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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.
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When a foreign investor transfers the stocks, etc. acquired pursuant to the Foreign Investment Promotion Act to another person (a Korean national or a foreigner), the acquiring foreigner or foreigninvested company should report the acquisition of the stocks, etc. and register change of information of foreign-invested company to a delegated agency within 60 days of the signing of the stock transfer contract.
1) When the foreign investor transfers the stocks to a foreigner:
– The acquiring foreigner: Two copies of the form of notification of foreign investment by acquisition of stocks, etc. or contribution
(certificate of nationality and stock transfer contract to be attached)
– The foreign-invested company: An application for alteration of registration of a foreign-invested company (the original certificate of registration of a foreign-invested company should be returned and a shareholder register should be attached)
2) When the foreign investor transfers the stocks to a Korean national:
– The foreign-invested company should apply for alteration of registration of foreign-invested company to reflect the transfer of the stocks of the foreign investor. However, if the entire stocks held by the foreign investor are transferred, registration of foreigninvested company shall be cancelled.
– The foreign-invested company: An application for alteration of registration of foreign-invested company (the original certificate of registration of a foreign-invested company should be returned and a shareholder register should be attached)
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Such investment can be carried out under a different law. Where a foreigner (non-resident) acquires local currency-denominated stocks or shares of an unlisted or unregistered domestic corporation from a resident as an object of investment prescribed by the Foreign Investment Promotion Act and such acquisition does not constitute foreign investment prescribed by the Act, it should be reported to the head of a foreign exchange bank (Article 7-32 of the Regulation on Foreign Exchange Transactions).
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Notification of foreign investment is mandatory, but there are no penalty provisions for failure to notify foreign investment. Therefore, when it is inevitable to change the information of the notified matters, a notification of change of information can be filed any time.
◎ Changes requiring notification of change of information
– The trade name, name or nationality of the foreign investor
– Foreign investment amount, foreign investment ratio and form of investment
– Business that the investor intends to engage in
– Transferor of stocks, etc.
– Types of investment, purpose of investment, address of the foreigninvested company, etc.
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In order to be recognized as foreign direct investment, investment funds should be remitted in foreign currency from a foreign country and exchanged into Korean won in Korea. It is because a certificate of purchase of foreign currency or a certificate of deposit of foreign currency should be submitted for the registration of a foreign-invested company.
◎ Nowadays, many foreign banks hold Korean won bank accounts in Korean banks. When a foreign investor visits a bank in his/her country to remit investment funds, the bank may suggest that the investor exchange the foreign currency funds into Korean won in their bank on the condition that the Korean won funds will be withdrawn in their corresponding bank in Korea. The foreign investor should reject this offer and transfer the funds in foreign currency.
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In principle, the source of funds does not have to be disclosed.
◎ Exceptionally, however, a foreign-invested company may have to disclose the source of funds when applying for a permission to establish a casino in Jeju Special Self-Governing Province. According to Article 171-6 of the Special Act on the Establishment of Jeju Special Self-Governing Province and the Development of Free International City, the investment funds must not pertain to criminal proceeds in accordance with the final ruling of a trial following Article 2(4) of the Act on the Regulation and Punishment of Concealment of Gains from Crimes.
◎ When a foreigner who is an individual living in a country that prohibits foreign investment by individuals (e.g., China) hand carries investment funds instead of remitting them, he/she may not be able to submit a permit issued by his/her home country for carrying the funds out of the country. In this case, when issuing a foreign investor visa (D-8), the Immigration Office requires the foreigner to submit other documents (e.g., a bank statement for the account under his/her name in which the funds were deposited for a considerable period of time) certifying that the foreigner is the owner of the funds.
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Generally, in the event of an investment in a stock company, a foreigner can complete the registration of capital increase by submitting a certificate for custody of stock subscription payment received from the beneficiary bank (or a certificate of balance) and other required documents to the competent court. In this case, the domestic stock company can request a transfer of the funds in the bank’s custody to its corporate account. Upon the completion of the transfer, the funds become available for withdrawal. (In the event of the receipt of a certificate of balance, the funds become available for withdrawal after a foreign investor completes the transfer of funds from his/her account to a corporate account of the domestic company.)
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A foreign investor should notify foreign investment and use the notification form as a basis to open a temporary account at a domestic bank and remit funds to the account under his/her name.
◎ Or a foreign investor can open an international account (a nonresident foreign currency account) under his/her name in advance and remit funds to the account. This method is more complicated because several documents are required by the bank.*
◎ Transferring funds directly to a bank account under the name of a domestic corporation that has been established is not recommended because the funds can be misappropriated for purposes other than share subscription payment. If a direct transfer to a domestic company’s bank account is inevitable (some governments require foreign investment funds to be transferred directly to a bank account of a domestic company) and if such transfer is made and can be verified (submission of both a remittance statement certifying the investment and a certificate of purchase/deposit of foreign currency), such investment can be recognized as foreign investment.
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A foreign investor can freely remit to foreign countries the dividends accruing from the stocks he/she has acquired or proceeds from the sale of those stocks (guarantee of remittance to foreign countries).
◎ A foreign investor is treated in the same manner as Korean nationals (domestic corporations). For example, when investing in business categories eligible for recognition as small and medium start-up enterprises, a foreign investor can receive the same benefits as those granted to domestic companies.
◎ Tax reductions and/or exemptions (when meeting the requirements under the Foreign Investment Promotion Act and the Restriction of Special Taxation Act)
– Reductions and exemptions for income tax and corporate tax granted under the Restriction of Special Taxation Act (Article 121-2 and Article 116-2 of the Enforcement Decree of the Act) were abolished as of December 31, 2018, as the Act was amended in response to an OECD request to reform discriminative investment support schemes in Korea as well as to Korea’s inclusion in the list of “non-cooperative jurisdictions in tax matters” in 2017. Reductions and exemptions for local taxes and customs duties in line with global standards are still available (e.g., businesses accompanying technologies for new growth engine industries, tenant companies in individual-type foreign investment zones, complex-type foreign investment zones, free economic zones, and free trade zones).
◎ Cash grants (when meeting certain requirements)
– Eligibility: When the foreign investment ratio is not less than 30 percent, an investment in businesses accompanying technologies in new growth engine industries, a greenfield investment in advanced technology and products or parts & materials manufacturing business, an investment with a large scale of job creation (50-300 jobs depending on the business sector), or an investment that greatly contributes to the domestic economy will be reviewed by the Foreign Investment Committee and be awarded cash grants, if approved.
◎ Location support (when meeting certain requirements) (e.g., individual-type foreign investment zones, complex-type foreign investment zones, service-type foreign investment zones)
