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◎ A foreign-invested company (a local corporation) – An investment of at least KRW 100 million per foreign investor is required to establish a foreign- invested company under the Foreign Investment Promotion Act and the Commercial Act.
◎ A branch office or liaison office of a foreign company – A branch office: When engaging in a business that generates profits in Korea, it is classified as a “branch office” under the Foreign Exchange Transactions Act. Because a branch office is a foreign corporation, it is not recognized as foreign direct investment.
– A liaison office: A liaison office is different from a branch office in that it does not carry out business that generates profits in Korea, but instead undertakes “non-sales” activities such as liaison work, market research, research and development activities. Unlike a branch office, a liaison office is assigned a serial number equivalent to a business registration number by a competent tax office without a registration process in Korea.
◎ Therefore, when selecting a trade name, a foreign-invested company should check whether the selected trade name already exists at the Registrar of Supreme Court Internet Register Office at (http:/www.iros.go.kr).
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◎ Differences in terms of nature of business
(1) An individual business: An individual engages in business under his/her name and has full ownership of the business as well as unlimited liability for business debts.
(2) A corporation: A corporation is an entity completely different from individuals, and its operation is run by the representative director under the name of the corporation. A corporation limits its liability and guarantee to the amount of its assets and the representative director, directors and shareholders that are the members of the corporation are not liable to its debts.
◎ Differences in terms of establishment procedures
(1) An individual business: An individual business can carry out business after notifying foreign investment and receiving a certificate of business registration from the competent tax office, without additional procedures.
(2) A corporation: A corporation is required to undergo incorporation procedures (incorporation registration, business registration) and the process may take around two more weeks due to document preparations and procedural matters for registration.
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If the investment cannot be notified under the Foreign Investment Promotion Act because the amount of investment is less than KRW 100 million, a notification of acquisition of stocks by a non-resident should be filed to a foreign exchange bank pursuant to Article 7-32 of the Foreign Exchange Transactions Regulations.
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There are four types of corporations - limited partnership company, partnership company, stock company and limited liability company – that can be established under the Commercial Act of Korea. As a stock company represents an absolute majority, the process of establishing a stock company is explained below (the “Act” refers to the Commercial Act).
< Process of Establishing a Stock Company >
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If foreign investor A transfers all of the stocks of foreign-invested company C to its overseas parent company B in the form of dividend in kind, overseas parent company B can acquire the stocks of foreign-invested company C through succession by notifying the acquisition of stocks, etc. and foreign-invested company C should apply for registration of alteration due to the change of foreign investor.
◎ Because foreign company B receives the stocks of foreign-invested company C owned by foreign investor A in the form of dividend in kind, foreign company B should notify the acquisition of stocks, etc. (Form 1)
– Reason for acquisition (Paragraph 15): Others - C’s stocks paid as dividend in kind by A
– Required documents: Certificate of nationality of B and documents verifying the dividend in kind
◎ Foreign-invested company C (or foreign company B) should apply for registration of foreign-invested company (Form 17)
– Reason for registration of alteration: Change of foreign investor
– Required documents: A modified shareholder register, the existing certificate of registration of foreign-invested company (to be returned)
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If foreign investor A invests in kind the entire stocks of foreigninvested company B in domestic company C, foreign-invested company B should file for cancellation of registration of a foreigninvested company and foreign investor A should file a report on the acquisition of stocks, etc. of domestic company C and apply for registration of a foreign-invested company.
◎ Foreign-invested company B should cancel the registration of foreigninvested company through registration of alteration (Form 17)
– Reason: Domestication
◎ This constitutes a case “where a foreign investor has transferred all of the stocks, etc. owned by himself or herself to a Korean corporation or company” as prescribed in Article 21(4)2 of the Foreign Investment Promotion Act.
◎ As foreign investor A invests in kind all of the stocks of foreigninvested company B in domestic company C, foreign investor A should file a report on the acquisition of stocks, etc. of domestic company C (Form 1)
– Object of investment: Domestic stocks
◎ Constitutes “stocks owned by foreigners under the Foreign Investment Promotion Act or the Foreign Exchange Transactions Act” as prescribed in Article 2(10)2 of the Enforcement Decree of the Foreign Investment Promotion Act) (satisfies the requirements of investment of not less than KRW 100 million and acquisition of not less than 10 percent of the total voting stocks)
– Required documents: Certificate of nationality of A, appraisal report on the stocks of foreign-invested company B
◎ Domestic company C (or foreign investor A) should apply for registration of foreign-invested company (Form 17)
– Reason: New foreign investment
– Required documents: Certificate of corporate registration, certificate of business registration, and shareholder register (or
documents certifying the stock transfer)
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If foreign investor A invests in kind the entire stocks of foreigninvested company C in foreign company B, foreign company B should acquire the stocks of foreign-invested company C through succession by notifying the acquisition of stocks, etc. and foreigninvested company C should apply for registration of alteration to reflect the change of foreign investor.
◎ Because foreign company B acquires the stocks of foreign-invested company C through the investment of foreign investor A, it should file a report on the acquisition of stocks, etc. (Form 1)
– Reason for acquisition (Paragraph 15): Others - A’s investment in kind of C’s stocks
– Required documents: A certificate of nationality of B, and documents verifying the investment in kind
◎ Foreign-invested company C (or foreign company B) should apply for registration of alteration (Form 17).
– Reason for registration of alteration: Change of foreign investor
– Required documents: The modified shareholder register, the existing certificate of registration of foreign-invested company (to be returned)
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If foreign investor A is acquired by foreign company (or existing foreign investor) B, B will succeed to be the new shareholder (or share increase) of foreign-invested company C. Therefore, an application for alteration of registration of foreign-invested company should be filed.
◎ By merging A, foreign company (or foreign investor) B shall succeed to be the shareholder of foreign-invested company C without a separate acquisition of stocks. Therefore, notification of acquisition of stocks, etc. (Form 1) is not required.
◎ Foreign-invested company C (or foreign investor B) should apply for alteration of registration of foreign-invested company (Form 17)
– Reason for alteration: Change of the foreign investor
– Required documents: A modified shareholder register, documents certifying the merger, a certificate of nationality of B (not required for an existing foreign investor), and the existing certificate of registration of foreign-invested company (to be returned)
※ The registration of alteration is required pursuant to Article 21(3)4 of the Foreign Investment Promotion Act as it is the case of a change to the “trade name, name or nationality of the foreign investor“ as prescribed in Article 2(3)2 of the Enforcement Rule of the Foreign Investment Promotion Act.
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Although a certificate of purchase/deposit of foreign currency was issued for the loan by the bank, because the funds used are obviously domestically sourced, it is deemed unlawful or unjust and subsequently not recognized as foreign investment by the Ministry of Trade, Industry and Energy in accordance with Article 28(5)1 of the Foreign Investment Promotion Act*.
※It does not constitute an object of investment prescribed as “a means of international payment as defined under the Foreign Exchange Transactions Act or a means of domestic payment incurred by the exchange of such a means of international payment” in Article 2(1)8(a) of the Foreign Investment Promotion Act.
◎ The foreign investor intended to provide the won currency funds borrowed from a domestic bank to the foreign-invested company and therefore had no reason to deposit the foreign currency exchanged from Korean won in an external account.
◎ Nevertheless, the foreign investor used his/her free won account to exchange Korean won into foreign currency and transfer the funds to an offshore foreign currency account for non-residents. In this regard, although a certificate of purchase/deposit of foreign currency could be issued as if foreign-sourced funds were introduced, it cannot be recognized as foreign investment as the funds are evidently domestically-sourced funds.
