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Korea’s Cash Subsidies and Tax Incentives: What Foreign Investors Need to Know in 2025

2025.03.17

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

<table cellpadding="8px" style="width:100%; border:1px solid #bbb; border-collapse:collapse;" width="100%">
	<tbody>
		<tr>
			<td align="center" colspan="2" style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242);border-top: 2px solid #cc0000; ;padding-right: 12px; padding-left: 12px;" valign="middle" width="40%">Previous</td>
			<td align="center" colspan="2" style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242);border-top: 2px solid #cc0000; ;padding-right: 12px; padding-left: 12px;" valign="middle" width="40%">Revised</td>
		</tr>
		<tr>
			<td align="left" rowspan="2" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle" width="40%">R&D Center, national advanced strategic technology</td>
			<td align="center" rowspan="2" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle; top;" width="10%">50%</td>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle" width="40%">R&D Center (national advanced strategic industry), global enterprises’ regional headquarters </td>
			<td align="center" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle; top;" width="10%">50% 
			(75%)*</td>
		</tr>
		<tr>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">R&D Center (others), national advanced strategic technology</td>
			<td align="center" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle; top;">50% 
			(60%)</td>
		</tr>
		<tr>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">New growth/advanced/material, parts, and equipment</td>
			<td align="center" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle; top;">40%</td>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">New growth/advanced/ material, parts, and equipment</td>
			<td align="center" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle; top;">45% 
			(55%)</td>
		</tr>
		<tr>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">Global enterprises’ regional headquarters, mass employment, region-specific industry</td>
			<td align="center" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle; top;">30%</td>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">Mass employment, region-specific industry, etc.</td>
			<td align="center" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle; top;">40% 
			(50%)</td>
		</tr>
	</tbody>
</table>
* 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⟩
<table cellpadding="8px" style="width:100%; border:1px solid #bbb; border-collapse:collapse;" width="100%">
	<tbody>
		<tr>
			<td align="center" style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242);border-top: 2px solid #cc0000; ;padding-right: 12px; padding-left: 12px;" valign="middle" width="24%">Support Mechanism</td>
			<td align="center" style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242);border-top: 2px solid #cc0000; ;padding-right: 12px; padding-left: 12px;" valign="middle" width="38%">Details</td>
			<td align="center" style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242);border-top: 2px solid #cc0000; ;padding-right: 12px; padding-left: 12px;" valign="middle" width="38%">Benefits</td>
		</tr>
		<tr>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">Cash Subsidies</td>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">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</td>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">Increase funding availability for strategic sectors such as R&D, semiconductors, and biotechnology.</td>
		</tr>
		<tr>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">Tax Incentives (Capital Goods)</td>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">Capital goods tax exemption extended for up to 7 years, with a 100% exemption for the first 5 years.5</td>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">Offer significant tax relief for importing capital goods.</td>
		</tr>
		<tr>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">Investment Tax Credits</td>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">General investment tax credits increased from 10% to 12%, and those for new growth sectors increased from 12% to 14%.6</td>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">Encourage further investment in SMEs and new growth sectors.</td>
		</tr>
		<tr>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">R&D Tax Credits</td>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">Enhanced tax credits for R&D activities aligned with strategic industries such as AI, future mobility, and smart logistics.7</td>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">Support investment in high-tech, innovative industries.</td>
		</tr>
		<tr>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">Foreign Investment Promotion Fund</td>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">Creation of a fund providing capital through state-backed institutions.8</td>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">Provide capital for new and expanding foreign enterprises.</td>
		</tr>
		<tr>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">Loan Guarantees</td>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">Low-interest loans and increased loan limits through government-backed financial institutions.9</td>
			<td align="left" style="border: 1px solid rgb(187, 187, 187); padding-right: 12px; padding-left: 12px;" valign="middle">Mitigate financial risks associated with large-scale investments.</td>
		</tr>
	</tbody>
</table>
 
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. 
 
<hr align="left" background-color="#cc0000" size="1" width="33%" />
<div style="line-height: 110%;">1 United Nations Conference on Trade & Dev. (UNCTAD), Global Investment Trends Monitor, No 48, Jan. 2025, available at <a href="https://unctad.org/system/files/official-document/diaeiainf2025d1_en.pdf" target="_blank">unctad.org</a> 
2 The Ministry of Trade, Industry, and Energy, FDI Data (2021-2025), available at<a href="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" target="_blank"> 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</a> 
3 <a href="https://korea.kr/common/download.do?fileId=198008553&tblKey=GMN" target="_blank">The Ministry of Economy and Finance, 2025 Economic Policy Directives, at 34.</a> 
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. 
 
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