Invest KOREA

In accordance with the exceptional provision stipulated in Article 8 of the Act on Special Measures for the Promotion of Venture Businesses, the investment can be considered foreign direct investment when a foreigner invests in investment associations such as the Small and Medium Enterprise Establishment Investment Association or Korea Venture Investment Corp., and the investment meets the minimum FDI requirements under the Foreign Investment Promotion Act (investment amount of KRW 100 million and investment ratio of 10 percent). ※The exceptional provision in Article 8 was deleted from the Act on Special Measures for the Promotion of Venture Businesses (the Venture business Act) on August 12, 2020 and merged into the exceptional provision in Article 64 of the newly legislated Act on the Promotion of Venture Business. The Small and Medium Enterprise Establishment Investment Association and Korea Venture Investment Corp. have been merged into the Korea Venture Fund. ◎ Similarly, other exceptional provisions such as Article 53 of the Act on the Special Measures for the Promotion of Specialized Enterprises, etc. for Materials and Components, and Article 24 of the Act on Formation and Operation of Agricultural, Fisheries and Food Investment Funds, etc. can be used as legal grounds for recognizing certain investments as foreign investment.

Generally, there are no restrictions. However, a transaction between foreign related parties should be an arm’s length transaction. If the overseas parent company constitutes a foreign related party who holds, directly or indirectly, at least 50 percent of the voting stocks of the foreign-invested company, the foreigninvested company should pay interest computed based on the same interest rate that would apply or be deemed to apply in an arm's length transaction with a person that is not a foreign related party (arm's length price). ◎ When the use of a price higher or lower than the arm's length price in a transaction with a foreign related party results in a reduction in the taxable income of a company, the tax authorities will reassess the taxable income by applying the arm's length price to the transaction and levy taxes on the recomputed taxable income. This practice is referred to as the transfer price tax scheme.

Bonds with warrants are bonds issued by a domestic company to a creditor (foreigner) with attached warrants which give the creditor the right to receive newly issued stocks of the company. If the acquisition of stocks made through the exercise of such warrants meets the requirements under the Foreign Investment Promotion Act (at least KRW 100 million and acquisition of at least 10 percent of voting stocks), it can be recognized as foreign investment and the foreign investor should notify the acquisition of stocks, etc. within 60 days from such acquisition.

It is not recognized as foreign investment at the time of the acquisition of stock depository receipts. However, in accordance with the related regulations of the Foreign Investment Promotion Act, where a foreigner meets the foreign investment requirements (investment amount of at least KRW 100 million and acquisition of at least 10 percent of voting stocks) under the Act at the time when he/she exchanges stock depository receipts for stocks, it can be notified as foreign investment after the exchange is completed.

It is recognized as foreign direct investment only when a foreign investor makes a direct investment. A foreign-invested company cannot be a foreign investor because it is classified as a domestic corporation. A foreigner means an individual of foreign nationality or a corporation established under foreign laws. Therefore, another domestic corporation in which a foreign-invested company invests cannot be a foreign-invested company (Article 2(1)1 of the Foreign Investment Promotion Act).

No, in principle. In such case, a report on the acquisition of securities by a non-resident should be filed under the Foreign Exchange Transactions Regulation.3) ◎ For the Foreign Investment Promotion Act to apply, a foreigner should invest at least KRW 100 million and hold at least 10 percent of the total number of issued voting stocks or the total equity investment of a domestic corporation or a company (including corporations in the process of being established). ◎ However, where a foreigner owns stocks, etc. of a Korean corporation or a company and dispatches or appoints an executive officer (referring to a director, a representative director, a managing general partner, an auditor, or a person in a similar position, who has the authority to participate in decision-making for important management matters) to such corporation or company, the foreigner can be subject to the Foreign Investment Promotion Act even if he/she holds less than 10 percent of the total number of issued voting stocks or the total equity investment of such corporation or company. (The investment amount should still be KRW 100 million or greater.)

A foreign investment in the form of a long-term loan is recognized as foreign investment under Article 2(1)4(b) of the Foreign Investment Promotion Act. But, because it does not constitute a foreign investment in the form of equity investment which is recorded on the certificate of registration of a foreign-invested company (Articles 2(1)4(a), 2(1)4(c), and 2(1)4(e) of the same Act), it is not recorded as the amount of foreign investment on the certificate of registration. ◎ Also, under Article 21(1) of the Foreign Investment Promotion Act, foreign investments eligible for registration of a foreign-invested company are limited to the following: where a foreign investor has completed payment for the object of investment (new shares); where a foreign investor has completed the acquisition of stocks, etc. (existing shares); or where a foreign investor has completed contribution to a non-profit organization.

Where a subsidiary established by a domestic corporation in a foreign country invests back in Korea, it is referred to as a round trip investment. A round trip investment itself is not prohibited under the Foreign Investment Promotion Act because a foreign corporation established under applicable foreign laws is deemed a “foreign investor” under the Foreign Investment Promotion Act, regardless of the owner of such corporation. ◎ However, it should be noted that such investment is not recognized as foreign investment in the following circumstances where special benefits are granted to those registered as a foreign-invested company: – Tax reductions or exemptions for foreign investment (Article 121-2(11) of the Restriction of Special Taxation Act and Articles 116-2(11) and 116-2(12) of the Enforcement Decree of the Act) – Lease and sale of State or public property to foreign-invested companies by a negotiated contract (Article 19(1) of the Enforcement Decree of the Foreign Investment Promotion Act) – Reduction or exemption of rent for foreign investment zones (Subparagraph 6 of Article 1 of the Guidelines for Operation of Foreign Investment Zones)

The investment amount (KRW 200 million) meets the requirement for foreign investment, but the foreign investment ratio of 1 percent fails to meet the requirement under the Foreign Investment Promotion Act. ◎ However, even when the amount invested by a foreigner is not less than KRW 100 million but the foreign investment ratio is less than 10 percent, it can be exceptionally recognized as foreign investment if the foreigner dispatches or appoints an executive officer pursuant to Article 2(2)2 of the Enforcement Decree of the Foreign Investment Promotion Act.

It can be deemed foreign investment because there are noparticular restrictions. In accordance with Article 51-2(1)9 of theCorporate Tax Act and Article 86-2 of the Enforcement Decreeof the Corporate Tax Act, a PFV is defined as a company whoseassets shall be used for investment in facilities and infrastructure,the development of resources, or a specific business requiringsubstantial time and money, and its profits shall be distributedto its stockholders. It shall hire no staff member or full-timeexecutive and shall entrust the management, operation anddisposal of its assets to an asset management company andits treasury management to a financial institution engaging intrust business pursuant to the Financial Investment Services andCapital Markets Act.