.
Financial Markets in South Korea
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The Financial Markets in South Korea have continually grown in size due to economic growth, reforms, management and mobilization of funds by economic entities and infrastructure development.
Following the Asian Financial Crisis in 1997, which impacted South Korea (and most of Asia), the markets further liberalized and continued their development, resulting in South Korea being a world renowned international economy and financial markets. There are a number of different financial markets within South Korea including:
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Korea Stock Exchange (KSE)
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The Korea Stock Exchange is located in Busan and is the sole securities exchange within South Korea. As of May 2020, there are over 2,300 listings and the total market capitalization is 1,566 Trillion KRW. The indices are the KOSPI, KOSDAQ and KRX 100. The Korea Stock Exchange traded instruments include the following instruments:
In terms of top companies in South Korea by market capitalization, both Samsung Electronics and SK Hynix are the top two companies (semiconductor companies), accounting for approximately 20% of the entire exchange market cap. |
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Top 10 South Korea Companies (by Market Cap)
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The Top 10 Publicly Listed Companies in South Korea by market capitalization are as follows:
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South Korea Market Rules
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Please see details of South Korea Market rules as outlined below:
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Other ways to get exposure to South Korea Stocks
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Aside from the aforementioned ways to gain exposure to South Korean companies, investors also have options to invest in Index Funds and stocks listing in US markets. There are a number of different South Korea related Exchange Traded Funds (ETFs) and some of the larger individual South Korean stocks listing on American stock exchanges include Samsung, Kia, Hyundai and others. Most brokers will offer access to South Korea exposure ETFs and individual stocks listed on the US bourses or within South Korea itself.
The iShares MSCI South Korea ETF is another option for investors looking to purchase into a related Exchange Traded Fund. |
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Foreign Exchange in South Korea
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South Korea retains a free floating exchange rate for its currency - the Korean Won (KRW). As at August 2020, 1 USD is equivalent to KRW 1,187 and the exchange rate has remained largely stable against the USD throughout the early part of the 21st century.
During the years leading up to the Asian Financial Crisis in 1997, the Won depreciated and at the height of the crisis, South Korean citizens were prohibited from purchasing foreign currencies (if for speculative/holding reasons). For further details in regards to Foreign Exchange within South Korea, please contact us directly. |
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Commodities in South Korea
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South Korea is the 12th largest economy in the world and as a high-tech, industrialized economy utilizes a range of different commodities for both import & export purposes.
Being one of the world's larger, developed economies, South Korea imports and exports a number of different commodities ranging from semiconductors to agriculture and more. The significant economic growth throughout the late 20th century and early 21st century has lead to South Korea rapidly transforming from a poor country, relatively speaking, to a rich, highly developed economy. Some of the top commodities South Korea imports include:
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Cryptocurrency in South Korea
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South Korea has been at the forefront of both the cryptocurrency and blockchain boom over the past several years, whilst in 2020 laws were implemented to further consolidate cryptocurrency into the economy. Cryptocurrency is legal and fully regulated within South Korea a a 20% income tax is applied to cryptocurrency.
Unlike numerous other countries, banks in South Korea have adapted to cryptocurrency and now offer custodial and other crypto-related services. Some of the largest cryptocurrency exchanges are also based in South Korea whilst more widespread usage is inevitable as the government has largely welcomed the blockchain/cryptocurrency revolution. |
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Property in South Korea
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Being one of Asia's strongest economies, South Korean property varies in price according to each specific city/region. The capital city, Seoul, is unsurprisingly the least affordable property throughout the country. It's considered the third most expensive housing per square meter in Asia (behind Hong Kong & Singapore), in the world (for apartments) and is more expensive than New York and London!
However, due to the size of South Korea and differences in development across regions, the property market within South Korea substantially differs between cities, provinces and locations. Therefore, the best way to analyse the property market is on a local level as opposed to country-wide analysis. |
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International Investors & South Korean Property
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Foreign investors can purchase property within South Korea but there are a number of different regulations that need to be complied with to successfully purchase residential/commercial property. Aside from property/apartments/commercial, foreign investors can also legally purchase land within South Korea, making it unique among most Asian countries. The acts that foreign investors need to follow when purchasing property within South Korea are as follows:
For foreign investors looking to purchase and subsequently rent out property for income, there are two recommended options to do this. Either establish a 'stock company' or a 'corporation' as if purchasing individually, remittance of revenue or profit from property is not permitted. If interested in finding out further specific act/regulation or the best way to structure and investment into South Korean property, please contact us directly so we can be of assistance. |
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Property Taxes
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The property market in South Korea is highly segmented according to each location. However, there are a number of costs associated with purchasing/selling property within South Korea that all investors should be aware of. Depending upon the specific location, this can vary accordingly, however, overall the below details are
When purchasing property within South Korea, buyers should be aware of a number of different fees associated in purchasing property as follows:
Therefore, the total taxes/fees are generally approximately 20% of the purchase value price of property. |
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Best Locations to Purchase Property
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Generally, most foreign investors looking to purchase property within South Korea consider the following cities/areas according to preferences. Details are as follows:
In regards to Seoul - depending upon specific area within this mega-city, pricing is among some of the most expensive in the entire world. However, there are numerous districts across Seoul that aren't at this level too. In comparison, Busan is a smaller city compared to Seoul but has a much more cost-effective housing market and is popular among foreign across East Asia. The city also features a number of popular universities. Moreover, Jeju Island has predominantly attracted investment from Chinese investors and is considered South Korea's 'Hawaii'. |
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Additional Property Information
Due to the steep increase in prices throughout Seoul, the government implemented a number of different policies to 'take the heat out of the market' through non-speculative zones and increased taxes. With prices in Busan being at even less than half the price of Seoul, Invest Asia Group typically advises clients to consider various locations as opposed to strictly looking at Seoul. For further details, please contact us and find out how we can be of assistance.
Venture Capital/Private Equity in South Korea
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Venture Capital within South Korea expanded following the Asian Financial Crisis in 1997-98 and through both a publicly and privately funded approaches, has resulted in numerous successful ventures. Some of the top Venture Capitalist firms in South Korea are as follows:
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