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The period of a loan shall be calculated based on its grace period and redemption period, and the period for redemption in case of partial redemption or interim redemption shall be calculated by aggregating the amounts calculated by multiplying the redemption period of each partial payment or interim payment by the ratio of the relevant redemption amount to the total amount of the loan (Article 2(2) of the Enforcement Rules of the Foreign Investment Promotion Act).
Example: Calculation of the redemption period when a foreign-invested company borrows USD 3 million from a parent company and repays USD 1 million every year for three years after the lapse of four years
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Loans with maturity of not less than five years can be recognized as foreign investment when they are extended to the relevant foreigninvested company by a company that meets any of the following conditions (foreign investment in the form of long-term loans):
– The foreign-invested company’s overseas parent company, or a company that has an investment relationship with the overseas parent company of the foreign-invested company
– A foreign investor or a company that has an investment relationship with the foreign investor
◎ Notification of foreign investment in the form of long-term loans
– Form: The Enforcement Rules of the Foreign Investment Promotion Act (attached Form 2)
– A copy of the document verifying the overseas parent company or a company having an investment relationship with the parent company
– A copy of the loan contract
– A copy of a certificate of nationality of the loan provider (not required when the loan is from the overseas parent company that has filed an FDI notification)
※ (Note) As for notification of a long-term loan under the Foreign Investment Promotion Act, after a foreigner establishes a foreigninvested company by contributing equity capital, the foreigner (foreign investor) may extend a long-term loan in foreign currency with an average maturity of not less than five years to the established foreign-invested company.
– When a foreign currency loan is brought in from a foreign country before any equity investment is made, a domestic company that is a resident should notify the foreign currency loan in accordance with Article 7-14 of the Foreign Exchange Transactions Regulations.
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The Foreign Investment Promotion Act does not specify whether or not a certificate of registration of a foreign-invested company can be reissued when it is lost or damaged.
◎ However, as Article 21(6) of the Foreign Investment Promotion Act prescribes that the certificate of registration of foreign-invested company shall not be transferred to any other third person or be used unjustly, there is no problem with reissuance of the certificate. Therefore, it can be reissued when an application for reissuance is filed with a delegated agency, together with a statement detailing the cause of loss.
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A foreign investor who fails to register as a foreign-invested company cannot prove that his/her foreign investment has been completed. As a result, matters such as visa applications for a stay in Korea or the transfer of dividends or proceeds from the sale of stocks to foreign countries cannot be processed.
◎ Therefore, all foreigners who have completed a foreign investment (including partial execution of investment satisfying the requirements for foreign investment under the Foreign Investment Promotion Act) should apply for registration (registration of alteration) as a foreigninvested company within 60 days from the occurrence of relevant events*, as prescribed by Article 21 of the Foreign Investment Promotion Act.
◎ In addition, a delay or other disadvantages may be experienced in cases requiring a certificate of the registration of a foreign-invested company (when renting an office or a facility in a foreign investment zone or applying for exemption from the mandatory bond purchase under the Housing Act or the Urban Railroad Act)
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In accordance with Article 21(1) of the Foreign Investment Promotion Act, a “foreigner” is required to file for registration as a foreign-invested company within 60 days (30 days in case of contributions) from the occurrence of the following events: where he/she has completed payment for the object of investment (new stocks); where he/she has completed the acquisition of stocks, etc. (existing stocks); where he/she has completed his/her contributions to a non-profit organization.
◎ In accordance with Article 21(2) of the same Act, when a foreigner making an investment meets the requirements for foreign investment, he/she may file for registration as a foreign-invested company even prior to completing the acquisition of stocks or payment for the object of investment (partial registration).
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A foreigner who intends to make a foreign investment by acquiring the stocks or shares previously issued by a Korean corporation or a company shall, in advance, report thereon pursuant to the Ordinance of the Ministry of Trade, Industry and Energy, but, in certain cases, may report thereon within 60 days from the acquisition of stocks, etc. in accordance with Article (2) of the Foreign Investment Promotion Act.
1. Notification of foreign investment by acquisition of existing shares
◎ Basic requirements: The investment amount shall be not less than KRW 100 million and at least 10 percent of voting stocks shall be held after the acquisition of new stocks.
◎ Organizations receiving notification (delegated agencies): KOTRA, foreign exchange banks in Korea, etc.
◎ Time of notification: Prior to remittance of funds
◎ Exception to pre-notification and investments requiring preauthorization
– When a foreigner acquires the existing stocks, etc. issued by a listed corporation pursuant to the Financial Investment Services and Capital Market Act, he/she may file a notification or notify modifications on foreign investment within 60 days from such acquisition.
– A foreigner who intends to make a foreign investment in a defense industry company by acquiring its stocks, etc. (new and existing stocks) shall obtain a permission from the Minister of Trade, Industry and Energy prior to the investment, as prescribed by the Ordinance of the Ministry of Trade, Industry and Energy. (With the 2020 amendment to the Foreign Investment Promotion Act, the acquisition of new stocks as well as the existing stocks is subject to permission from the Minister.)
◎ Form: Notification of Foreign Investment by Acquisition of Stocks (or Contribution) [ ] Notification Form [ ] Application for Authorization (Enforcement Rules of the Foreign Investment Promotion Act [Form 1])
◎ Documents required for FDI notification
– Two copies of the notification form: Choose either a Korean form or an English form to fill out
– A power of attorney: Only required in case of notification by an agent
– Documents certifying the foreigner’s nationality (Individuals: a certificate of citizenship issued by the relevant government or authorities, a passport, etc.; Corporations: a certified copy of corporate registration, a copy of a certificate of business, etc )
◎ Issuance of a certificate of notification: A delegated authority will issue a certificate of notification without delay to the notifying party upon the receipt of on the FDI notification.
2. Remittance of funds by a foreign investor
◎ Depending on the terms of the stock purchase agreement, a foreign investor may remit funds directly to the domestic bank account of the Korean shareholder that sells the existing stocks or may remit funds to an international account or temporary account under his her name and then use the funds to make a payment to that shareholder.
– The domestic bank examines whether the FDI notification has been properly filed and the stock purchase agreement before processing the payment to the shareholder.
3. Filing for registration of a foreign-invested company
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A foreigner who intends to invest by establishing a corporation or participating in capital increase with consideration of a domestic corporation can notify foreign investment through acquisition of new shares.
1. Notification of FDI through acquisition of stocks, etc. (new stocks)
◎ Basic requirements: The investment amount shall be not less than KRW 100 million, and at least 10 percent of voting stocks shall be held after the acquisition of new stocks.
◎ Organizations receiving notification (delegated agencies): KOTRA, foreign exchange banks in Korea, etc.
◎ Time of notification: Prior to remittance of investment funds
◎ Application form: Foreign Investment by Acquisition of Stocks (or Contribution) [ ] Notification Form [ ] Application for Authorization (Enforcement Rules of the Foreign Investment Promotion Act [Form 1])
◎ Documents required for FDI notification
– Two copies of the foreign investment notification form: Choose either a Korean form or an English form to fill out
– A power of attorney: Only required in case of reporting by an agent
– Documents certifying the foreigner’s nationality (Individuals: a certificate of citizenship issued by the relevant government or authorities, a passport, etc.; Corporations: a certified copy of corporate registration, a copy of a certificate of business, etc )
◎ Issuance of a certificate of notification: A delegated authority will issue a certificate of notification without delay to the notifying party upon the receipt of an FDI notification.
2. Remittance of investment funds by a foreign investor
◎ A foreign investor intending to invest in Korea by establishing a corporation can receive a temporary account needed for the remittance of investment funds at a bank after completing a report on foreign investment.
◎ In case of a medium-or large-sized investment, the amount of remittance for the first transfer is limited (KRW 100 million), but as much funds as needed can be remitted afterwards.
◎ Remitter: ABC (a UK resident) (The remitter should be the same as the foreign investor on the FDI notification form.)
◎ Beneficiary: The name of the foreign investor (a temporary bank account number under the name of the foreign investor in case he/ she establishes a corporation) or the name of a foreign-invested company (Techno Fiber Korea Co. Ltd.) (in case of participation in capital increase with consideration of an existing corporation)
◎ Beneficiary bank : Korea Exchange Bank, Yangjaenam BR/IKP Office
– Address: IKP B/D, 4th Floor 300-6 Yomgok-Dong, Seocho-Gu, Seoul, Korea
– Swift code: KOEXKRSE
◎ Remarks: This fund will be used for the establishment (or for capital increase) of Techno Fiber Korea Co. Ltd. in Korea.
3. Registration of incorporation of a foreign-invested company (registration of capital increase in case of capital increase with consideration)
◎ Type of corporation: A stock company, a limited company, etc.
◎ Trade name: Whether the same trade name exists should be checked (at the Registrar of Supreme Court Internet Register Office: http:// www.iros.go.kr).
◎ Office address to be secured
◎ Executive officers (regardless of nationality or residency in Korea)
– Directors: Inside directors (representative director), outside directors, and other directors not engaged in regular business (At least three directors are required for a stock company but one or two directors may be acceptable for a stock company whose capital is less than KRW 1 billion.)
– Auditors (not required for a stock company whose capital is less than KRW 1 billion)
◎ A certificate of personal address of the representative director
◎ Notification of foreign investment (the investor, investment amount, business area, etc. should be confirmed)
◎ Appointment of a legal officer, attorney, or accountant (can be arranged upon request from a foreign investor)
4. Filing for registration of a foreign-invested company
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Currently, notification of foreign investment cannot be filed online. In principle, foreign investment cannot be notified in countries outside of Korea, either.
◎ However, a foreign investment notification can be filed in certain countries where the Korea Trade-Investment Promotion Agency (KOTRA) operates overseas FDI offices to render support to foreign investors. The list of such overseas FDI offices is available on the Invest KOREA website (www.investkorea.org ▶ How We Can Help ▶ About Us ▶ Headquarters and Global Network).
