"The court has been agonising over whether to put the accused in jail or keep him out of prison," said chief judge Lee Jae-Hong.
"But in consideration of the huge economic impact that could result from imprisonment, it decided to suspend the sentence."
"I am also a citizen of the Republic of Korea," Lee added. "I was unwilling to engage in a gamble that would put the nation's economy at risk."
Prosecutors had accused the Chung family of using the embezzled cash to run a slush fund for bribing government officials, politicians and bankers in return for business favours.
They had urged the appeal court to double the original jail term.
Part of Chung's community service will include delivering speeches and writing articles on the need for ethics in business.
He will also be expected to good on his pledge to donate $1bn to charity.
Hyundai, which includes affiliate Kia Motors, controls 70 per cent of the country's auto market and accounts for 5.4 per cent of South Korea's gross domestic product.