Global Players from Emerging Markets: Strengthening ... - Unctad

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104 Outward Foreign Direct Investment by Enterprises from the Republic of Korea Finance Taxation Type Classification Description Overseas Investment Insurance Administration Foreign direct investment post management system (Foreign exchange regulation- Clause 7~9 Article 9) Exemption on Overseas Paid Tax (Corporate Tax Law- Article 57) Exemption on Deemed Overseas Paid Tax (Corporate Tax Law –Clause 3 Article 57) Exemption of Corporate Tax on the Dividends from the Overseas Investment (Qualified Beneficial Tax Law-Article 22) Double Taxation Avoidance Agreement Korea Export Insurance Company Korea Overseas Company Assistance Center types of OFDI measures provided by the Korean Government. They include: • financial support, • taxation, • overseas investment services, and • institutional services (administration and information). A number of institutions in the Republic of Korea played an active role facilitating or supporting Korean OFDI. Among them, there are the Ministry The aim of this regulation is to induce fair management overseas, prevent possible problems caused in overseas subsidiary, and avert the flight of invested capital. The report organization, designated foreign exchange banks and overseas legation, should practice post management for a case of foreign direct investment. If an investor has paid corporate tax to the host country, then the amount of tax paid will be exempted within the limits of tax deduction in that business year. A domestic firm is also subject to a tax credit for dividends received from its subsidiary. If a country that has concluded a taxation treaty with the Republic of Korea in order to prevent double taxation decides to exempt tax for Korean firms, then the same amount of tax will be also exempted for these firms in the Republic of Korea. The Korean Government will acknowledge the exempted tax as tax paid overseas so firms do not have to repay the tax in the Republic of Korea. If a country possessing a certain resource exempts tax for dividend income generated from overseas resource development investment by Korean firms, then the same amount of tax will be also exempted in the Republic of Korea. This is to promote overseas resource development. The Republic of Korea has established this agreement with 57 countries so as to avoid imposing double tax on overseas investing firms. It helps Korean firms that experienced a loss in capital, dividends and interest, due to expropriation, war, breach of contract, and risk of remittance. This centre collects information, provides administrative help, and solves issues concerning Korean firms abroad. The centre also supports overseas business on behalf of the Government. FDI Information Network In order to provide precise information for companies willing to invest abroad, the Ministry of Finance and Economy runs a separate website related to OFDI information network (www. mofe.go.kr/odi). Korea Overseas Company Information System (MOFE) The overseas direct investment information network page (www.mofe.go.kr/odi) also has a website of “Korea overseas company information system” (www.kocis.go.kr) which provides information on overseas companies via the Internet. Sources: Ministry of Finance and Economy (www.mofe.go.kr), MOFE 2005 and MOCIE 2006. of Finance and Economy, Bank of Korea, Export- Import Bank of Korea, Korea Federation of Banks, Ministry of Commerce, Industry and Energy, Korea Trade-Investment Promotion Agency, Small Business Corporation, Korea Chamber of Commerce and Industry, Korea International Trade Association, Small and Medium Business Administration and Korea Institute for Industrial Economics & Trade. Their functions with respect to OFDI include the following:
• EXIM Bank. The EXIM bank provides loans for investing companies and it provides loans of up to 90 per cent of the capital invested abroad for SMEs. Tax support includes avoidance of double taxation. The Korea Export Insurance Corporation, a state-owned corporation • established under the Ministry of Commerce, Industry and Energy, provides export credit insurance to Korean exporters against nonpayment risks by buyers, and guarantees banks that provide export financing and issue bonds for exporters. It also covers war/civil disturbance, expropriation, inconvertibility and breach of contract risks connected with new investment overseas (MOFE 2004). Overseas investment services. There are many OFDI supporting organizations in the Republic of Korea that promote investment overseas. For instance, the Ministry of Finance and Economy runs an overseas direct investment information network website, which provides information on foreign direct investment procedures, investing country, statistics and information on the Korean overseas companies. The EXIM bank also provides similar information through the Internet and publication, and provides substantial support for Korean OFDI. The International Management Institute was institutionalized on 31 October 2005 to provide consultation to SMEs investing abroad. The role of this institution is to provide consultation to Korean SMEs on the environment of host country, joint venture and business opportunities abroad. F. Conclusion Outward investment is as important as inward investment for enhancing the competitiveness of both the country and the firm. As labour costs and attitudes deteriorate in some industrial sectors, it is critical for Korean firms to maintain and enhance their competitiveness through OFDI. The Korean Government played an important role in enterprise internationalization through providing strong institutional support and specific OFDI promotion programmes. However, more can be done to internationalize Korean enterprises, in particular Korean SMEs, as a means to increase competitiveness. Korean OFDI has increased notably in the past two decades and it is expected to increase further because of an improving regulatory environment supporting OFDI. Nonetheless, there are some key challenges. First, Korean OFDI is concentrated in China and it needs to diversify to other regions and countries. Second, the industrial distribution is mainly CHAPTER VIII 105 in manufacturing industries where competition is fierce and there is also a need to diversify into other sectors such as services. Thus, upgrading OFDI to hightech areas is important. Third, Korean firms should consider using an appropriate market entry strategy, which could vary depending on OFDI motivations. Fourth, the Government could further strengthen institutional support to help SMEs, which may have more difficulties than large firms in investing abroad. Korean SMEs, in general, encounter more difficulties than large firms in investing abroad. The challenges and obstacles that Korean SMEs face include difficulties such as access to finance, lack of managerial expertise in handling different cultural issues and business practices, inadequate feasibility study and business plan, and lack of comprehensive and prompt information on overseas investment opportunities. Due to their limited scope of business, competition is often very severe among Korean enterprises in getting access to quality labour and raw materials overseas. 86 Some Korean firms invest abroad based on speculative thinking and some were easily satisfied with their operations at home rather than expanding their business overseas to improve competitiveness (www.kotra.or.kr, Choi 2001). OFDI may be a win-win game for both home and host countries. While there may be a concern about hollowing-out effects, the benefits associated with OFDI could be greater than the costs, which would be good for the investing firms and the home country. In improving the competitiveness of Korean SMEs, through internationalization, a number of policy options could be considered. They include: • Streamlining of OFDI regulation and strengthening encouragement, including providing specific support facilities (e.g. consultation, OFDI advisory service and facilities of overseas industrial estates). At the enterprise level, Korean enterprises need to strengthen their capacity in understanding the risks and opportunities of internationalization, including the need for careful planning and assessment of the investment opportunities and the choice of market entry strategies to cushion risks of operating in unfamiliar business and cultural environment. • International cooperation could promote investment flows between countries, encouraging South-South relations. Investment promotion agencies of different countries could cooperate in facilitating investment, including in providing information on investment environment of host countries. 86 For example, latecomers scout workers from existing Korean firms by providing higher wages and thus escalate labour costs.
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United Nations Conference on Trade
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Preface The landscape of internatio
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Acknowledgements This publication i
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