Helpful Resources for Making it Big in Korea
government’s plan to double the minimum capital requirement for foreign direct investmen-Another stupid move by a myopic govt.
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By Cathy Rose A. Garcia Foreign-owned restaurants and other businesses have been slowly popping up around Seoul in recent years. There have been a growing number of foreign entrepreneurs, who are living and doing business in Korea. Foreign entrepreneurs typically carry a D-8 corporate investor visa, which is obtained after investing a minimum of 50 million won ($42,000). But the government’s plan to double the minimum capital requirement for foreign direct investment (FDI) by October is expected to stifle the growth of foreign-owned small and medium enterprises (SME) in Korea. The Ministry of Knowledge Economy announced last month it revised the Foreign Investment Promotion Act to raise the capital requirement for D-8 corporate investor visa holders to 100 million won ($84,000) A spokesperson from the Ministry of Knowledge Economy said it was the right time to raise the minimum foreign investment requirement, considering the amount has remained stagnant for nearly 10 years. . In 1991, the minimum foreign direct investment requirement was 25 million won per person, or a total of 50 million won. In 2001, it was revised to 50 million won per person. ``If you count the cost of doing business, cost of living, rent and price levels in the last 10 years, it is not too farfetched to be revising the capital requirement to 100 million won... The amount (50 million won) seems too small now,’’ the ministry spokesperson told The Korea Times. However, there have been reports that the Ministry of Justice had requested the Ministry of Knowledge Economy to increase the investment requirement since it was too low. Some foreigners have allegedly taken advantage of this by availing of investor’s visas to enter the country and stay in Korea indefinitely, but not to do business. But would a 100 percent increase in capital requirement be enough to prevent some foreigners from abusing it? Or would it just simply discourage foreigners from investing into Korea at a time when FDIs are already declining? The D-8 corporate investor visa is issued to foreigners who start small and medium enterprises in Korea. There are no restrictions on what type of businesses can be started. A representative from the Seoul Global Business Center, which provides consulting services for foreigners who want to establish businesses, said many foreigners are interested in opening restaurants or food businesses. Other types of businesses they are interested in include online shopping, trading and consulting. ``We have foreigners coming to the center, inquiring about how to start a business, the proper visa status needed, investments and how to register a company. We assist them with various things,’’ the representative said. Foreigners need have at least 50 million won in foreign currency before they can establish a business in Korea. The funds have to be remitted from overseas to an account in Korea, as proof of it being a foreign direct investment. Once the company is registered and the funds are transferred, the foreigner can obtain a D-8 visa. However, there has recently been an increase in the applications and issuance of D-8 visas, which raised alarm bells for the Ministry of Justice. There have been instances of some individuals who do not have the required minimum capital and have resorted to paying so-called ``agents.’’ These agents will forward money from their overseas accounts to the applicants’ accounts. In return for loaning the amounts and helping complete the application, the agents will be paid exorbitant fees by the applicants. Sean Hayes, a lawyer who co-leads the J&S Law Firm's International Practice Group, said the ministry’s plan to raise the foreign investment requirement will not discourage this small number of foreigners from abusing the D-8 visa. ``The Ministry's solution to the problem will likely never solve the problem ― these agents will simply charge higher fees and find other creative ways to get approval for applicants,’’ Hayes told The Korea Times. Instead, the plan may further tarnish Korea’s image as an investment destination. ``Raising the capital requirement will lead to negative press and possible a feeling by potential investors that Korea is not a foreign-capital friendly destination. The attitude is already widespread and thus risking an increase in negative sentiment for the sake of not allowing entry of a small number of individuals is obviously an unwarranted risk,’’ Hayes said. Many of the foreigners who are abusing the system are from less developed nations, so Hayes proposed changes in the immigration process. ``A two-tier approach to visa applicant screening and additional training for immigration officials on how to adequately scrutinize visa applications from countries that are less developed economically than Korea is a better approach. Also, Korea needs a total revamp of its immigration laws to allow needed skilled workers to be more easily employed by employers in need of these workers,’’ Hayes said. There are already some prospective investors who are being turned off by the increase in capital requirement. Some have approached the Seoul Global Business Center to ask for assistance in setting up their business in Seoul, but are now thinking of stalling their plans to be able to raise more funds. ``Some only have 50 million won as their maximum money right now. So it is becoming a problem for them to raise 100 million,’’ a representative from the center said. If obtaining a D-8 corporate investor visa would be a problem, the Ministry of Knowledge Economy spokesperson suggested foreigners who want to do business here can try applying for a D-9 trade management visa or C-2 short-term business visa. The D-9 visa is for overseas traders who do import and export business, while the C-2 visa is issued for self-employed people, consultants for Korean companies and those involved in trading business. However, it seems the government’s tightening of FDI requirements comes at a time when FDI has continued to decline. In the first half, only $4.33 billion in FDIs have been recorded, a 6.7 percent drop from $4.64 billion during the same period in 2009. Government officials downplayed any possible effect of the new investment requirement on overall FDIs, since SMEs only make up a miniscule portion.
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| cathy@koreatimes.c |
Replies to This Discussion | 이 토론에 대한 답글들
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Permalink Reply by Joon Kim on -
It took me a month to set up a corp., another to get my driver's license. Worst part is that I'm Korean.
I'm really F#^%$&% pissed off at the stupid regulations that make things harder - not easier.
The old guard doesn't realize that we have to make Korea more open/international/cosmopolitan, foreigner friendly.
Open the gates, reduce red-tape, innovate. Don't waste my taxpayer money on BS rules and inefficient govt.
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Permalink Reply by Conor J. Meagher on -
"...there has recently been an increase in the applications and issuance of D-8 visas."
Wouldn't that be a good thing?
Also, foreigners who obtain E-8 visas and do not do business is a mood point. Those individuals will not be affected by a high minimum investment since money is not an object to them or they can find other means.
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Permalink Reply by Tyler Joyner on -
Although I can definitely understand how frustrated you must be, Joon, I have to say that at first glance this seems like a reasonable decision for the Korean government to make.
For one thing, according to the article the capital requirement hasn't changed since 2001. If you add up the annual inflation since then you end up with a rough estimate that one won in 2001 was worth about 1.35 won today. Of course that's only a cumulative 35% inflation, while the capital requirement went up 100%, so that point is somewhat debatable.
The other thing, though, is that I think Korea's attitude towards large scale foreign investment is quite a bit more friendly than it is towards SMEs, and rightly so. Big international businesses can come in and (potentially) introduce new technology or otherwise create infrastructure beneficial to Korea as a whole. Smaller businesses can definitely be a source of creativity and innovation, but they also have a higher rate of failure and don't necessarily create new infrastructure or raise the knowledge base of the population in quite the same way.
I definitely agree that it's in Korea's best interest to encourage foreign investment of all kinds, but $84,000 is not a huge sum when you're talking about opening a new business.
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Permalink Reply by Erik Cornelius on -
The policy stands in contrast to another recent government move to reduce overall startup capital requirement from KRW 10 million to KRW 5 million. If you have an F series visa rather than an E series you can start a business easily but that requires that you be ethnically Korean, have married a Korean (may become more difficult) or have obtained permanent residency.
I'm inclined to side with Hayes in the article. If the government has an immigration problem they need to look at the criteria for whom they let into the country, not for the investor visas. I'm not sure I buy into his two-tiered approach. I'm more in favor of the potential investor being required to submit a business plan along with their visa application. If they cannot demonstrate enough movement toward starting the business within six months the government may opt to revoke the D-8 visa.
I also have to disagree with Tyler. In some industries KRW 100 million is small startup capital but you can bootstrap an internet startup on less than KRW 50 million. Small consultancies also don't require much capital at first, especially if the business owner is doing most of the work.
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Permalink Reply by Tyler Joyner on
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You might be able to physically get inside of a building and obtain the correct permits for KRW 50 million, Erik, but that says nothing about whether the business will survive. The vast majority of businesses are not profitable in their first year. I know the relative cost of doing business is less in Korea, but $42,000 is just not that much money with which to maintain a business through the initial growing pains and provide yourself a living as well, and that's assuming you're operating the business alone.
We can debate the various benefits of foriegn SME businesses in Korea, but by any standard it would be in Korea's best interest to only allow businesses they know have at least enough reserve capital to make it through the first year. Maybe I'm drastically overestimating how much it costs to start -and- run a business for, say, a year without receiving significant outside income, but I doubt it.
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Permalink Reply by Erik Cornelius on
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I'd love to hear from some KBC members who've started their own companies, regarding how much startup capital they needed.
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Permalink Reply by Youngil Ely Loew on -
I am a little late jumping into this topic, but I have set up and run a business in the States. Of course, this was a private business, and since I didn't need a visa it was easier to set up. However, that being said, I think there is a wide range of businesses, and some need almost no start up cost while others need millions of dollars. Each business is so different, and any generalization will only do justice to a small percentage of businesses... It's a matter of scale, and a small business can survive on very little start up.
Tyler, I don't understand why it is in Korea's interest to only have businesses that can make it through the first year. If businesses come and fail, I believe that only adds to the overall economy. By putting a high limit on start ups, the Korean government leaves out any great business model that only has, say, $30,000 to get off the ground. Maybe they only want to try it for 3 months to see if it works, and if it doesn't they'll go home. Of course this isn't a perfect situation, but spread out over thousands of such companies, it provides a dynamic environment for innovation and development. A lot of successful companies came out of the ashes of failed ones... and a lot of great companies started with a low budget to get them going.
If Korea raises the minimum investment amount to roughly $100,000, then I believe they are only narrowing the potential pool of future investors.
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