Invest KOREA

It is recognized as foreign direct investment only when a foreign investor makes a direct investment. A foreign-invested company cannot be a foreign investor because it is classified as a domestic corporation. A foreigner means an individual of foreign nationality or a corporation established under foreign laws. Therefore, another domestic corporation in which a foreign-invested company invests cannot be a foreign-invested company (Article 2(1)1 of the Foreign Investment Promotion Act).

No, in principle. In such case, a report on the acquisition of securities by a non-resident should be filed under the Foreign Exchange Transactions Regulation.3) ◎ For the Foreign Investment Promotion Act to apply, a foreigner should invest at least KRW 100 million and hold at least 10 percent of the total number of issued voting stocks or the total equity investment of a domestic corporation or a company (including corporations in the process of being established). ◎ However, where a foreigner owns stocks, etc. of a Korean corporation or a company and dispatches or appoints an executive officer (referring to a director, a representative director, a managing general partner, an auditor, or a person in a similar position, who has the authority to participate in decision-making for important management matters) to such corporation or company, the foreigner can be subject to the Foreign Investment Promotion Act even if he/she holds less than 10 percent of the total number of issued voting stocks or the total equity investment of such corporation or company. (The investment amount should still be KRW 100 million or greater.)

A foreign investment in the form of a long-term loan is recognized as foreign investment under Article 2(1)4(b) of the Foreign Investment Promotion Act. But, because it does not constitute a foreign investment in the form of equity investment which is recorded on the certificate of registration of a foreign-invested company (Articles 2(1)4(a), 2(1)4(c), and 2(1)4(e) of the same Act), it is not recorded as the amount of foreign investment on the certificate of registration. ◎ Also, under Article 21(1) of the Foreign Investment Promotion Act, foreign investments eligible for registration of a foreign-invested company are limited to the following: where a foreign investor has completed payment for the object of investment (new shares); where a foreign investor has completed the acquisition of stocks, etc. (existing shares); or where a foreign investor has completed contribution to a non-profit organization.

Where a subsidiary established by a domestic corporation in a foreign country invests back in Korea, it is referred to as a round trip investment. A round trip investment itself is not prohibited under the Foreign Investment Promotion Act because a foreign corporation established under applicable foreign laws is deemed a “foreign investor” under the Foreign Investment Promotion Act, regardless of the owner of such corporation. ◎ However, it should be noted that such investment is not recognized as foreign investment in the following circumstances where special benefits are granted to those registered as a foreign-invested company: – Tax reductions or exemptions for foreign investment (Article 121-2(11) of the Restriction of Special Taxation Act and Articles 116-2(11) and 116-2(12) of the Enforcement Decree of the Act) – Lease and sale of State or public property to foreign-invested companies by a negotiated contract (Article 19(1) of the Enforcement Decree of the Foreign Investment Promotion Act) – Reduction or exemption of rent for foreign investment zones (Subparagraph 6 of Article 1 of the Guidelines for Operation of Foreign Investment Zones)

The investment amount (KRW 200 million) meets the requirement for foreign investment, but the foreign investment ratio of 1 percent fails to meet the requirement under the Foreign Investment Promotion Act. ◎ However, even when the amount invested by a foreigner is not less than KRW 100 million but the foreign investment ratio is less than 10 percent, it can be exceptionally recognized as foreign investment if the foreigner dispatches or appoints an executive officer pursuant to Article 2(2)2 of the Enforcement Decree of the Foreign Investment Promotion Act.

It can be deemed foreign investment because there are noparticular restrictions. In accordance with Article 51-2(1)9 of theCorporate Tax Act and Article 86-2 of the Enforcement Decreeof the Corporate Tax Act, a PFV is defined as a company whoseassets shall be used for investment in facilities and infrastructure,the development of resources, or a specific business requiringsubstantial time and money, and its profits shall be distributedto its stockholders. It shall hire no staff member or full-timeexecutive and shall entrust the management, operation anddisposal of its assets to an asset management company andits treasury management to a financial institution engaging intrust business pursuant to the Financial Investment Services andCapital Markets Act.

In most business categories, a foreigner can invest alone in Korea without a Korean partner. However, a foreigner should have a Korean partner to invest in “restricted business categories” and there are restrictions as to the percentage of stocks or shares that can be held by a foreign investor. ◎ The restricted and prohibited business categories are revised and announced every year by the Minister of Trade, Industry and Energy through the Integrated Public Notice of Foreign Investment pursuant to Article 4(4) of the Foreign Investment Promotion Act and Article 5(10) of the Enforcement Decree of the Act. ◎ Restrictions on Foreign Investment (Example)

No. If separate requirements for minimum capital are prescribed for each business under separate Acts, such requirements should be satisfied. ◎ Examples of minimum capital requirements under separate laws – International logistics brokerage business: Any person who intends to file for registration of international logistics brokerage business with the head of the competent local government shall possess capital of at least KRW 300 million (referring to the appraised value of assets of at least KRW 600 million if he/she is not a juristic person) (Article 43 of the Framework Act on Logistics Policies). – Civil engineering business: Any person who intends to file for registration of civil engineering business with the head of the competent local government shall possess capital of at least KRW 500 million (attached Table 2 of the Enforcement Decree of the Construction Technology Management Act). – International travel business: Any company that intends to register an international travel business with the head of the competent local government shall possess capital of at least KRW 30 million. (A foreign-invested company shall possess capital of at least KRW 100 million to engage in international travel business.)

A foreign-invested company under the Foreign Investment Promotion Act is basically treated in the same manner as purely domestic companies (national treatment) and can receive preferential treatments in terms of taxes and location. ◎ General benefits – Guarantee of remittance to foreign countries: Remittance of dividends and proceeds from the sale of the stocks and shares owned by a foreign investor shall be guaranteed in accordance with the details of the report or permission at the time of such remittance. – National treatment: Except as otherwise explicitly prescribed by law, foreign investors and foreign-invested companies shall be treated in the same manner as Korean nationals or corporations with respect to their business operation. – Special treatment for import declaration of capital goods: Imported capital goods for which confirmation of review of specification of imported capital goods was obtained pursuant to the Foreign Investment Promotion Act shall be considered as having obtained import approval under the Foreign Trade Act. – Special treatment for investment in kind: A “certificate of completion of investment in kind” verified by the Commissioner of the Korea Customs Service shall be deemed an “investigation report by inspector” under Article 203 of the Non-Contentious Case Procedure Act to ease the procedures prescribed by the Commercial Act. ◎ Tax reductions and exemptions: National taxes and local taxes may be reduced or exempted when engaging in businesses subject to tax reductions and exemptions under the Restriction of Special Taxation Act or the Restriction of Special Local Taxation Act (businesses accompanying technologies for new growth engine industries, etc.). However, corporate tax reductions and exemptions were eliminated on December 31, 2018. ◎ Industrial site support – The land, factories, or other property owned by the State, local government, or public institution may be used, profited from, lent, or sold to a foreign-invested company by a negotiated contract. – When State-owned land is rented to a foreign-invested company, its rental charges may be reduced or exempted. ◎ Exemption of customs duty: Customs duty shall be exempted for capital goods* that are directly used in the business subject to tax reductions or exemptions and are imported within five years from the date of the report** of foreign investment by the acquisition of newly issued stocks. (Individual consumption tax and valueadded tax are also exempted for foreign-invested companies that operate in a business accompanying technologies for new growth engine industries and a tenant company of an individual-type foreign investment zone.)

Establishment of a Korean branch by a non-resident is subject to the Foreign Exchange Transactions Act (The Regulation on Foreign Exchange Transactions) instead of the Foreign Investment Promotion Act. A branch established by a non-resident in Korea1) is divided into a “branch” that engages in sales activities that generate profit in Korea and a “liaison office” that does not engage in sales activities that generate profit in Korea and only executes non-sales business activities including liaison services, market research, and research and development, etc. A foreign corporation establishing a branch or a liaison office in Korea2) should report the establishment to the head of a foreign exchange bank.