Invest KOREA

Under Article 21(2) of the Foreign Investment Promotion Act, a foreign investor may partially register as a foreign-invested company before he/she has completed the payment for the object of investment or the acquisition of stocks if the partial investment that he/she has executed satisfies the minimum requirements for foreign investment (partial registration). ◎ In other words, if the partial investment is not less than KRW 100 million and the ratio of the stocks acquired is not less than 10 percent, the actual amount paid (in KRW and USD) for the investment is indicated as the investment amount and the percentage of stocks corresponding to the actual amount paid as the investment ratio on the certificate of registration of a foreign-invested company. ◎ When a foreign investor is entitled by contract to receive the entire stocks before making a full payment, the investment ratio agreed by contract can be partially registered as an exception. However, as long as a foreign-invested company remains in a state of partial registration where the payment for the stocks has not been fully settled, a transfer of stocks or a capital reduction shall not be recognized.

When foreign-invested company A establishes new company B through a corporate split (a spin-off)*, this results in a capital reduction for the surviving foreign-invested company A. In this case, the foreign investor of company A should alter a registration of a foreign-invested company pursuant to Article 21 of the Foreign Investment Promotion Act to reflect the reduced amount of capital for the foreign investor and subtract the amount from the foreign investment amount. ◎ The foreign investor of new company B is also the foreign investor of foreign-invested company A and should notify the acquisition of the stocks of the new company B with the investment amount corresponding to the amount reduced by the spin-off and register the new company B as a foreign-invested company pursuant to Article 5(2)3 of the Foreign Investment Promotion Act.

Where foreign-invested company B acquires another foreigninvested company C and foreign-invested company C ceases to exist – The merged company C should file for cancellation of registration of a foreign-invested company (reason: merged by another company and extinguished). – Foreign investor A of the merged company C should notify the acquisition of the stocks of the surviving corporation B depending on the merger ratio. (The original amount of foreign investment shall be succeeded.) (Article 5(2)3 of the Foreign Investment Promotion Act) – The surviving corporation B should notify modifications to the registration of a foreign-invested company.

Under Article 2(1)1 of the Foreign Investment Promotion Act, a foreigner is defined as an individual with foreign nationality, a foreign corporation established under applicable foreign laws or other international organizations for economic cooperation. ◎ If a paper company established in a tax haven is a corporation founded pursuant to applicable foreign laws, it is considered a foreigner under Article 2(1)1 of the Foreign Investment Promotion Act and subsequently not restricted from investing in Korea. ◎ However, an investment by a foreign corporation established by a Korean national or a Korean corporation is deemed a round-trip investment and is, therefore, excluded from the amount of foreign investment when incentives are granted pursuant to the Restriction of Special Taxation Act. – Tax reductions and exemptions for foreign investment (Article121-2(11) of the Restriction of Special Taxation Act and Articles116-2(11) and 116-2(12) of the Enforcement Decree of the Act) – Lending or selling State and public property to foreign-invested companies by a negotiated contract (Article 19(1) of the Enforcement Decree of the Foreign Investment Promotion Act) – Reductions or exemptions for rental charges in foreign investment zones (subparagraph 6 of Article 1 of the Guidelines for Operation of Foreign Investment Zones)

Yes, it can be regarded as foreign investment. ◎ When an existing foreign investor makes an additional investment of less than KRW 100 million, and less than 10 percent in the foreign-invested company, the additional investment is recognized as subsequent foreign investment by that foreign investor who already satisfies the requirements for foreign investment, and there is no need to check whether it meets the minimum requirements for initial investment. ◎ When a foreign investor fails to meet the requirements of foreign investment due to partial transfer of stocks or shares to a Korean national or foreigner, or capital reduction, this is also deemed foreign investment (Proviso of Article 2(2) of the Enforcement Decree of the Foreign Investment Promotion Act). Example: If a foreign investor with a 10 percent stock ownership transfers 3 percent of his/her stocks to a Korean national, the remaining 7 percent is deemed foreign investment. If the 3 percent is transferred to a foreigner, both the remaining 7 percent and the 3 percent acquired by the foreigner are deemed foreign investments.

When investment funds are remitted under the name of, or hand carried by an agent or a third party, the foreign investor should submit documents certifying that the funds were remitted or hand carried by an agent or a third party on behalf of him/her, including documents proving that the funds belong to the foreign investor (Article 17(1)1 of the Enforcement Rules of the Foreign Investment Promotion Act). ◎ When a foreign investor remits investment funds in person, he she can receive a certificate of the purchase (deposit) of foreign currency verifying the remitter. When the foreign investor hand carries the foreign currency funds through customs in person, he/she can receive a certificate of the purchase (deposit) of foreign currency after declaring the funds at the customs office and depositing the funds into a foreign currency account for non-residents at a domestic bank under the investor's name. ◎ When investment funds are remitted in the name of a third party or hand carried by a third party, whether the funds remitted or hand carried belong to the foreign investor or not cannot be confirmed. That the funds are the foreign investment funds reported on [Date/Month Year] by the foreign investor can be confirmed by the pertinent remittance statement (“sent on [Date/Month/Year] on behalf of [Name of the Foreign Investor]”), or by notarized documents certifying that the funds hand carried by a third party belong to the foreign investor him/herself.

The Foreign Investment Promotion Act provides that a foreign investment made by a foreigner in the form of the acquisition of new or existing stocks, etc. of a Korean corporation or a company shall be notified prior to the investment. However, there is no specific regulation on the timing of introduction of funds used for the acquisition of the stocks. ◎ Therefore, in accordance with the Foreign Investment Promotion Act, if a foreigner opens a non-resident foreign currency account (external account) before or after notification of FDI and deposits funds in the account, or if he/she deposits funds in a special bank account (reserved for deposits for securities subscription), the funds can be recognized as investment funds. ◎ However, when the foreign currency funds deposited in a domestic bank account are converted into Korean won and used for other purposes or proceeds accrue as a result of such use (e.g., interest received from a bank deposit), it shall not be recognized as the amount of foreign investment. Therefore, the foreigner is advised to notify foreign investment as soon as possible and use the funds for foreign investment immediately.

Even without the amount of redemption of loans or loans from foreign countries (Article 2(1)8(f) of the Foreign Investment Promotion Act), the loan claim can be converted into capital by set-off in accordance with the interpretations of the Ministry of Trade, Industry and Energy ◎ Prior to the 2012 amendment to the Commercial Act, a foreigninvested company was required to use the amount of principal repayment to pay for the shares acquired in accordance with the principle of capital adequacy or to invest in kind the amount of loan and notify it as foreign investment on the condition that the investment in kind obtained court approval, in accordance with the authoritative interpretations by the Ministry of Trade, Industry and Energy. ◎ However, with the amendment of the Commercial Act in 2012, the regulations on investment in kind were eased (Article 334 prescribing that a shareholder cannot assert set-off against the company in regard to payment was deleted). Consequently, investment in kind can now be notified as foreign investment without court approval on investment in kind as long as there is an agreement (contract) on the debt-equity swap between the foreigner (foreign investor) and the domestic company and there is consent from both parties on the set-off. When the capital increase is registered with a court, an application for foreign-invested company registration (change of information) should be submitted.

Yes, early redemption is possible. ◎ In accordance with Article 2(1)4(b) of the Foreign Investment Promotion Act, a loan with maturity of not less than five years is based on the loan maturity prescribed in the first loan contract. Therefore, early redemption of loans (within five years) is permitted for loans that satisfy the qualifications for foreign investment prescribed by Article 2(2) of the Enforcement Rule of the same Act and introduced after notifying foreign investment in the form of long term loans. ◎ However, for early redemption of loans, a notification of change of information of foreign investment in the form of long term loans shall be completed (the revised loan contract shall be attached) pursuant to Article 5(3) of the Act and Article 22(3) of the Enforcement Rule of the Act, and overseas remittance procedure shall be completed according to Article 4-2 (procedures for payment, etc.) of the Foreign Exchange Transactions Regulations.

When a foreigner intends to convert an individual business he/ she has invested in under the Foreign Investment Promotion Act into a corporation, the general practice is to liquidate the individual business registered as a foreign-invested company and to establish a new corporation by investing the residual assets (cash in Korean won). ◎ The foreign-invested company can close his/her individual business (by reporting the closure to a regional tax office) and establish a corporation by filing for a cancellation of the registration of a foreigninvested company and notifying foreign investment simultaneously with delegated agencies. ◎ If the residual assets of the individual business fails to meet the foreign investment requirements under the Foreign Investment Promotion Act (at least KRW 100 million and acquisition of at least 10 percent of voting stocks), the foreigner can establish a corporation only after bringing in foreign currency funds to fill the amount in short and making a payment for shares to a relevant bank (or submitting a certificate of balance). After a corporation is established and business registration is completed, the corporation should be registered as a foreign-invested company with the submission of all required documents of proof. ◎ An individual business can be converted into a corporation through investment in kind instead of through the common practice of cash investment after business closure and liquidation. In case of the establishment of a stock company, a corporation can be established under Article 290 (Matters on Irregular Incorporation) of the Commercial Act after an appraisal by a certified appraisal agency and an application for registration of alteration of foreign-invested company can be submitted together with documents certifying the changed details. (The foreign-invested company registration number remains unchanged; a certified copy of corporate registration, a certificate of business registration and a shareholder register should be submitted and the original copy of the certificate of the registration of a foreign-invested company of the individual business should be returned.)