As the global economy navigates shifting geopolitical and economic conditions, South Korea remains a reliable foreign direct investment (FDI) destination, consistently attracting investors worldwide. While the global FDI decreased by 8% in 2024,1 South Korea’s FDI recorded a 5.67% increase, totaling USD 34.57 billion, according to statistics provided by the Ministry of Trade, Industry, and Energy (MOTIE).2 The Korean government’s recent 2025 economic policy, published by the Ministry of Economy and Finance (MOEF) in January, outlines expanded cash subsidies, tax incentives, and financial support programs that further encourage foreign investments.


1. Strengthened Cash Subsidies


Among the four key policy directions, the government plans to promote FDI by increasing cash subsidies for foreign investors, with the 2025 budget allocating up to KRW 200 billion for investment support. National funding contribution rates will increase by 5-20%, with a temporary 10-25% rise available in 2025. Key sectors, including advanced research and development (R&D) and national advanced strategic industries such as semiconductors and biotechnology, will see their subsidy ceilings potentially reaching 80% of total investment costs, with a 20% raise. These initiatives are designed to foster a competitive investment environment for foreign enterprises and stimulate sector-specific growth in South Korea.

⟨Changes in Maximum Cash Subsidy Rates for Foreign Investment by Sectors⟩3

Previous

•  R&D Center, national advanced strategic technology 50%

Revised

•  R&D Center (national advanced strategic industry), global enterprises’ regional headquarters 50% (75%)*

•  R&D Center (others), national advanced strategic technology 50% (60%)

Previous

•  New growth/advanced/material, parts, and equipment 40%

Revised

•  New growth/advanced/ material, parts, and equipment 45% (55%)

Previous

•  Global enterprises’ regional headquarters, mass employment, region-specific industry 30%

Revised

•  Mass employment, region-specific industry, etc. 40% (50%)

* Rates in parentheses temporarily applicable in 2025.


2. Expanded Tax Incentives


One of the key measures in the new policy is the extension in the period for capital goods tax exemptions, which now offers a maximum exemption period of up to seven years. This includes an initial five-year period with a 100% exemption, followed by a two-year extension, providing considerable tax relief for foreign investors importing capital goods.

The policy also focuses on reviving shareholder return tax incentives and increasing tax support for individual savings accounts (ISA). Additionally, the government will facilitate foreign investors’ increased access to Korean government bonds, especially with Korea’s upcoming inclusion in the World Government Bond Index (WGBI). The government is also enhancing R&D tax credits to stimulate investment in research and development, to further support innovation and extend the tax credits to cutting edge technologies such as AI, future mobility, and smart logistics.


3. Comprehensive Financial Support Packages


The government is introducing a range of financial support mechanisms, including low-interest loans and loan guarantees. Foreign investors will be granted access to preferential interest rates and higher loan limits through government-backed financial institutions, aligning these benefits with those available to domestic businesses. Additionally, the government is planning on a foreign investment promotion fund, which would channel capital through state-supported institutions to assist new expanding foreign enterprises. In 2025, the Korea Credit Guarantee Fund, along with other agencies, will expand their guarantees for foreign-invested companies, reducing the financial risks associated with large-scale investments.

⟨Summary of Government Support Mechanisms⟩

•  Cash Subsidies

Up to KRW 200 billion allocated for investment support. National funding contribution rates increased by 5-20%, with a temporary 10-25% rise in 2025.4

Increase funding availability for strategic sectors such as R&D, semiconductors, and biotechnology.

•  Tax Incentives (Capital Goods)

Capital goods tax exemption extended for up to 7 years, with a 100% exemption for the first 5 years.5

Offer significant tax relief for importing capital goods.

•  Investment Tax Credits

General investment tax credits increased from 10% to 12%, and those for new growth sectors increased from 12% to 14%.6

Encourage further investment in SMEs and new growth sectors.

•  R&D Tax Credits

Enhanced tax credits for R&D activities aligned with strategic industries such as AI, future mobility, and smart logistics.7

Support investment in high-tech, innovative industries.

•  Foreign Investment Promotion Fund

Creation of a fund providing capital through state-backed institutions.8

Provide capital for new and expanding foreign enterprises.

•  Loan Guarantees

Low-interest loans and increased loan limits through government-backed financial institutions.9

Mitigate financial risks associated with large-scale investments.


The government’s new economic policy direction for 2025 provides a clear indication that South Korea is reinforcing its commitment to attracting foreign investment through a combination of cash subsidies, tax incentives, and comprehensive financial support mechanisms. Extended tax exemptions, enhanced R&D incentives, and increased access to low-interest loans offer significant opportunities for companies seeking to expand or establish operations in Korea. The continued focus on innovation and strategic industries is likely to foster long-term growth, particularly considering Korea’s preparation to be included in the international market such as the WGBI. Foreign investors, as well as Korean entities seeking to expand their businesses must closely monitor policy updates and directions to navigate the evolving business landscape in Korea.

 

1 United Nations Conference on Trade & Dev. (UNCTAD), Global Investment Trends Monitor, No 48, Jan. 2025, available at unctad.org

2 The Ministry of Trade, Industry, and Energy, FDI Data (2021-2025), available at https://insc.kisc.org/motie/sttr2/grid.jsp?LVL=2&ipage=1&ln_cnt=100&SDT=20211&EDT=20264&PG=11&SC=1&PNATION=&PINDU=&PT=1&SD=1&GB=NN

3 The Ministry of Economy and Finance, 2025 Economic Policy Directives, at 34.

4 Id. at 34.

5 Id. at 34-35.

6 Id. at 50.

7 Id. at 50.

8 Id. at 32-34.

9 Id. at 36.