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03_CMS_Investment Guide
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Concept of Foreign Direct Investment and Related Terms |
| Concept of Foreign Direct Investment |
| Definition of Foreign Direct Investment |
| Foreign direct investment refers to the acquisition by a foreign individual or organization of a certain quantity of the stocks or shares of a domestic corporation or firm, or long-term loans provided by a foreign individual or organization to a domestic corporation or firm. |
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Acquisition of the stocks or shares of a domestic enterprise |
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Definition
This refers to a foreigner's acquisition and possession of a given quantity of the stocks or shares (hereinafter "shares") of a corporation or firm operated by a Korean corporation (including a "corporation" under the term "organization") and/or Korean
citizens for the purpose of establishing lasting business relations with that corporation or firm. |
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Basic requirements
In order to qualify as foreign direct investment under the Foreign Investment Promotion Act, the following two requirements must be satisfied
: the minimum foreign investment amount, and the investment ratio by the foreign investor. The foreign investor's investment ratio
refers to the ratio calculated once the foreign direct investment has been completed. It is particularly noteworthy that all individual foreign investors should satisfy this ratio even when two or more foreign investors are involved. There are no restrictions on the amount or ratio when a foreign investor who is already registered makes additional investments. |
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Minimum initial investment to qualify as foreign investment: 50 million won
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Foreigner's investment ratio: The foreigner should hold 10% or more of the total shares
along with voting rights or total equity investment.
An existing foreign investor is still treated as a qualified foreign investor even if he/she fails to satisfy the investment amount and ratio requirements by a partial share transfer or a reduction of capital. However, the foreign investment enterprise registration will be voided in the event that a foreign investor transfers all of his/her shares to a Korean national or corporation or when the foreign investor's' shares are fully retired by a capital reduction of the foreign invested firm. |
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Exceptions
No exception is allowed for the investment amount, although exceptions are possible for the foreign investor's investment ratio in certain cases
. When a contract falling under any of the following circumstances outlined below is concluded, it will be treated as a case of qualified foreign direct investment even if the investment ratio falls below 10% and an amount of 50 million won or more is invested: |
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A contract under which an officer may be dispatched or appointed; |
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A contract which stipulates the supply of raw materials or the purchase of products for a year or longer; or |
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A contract which allows for the provision or introduction of technologies, or joint research and development. |
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Long-term loan provided by a foreign investor
A long-term loan can be defined as a loan with
an average repayment period of five or more years provided by a foreign parent firm or a firm which has one of the below-listed capital investment relationships with the parent firm:
<A firm that has a capital investment relationship with the parent firm> |
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A firm that owns 50% or more of the total issued shares or equity investment of its foreign parent firm; |
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A firm that owns 10% or more of the total issued shares or equity investment of its foreign parent firm; |
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A firm of which 50% or more of its total issued shares or equity investment is owned by its foreign parent firm; or |
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A firm of which 50% or more of its total issued shares or equity investment is owned by a firm that owns 50% or more of the foreign parent firm's total issued shares or equity investment.
Firms falling under 2~4 will only be treated as a firm with a qualified capital investment relationship only
when the foreign parent company owns 50% or more of their total issued shares or equity investment. |
| Definitions of Terms Related to Foreign Direct Investment |
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An individual possessing foreign nationality |
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A foreign corporation organized according to the laws of a foreign country. |
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International economic cooperation organizations. |
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A representative agency that performs external economic cooperation services on behalf of a foreign government; |
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An international organization that performs development financing services, including IBRD, IFC, and ADB. |
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An international organization that handles external investment services for itself or another entity; or |
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A Korean national who has obtained a permanent residence permit from a foreign state. |
| A foreigner as defined above who hold shares or equity holdings as provided under the Foreign Investment Promotion Act. |
| A firm invested in by a foreign investor as provided under the Foreign Investment Promotion Act. |
| Objects invested by foreign investors in order to acquire shares as provided under the Foreign Investment Promotion Act, falling under any of the following: |
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External payment means under the Foreign Exchange Transaction Act or domestic payment means acquired by their exchange (or conversion) |
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Capital goods |
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Gains (dividends) generated from shares acquired by foreign investment |
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Industrial property rights, copyrights used for industrial activities, IC chip layout design rights, and technologies subject to other intellectual property rights and rights concerning their use |
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Residuary assets which remain from the liquidation of a branch, office or corporation which the foreigner owned in Korea |
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Repayment of a loan or other borrowings from foreign lenders |
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Shares of a foreign corporation listed or registered on a foreign stock exchange |
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Shares held by a foreigner under the Foreign Investment Promotion Act or the Foreign Exchange Transaction Act |
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Real property(ies) in Korea |
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Proceeds from the sale of corporate shares or real properties held by a foreigner.
Industrial property rights require a certified price valuation by a technology appraisal agency in accordance with the 'Enforcement Decree of the Special Act on Measures for Fostering Venture Businesses'. |
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Machinery, equipment and materials, facility elements, appliances, components, parts, and livestock, seeds, plants, fish or shellfish required for farming, forestry or fishery development. |
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Raw materials, spare parts, freight or insurance premiums for their import, installation technology or consulting services. |
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Foreign Direct Investment Related Statutes |
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Foreign Investment Promotion Act, Enforcement Decree, and Enforcement Rules. |
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Regulations on Foreign Investment or Technology Introduction (As notified by the Ministry of Industry and Energy notice). |
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Integrated bulletins on foreign investment (As notified by the Ministry of Industry and Energy notice). |
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Tax Abatement Regulations for Foreign Investment (As notified by the Ministry of Finance and Economy notice). |
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Tax Abatement Restriction Act (Chapter 5: Tax Abatement for Foreign Investment), Enforcement Decree, and Enforcement Rules. |
| Additional statutes relating to the inducement of direct and indirect foreign investment. |
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Foreign Exchange Transaction Act: Foreign investment related to foreign exchange or matters related to external transactions. |
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Designation and Operation of Free Trade Zones Act |
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Free Economic Zones and Tariff-free zones were previously integrated under the free trade zone system. |
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Designation and Operation of Free Economic Zones Act |
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Securities and Exchange Act, etc. |
| Relationship between the Foreign Investment Promotion Act and Other Individual Statutes |
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Foreign investment is confined to such foreign direct investment as those cases which satisfy the requirements for designation as 'foreign capital'
under the Foreign Investment Promotion Act and other related statutes. |
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Foreign exchange and external transactions are regulated as stipulated under the Foreign Exchange Transaction Act, except for those transactions for which certain special provisions are stipulated under the Foreign Investment Promotion Act. |
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All foreign invested firms are considered
Korean domestic corporations as organized under Korean law, and as such are subject to all Korean laws that are applicable to purely domestic Korean corporations under each individual statute, even if they have passed the specific procedures provided under the Foreign Investment Promotion Act. Therefore, they can only operate a business that requires an approval, license or permit under such individual statutes on the
condition that they obtain such an approval, license or permit. |
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