(SEJONG = Newsis) A second-tier subsidiary of a domestic holding company and a foreign investor will be able to establish a joint venture in Korea from next month.

The Ministry of Trade, Industry & Energy (MOTIE) announced that the enforcement ordinance of the revised Foreign Investment Promotion Act, which was introduced early last month, was approved at a Cabinet meeting on February 18. The ministry also said that the ordinance will be implemented from March 11.

Under the previous Monopoly Regulation and Fair Trade Act (Fair Trade Act), a second-tier subsidiary was required to have full ownership of a third-tier subsidiary.

However, the revised Foreign Investment Promotion Act allows the second-tier subsidiary to enter into a joint venture with a foreign investor and establish a third-tier subsidiary.

The act requires the second-tier subsidiary and the foreign investor to own more than 50 percent and 30 percent of the shares, respectively, and shares that are not owned by the foreign investor must be owned by the second-tier subsidiary.

Also, the third-tier subsidiary must satisfy the requirements of the individual-type foreign investment zone, including the industry and size of foreign investment, and receive approvals from the Foreign Investment Committee and the Korea Fair Trade Commission.

The enforcement ordinance sets specific requirements for establishing a third-tier subsidiary in Korea.

Under the enforcement ordinance, the third-tier subsidiary must be closely related to the business of the second-tier subsidiary, such as the supply of key materials. It must have closer business relations with the second-tier subsidiary than the subsidiary.

Also, the third-tier subsidiary is required to fall under the category of joint investment under the Fair Trade Act, and is prohibited to own the shares of other subsidiaries.

“We expect that more foreign investors will invest in Korea as the revised act enables them to establish a joint venture with domestic second-tier subsidiaries,” said a MOTIE official.

ahk@newsis.com

Source Text

Source: Newsis (Feb. 18, 2014)

** This article was translated from the Korean.