In recent years, economic experts and market regulatory authorities have observed that South Korea’s investment market has shown increasingly strong progress, with a huge number of foreign investors investing in the country across a wide range of sectors. At the same time, inflows of foreign investment capital have reached 34,57 billion USD, according to the Ministry of Trade, Industry and Energy of the Republic of Korea reports. These figures indicate positive signals, demonstrating that South Korea’s economy continues to grow and is emerging as one of the world’s most promising investment destinations, creating new opportunities for foreign investors while enhancing its ability to attract experts from various fields. Accordingly, in light of projected investment trends for 2025, the South Korean Government promulgated the document entitled “2025 Economic Policy Directions” on 2 January 2025. One of the core objectives of this policy framework is to promote foreign investment through tax incentives—particularly corporate income tax incentives—and to strengthen financial support for foreign-invested projects. Specifically, the measures include the following:

I. Extension of the Tax Exemption Period for Capital Goods Imported for Foreign Investment Activities

Pursuant to Article 121-3 of the Restriction of Special Taxation Act, capital goods (means of production) imported by a foreign-invested company using payments made in foreign currency or domestic currency derived from the foreign investor’s capital contribution, as well as capital goods imported by a foreign investor as capital contributions in kind, shall be eligible for exemption or reduction of individual consumption tax, customs duties, and value-added tax, provided that such goods are imported in accordance with Article 5(1) or Article 5(2) of the Foreign Investment Promotion Act for investment projects prescribed under Article 2(1)4(a) of the same Act. The Enforcement Decree of the Restriction of Special Taxation Act stipulates that the duration of such tax exemptions or reductions shall be five (5) years.

However, following the drafting and subsequent entry into force of the amended and supplemented Enforcement Decree of the Restriction of Special Taxation Act on 28 February 2025, the duration of tax exemptions and reductions applicable to capital goods eligible under the Act has been extended by an additional two (2) years. Accordingly, the total period during which such capital goods are entitled to tax exemptions or reductions has been increased to seven (7) years.

The extension of the tax exemption and reduction period is of significant importance for foreign-invested enterprises, particularly start-ups operating in manufacturing, engineering, and high-technology–related sectors, as this policy helps alleviate financial and tax burdens and provides enterprises with additional time to stabilize their operations in South Korea.

II. Tax Incentives and Special Investment Quotas for Investment Projects in Non-Urban Areas

A “Foreign Investment Zone” refers to a geographically designated area established by local authorities exclusively for foreign investors, where foreign-invested enterprises may locate their headquarters and construct facilities for production and other business activities. Within such zones, enterprises are entitled to various tax incentives and financial support from the Government, thereby encouraging individuals and organizations with sufficient financial capacity to invest in South Korea. Foreign Investment Zones are classified into three different categories, namely Comprehensive Zones, Zones for Individual Investors, and Zones for Service-Oriented Enterprises, each of which is subject to different conditions, requirements, and levels of incentives applicable to investors.

III. Increase of the Cash Grant Limit to 75% Compared to 2024

To provide financial support for start-up enterprises in the Republic of Korea, the Korean Government has introduced preferential policies on cash grant caps applicable to foreign-invested enterprises, depending on the sector and line of business. Previously, the cash grant cap ranged from 30% to 50% of total investment capital. However, following the announcement of the 2025 Economic Policy Directions, the grant cap has been increased to 40%–50%, and for investments made from 2025 onward, the cap may exceed 50%, reaching a maximum of 75% for the following eligible entities:

• Regional headquarters of multinational corporations;
• Research and Development (R&D) centers operating in nationally strategic industries.

In addition, the Government has decided to allocate KRW 200 billion to the cash grant fund in the first half of 2025, with the objective of providing direct financial support to potential foreign investors.

IV. Five-Percentage-Point Increase in Tax Credits for Semiconductor Enterprises

High-tech industries, particularly those related to advanced engineering and artificial intelligence, have consistently been given priority by the National Assembly of the Republic of Korea through legislative amendments and policy initiatives aimed at promoting their development and reinforcing Korea’s position as a global leader in high technology. Among these sectors, semiconductor manufacturing and production are regarded as key strategic business activities.

Accordingly, the National Assembly has approved amendments to the Restriction of Special Taxation Act, increasing the investment tax credit rate by five (5) percentage points for enterprises engaged in semiconductor-related investments.

V. Conclusion

Overall, the tax reforms and financial support policies introduced by the Republic of Korea in 2025 demonstrate a consistent, proactive, and strategic policy orientation toward attracting and retaining foreign direct investment. The extension of tax exemption and reduction periods for imported capital goods, the expansion of geographically targeted incentives, the substantial increase in cash grant caps, and the enhanced tax credits for core technology sectors such as semiconductors clearly reflect the Government’s prioritization of long-term investment, high value-added and technology-intensive projects, and contributions to national competitiveness.

From a forward-looking perspective, these policies are likely to generate positive spillover effects during the 2025–2030 period, not only by increasing the number of new FDI projects but also by encouraging existing investors to expand operations, reinvest, and relocate segments of their value chains to Korea. In particular, start-ups, R&D centers, and regional headquarters of multinational corporations are expected to benefit significantly, thereby supporting the restructuring of the Korean economy toward innovation-driven and high-technology growth.

Nevertheless, in the context of increasingly intense competition for FDI within the Asian region, the actual effectiveness of these incentives will largely depend on the stability of the legal framework, transparency in policy implementation, and the Government’s ability to balance tax incentives with fiscal discipline. If implemented in a coherent and consistent manner, the 2025 reform package may serve as a critical foundation for consolidating Korea’s position as an attractive, sustainable, and high value-added investment destination for foreign investors in the medium and long term.

VI. About NYLA – Korean Legal Office

■ NYLA – Your Trusted Legal Partner in Korea

At NYLA, we understand that the success of foreign businesses in Korea requires not only a solid business strategy but also reliable legal support. With a team of experienced Korean attorneys and legal professionals, NYLA provides tailored legal services for companies, investors, and individuals operating or planning to establish a presence in Korea.

We support our clients throughout the entire business journey with comprehensive services, including:

• Legal consultation on company establishment, taxation, and immigration;
• Advice on commercial real estate, franchising, and product distribution;
• Support in human resources, marketing, and business strategy.

In addition to legal advisory, NYLA also represents clients in civil litigation cases related to business, labor, marriage, family, and inheritance to ensure their rights and interests are fully protected.

■ Contact NYLA

If you’re a foreign business or individual looking for a reliable legal partner in Korea, NYLA is here to help. We are committed to delivering effective, practical, and personalized legal solutions for every client.

With a proven track record of assisting hundreds of international clients, our team is equipped to help you navigate complex legal challenges—whether it’s commercial disputes, contract issues, or foreign investment guidance.

Don’t let legal matters hold you back. Let NYLA be your trusted guide in the Korean market.

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