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IT Financing
To stimulate the development of private venture capital, the Korean government initiated venture capital through a government fund- MOST Fund I ( USD 24 million, 1998), MOST Fund II (USD 33 million, 1999), IT Investment Club (initiated by the Ministry of Information and Communication, 1999). Also, to promote capital markets for new start-ups, KOSDAQ, a second stock market for new start-up businesses, was developed. The trade volume at KOSDAQ new exceeds that of Korea Stock Exchange. Finally, the government is giving many tax benefits. Some of the benefits follow:
The total foreign direct investment (FDI) in Korea reached approximately USD 15.6 billion in 2000, which is slight increase from the previous year [1]. The FDI in the IT sector amounted to USD 2.3 billion in 1999 or 14.8% of the total foreign investments [1]. For year 2000, the foreign investment in the IT sector rose to USD 2.7 billion [1]. After the financial crisis in 1997, the Korean government initiated tax reduction for high-tech businesses, businesses in foreign investment zones and service businesses in assistance of advanced industries (national tax for 10 years, local tax for 15 years). Rent reduction policy is also underway in industrial complexes for foreign companies (Kwang-ju, Chon-an), 25 national industrial complexes, and foreign investment zones (100% of reduction for high-tech businesses and 75% of reduction for general manufacturing industries). M&A activities (hostile takeovers) are allowed in May 1998. There is no ceiling on foreign ownership of special or value-added service providers. And the ceiling on single person ownership of facilities-based service providers has been abolished except Korea Telecom. Ceiling on foreign aggregate ownership of facilities-based service providers is 49% . Acquisition by a non-telecom company has been also allowed. There is no ceiling in telecommunications equipment and software businesses.
The government is planning to provide tax credit measures such as lowering the tax rate for capital gains tax by 50 percent in on-line securities trading to support M&A [1]. The government will also eliminate the limitation of voting right in private funds for minor investors to allow them to possess voting shares in specific companies. The government is also expected to strengthen the consulting ability of Promising Information & Communication Companies Association (PICCA) in order to provide information on accounting, laws, overseas expansion, and M&A of Internet venture companies. In addition, the government will also support the management of so called ‘.com’ companies by organizing and foster e-biz for dot com companies within the Internet Companies Association. The government is planning to raise 10 more investment unions with USD 38 million in seed money, in addition to the USD 138 million investment fund raised from June 1998 to February 2000 and the USD 115 million investment fund having been raised since January 2001 [1]. The government is planning to support overseas businesses of Internet companies through local support centers supporting entry into foreign markets, and using the 5 branches of the Internet Companies Association as a springboard for Internet companies to enter foreign markets.
Source: National Statistical Office, Korea
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