South Korea Foreign Investment Promotion Act (FIPA) — parent statute of the modern inbound-FDI regime

Mechanism

FIPA was enacted on 16 September 1998 and entered into force on 17 November 1998, replacing the restrictive Foreign Capital Inducement Act (외자도입법) that had governed all FDI into Korea since the 1966 developmentalist era. The structural context was the 1997 Asian Financial Crisis: Korea's IMF rescue package included conditionalities requiring rapid capital-account liberalisation, and FIPA was the legislative vehicle for opening the inbound-FDI channel to replace flight capital and recapitalise a banking sector under severe stress.

Administrative architecture: FIPA designates the Minister of Trade, Industry and Energy (MOTIE) as the competent FDI authority, supported by:

• Foreign Investment Committee (Vice-Ministerial level, chaired by MOTIE) — policy deliberation

and inter-agency coordination for large or sensitive transactions

• Invest Korea (KOTRA's investment-promotion arm) — operational case management via Foreign

Investment Notification Offices (FINOs) embedded in major banks and municipal governments

• Foreign Investment Working Committee — technical-review body for complex or contested cases

National-security screening (Art. 4): The Act restricts or prohibits foreign investment in sectors touching national security, public order, or public health. Sensitive industries subject to mandatory prior notification, conditional approval, or outright restriction include: defence manufacturing, nuclear energy, aerospace, advanced cryptography, certain chemicals, and broadcasting/media (additional designations can be added by Cabinet order). This provision is structurally parallel to CFIUS (US), FATA (Australia), NSI Act 2021 (UK), AWG §§55-62 (Germany), DL 21/2012 Golden Power (Italy), Wet Vifo (Netherlands), FEFTA inward-FDI screening (Japan), and EU Reg 2019/452 — the collective architecture under which allied economies condition and screen inward FDI on security/public-order grounds.

Incentive architecture: FIPA creates two principal incentive instruments that remain active:

• Foreign Investment Zone (FIZ): Designated industrial clusters (Greenfield FIZ, Industrial

Complex FIZ, Service FIZ, Free Economic Zone overlay) where FIEs receive multi-year corporate tax and local tax reductions, preferential land lease rates, and regulatory fast-track.

• Cash Grant Programme: Discretionary capital-expenditure and employment grants for

advanced-technology or R&D-intensive projects; in practice the primary deal-sweetener for major semiconductor and EV-battery anchor investments (Samsung foundry expansions, SK On, LG Energy Solution, and foreign-anchored TSMC-adjacent supply-chain investments in Korea use FIPA/FIZ as the legal base).

Relationship to outbound-investment screening: FIPA governs INBOUND FDI under MOTIE authority. The sibling measure covering OUTBOUND investment — filed separately as 2024-11-15-korea-outbound-investment-screening — operates under MOEF authority and is legally distinct. Both together constitute Korea's full-perimeter FDI investment-policy architecture.

Amendment history: FIPA has been amended more than a dozen times since 1998. The most recent consolidated text reflects Act No. 19180 of 27 December 2022 (effective 28 June 2023 per lsiSeq=247293). Key amendments expanded Art. 4 sensitive-sector coverage and introduced stricter FIZ designation criteria to filter for genuinely high-value investments.

Downstream implications

• Semiconductor / EV-battery FDI: FIPA/FIZ + Cash Grant is the immediate legal base for the

government deals underpinning Samsung Taylor (Texas), SK Hynix Cheongju expansions, and the incentive packages negotiated with Stellantis/LG Energy and others for Korea-side battery JVs. Any tightening of Art. 4 criteria has direct read-through for those negotiations.

• China FDI scrutiny: As geopolitical pressure to screen Chinese capital into Korean

semiconductors, display, and battery supply chains increases, FIPA Art. 4 is the statutory vehicle for any new restriction — analogous to CFIUS expansions under FIRRMA or UK NSI Act mandatory notification expansions.

• FIZ rationalization: The 2022 amendment trimmed FIZ overexpansion; watch for further

concentration of incentive budget into strategic-sector FIZs aligned with the K-Chips Act (2023-03-31-south-korea-k-chips-act) and the Semiconductor Special Act (2026-01-29-south-korea-semiconductor-special-act).

• Korea as FDI jurisdiction: Korea ranked #6 OECD economy by GDP and is a top-10 inward-FDI

destination. FIPA is the governing authority for every material inbound investment decision (Hyundai Mipo Dockyard stake, TSMC-supply-chain fab JVs, LNG terminal co-investment).

Open questions

• Whether the 2026 legislative calendar includes a further FIPA amendment raising Art. 4 mandatory

notification thresholds for Chinese FDI into semiconductor or battery sectors (parallel to the post-FIRRMA US tightening track).

• Whether the Semiconductor Special Act's presidential commission creates any duplicative or

superior authority over FIPA-administered FIZ approvals for semiconductor projects specifically.