TITLE : Business in Korea 2024 PART 2 - Types of Foreign Direct Investment
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■ Business in Korea 2024
PART 2
Types of Foreign Direct Investment
Foreign Direct Investment (FDI) refers to where a foreigner’s investment is at least KRW 100 million and the foreign invested ratio is a minimum of 10% of the total investment amount.
Foreign investors and foreign-invested companies may conduct business in Korea without restraint except as otherwise prescribed by other Acts of the Republic of Korea.
The types of FDI are as follows: acquisition of stocks or shares of a Korean company, an overseas parent company’s provision of long-term loans with a maturity of at least five years to a foreign-invested company, and a foreigner’s contribution to a non-profit organization.
In addition, a foreign-invested company's utilization of its unapproriated retained earnings for building a new factory or expanding an existing one shall also be recognized as foreign direct investment.
The objects of investment to acquire stocks or shares include the following: foreign currency, capital goods, proceeds from acquired property, and industrial property rights.
01 | Forms of Foreign Direct Investment |
- Acquisition of Equity Shares
Acquisition by a foreigner of shares or equity shares of a corporation or a businessto establish continuous economic relations with a Korean corporation/business
Investment of KRW 100 million or more
Amount to be invested per person when two or more persons plan to invest
+ Ownership of 10% or more of voting shares
Both new or existing shares may be acquired
▶ IN DETAIL
Exceptions to the requirements for equity share acquisition
Even when a foreigner invests KRW 100 million or more but acquires less than 10%of the equity shares of a domestic company, it shall be treated as foreign directinvestment if the foreigner assigns or appoints an executive to the domestic company.
- Long-term Loans
Loan of at least 5 years to foreign invested companies by companies in a capital investmentrelationship with the foreign or relevant investor
Long-term loans may be provided only when equity investment has beenmade, and the average loan period of at least five years must be satisfied.
※ Calculation of loan period: The sum of 'the partial repayment or early repayment amount multipliedwith the percentage of the repayment in relation to the total loan amount'
▶ IN DETAIL
Capital Investment Relations
- Corporate Investor [Where an investor is a corporation (overseas parent company)]
- A company that holds at least 50% of the total number of stocks issued by, or of the totalequity investment of, its overseas parent company (OPC)
- A company whose OPC owns at least 50% of the total number of issued stocks or total equityinvestment of a foreign-invested company and falls under any one of the following:
- A company that holds at least 10% of the total number of issued stocks or the total equity investment of its OPC
- An entity of which 50% or more of its total issued stocks or total equity investment is owned by its overseas parentcompany or a company of which 50% or more of its total issued stocks or total equity investment is owned by its OPC.
- Individual Investor [Where an investor is a foreign individual]
A company of which at least 50% of the total issued stocks or total equity investment is held by an individual foreigninvestor who owns at least 50% of the foreign-invested company’s total issued stocks or total equity investment
- Corporate Investor [Where an investor is a corporation (overseas parent company)]
- Contribution to a Non-profit Organization (NPO), etc.
A contribution to an NPO or a company is recognized as FDI where the foreigncontribution amount is at least KRW 50 million and accounts for 10% or more of thetotal amount and where all of the following conditions are met.
- The NPO or company has independent research facilities in the fields of scienceand technology, and meets any one of the following conditions
- There are at least five regular workers with a bachelor's degree in a science or technology field and at leastthree years’ experience in research, or with a master's degree or higher in a field of science and technology
- The NPO conducts R&D activities in the fields of natural science and engineering as classifiedunder the Korean Standard Industrial Classification (KSIC)
- Other contributions to an NPO by a foreigner that meet one of the following conditions, andwhich are recognized as foreign direct investment by the Foreign Investment Committee
- An NPO established for the purpose of promotion, etc. of science, art, medical services, oreducation, and which continues to conduct its business with a view to developing professionalsin the relevant fields and to expanding international exchanges
- An NPO that is a regional office of an international organization that engages in internationalcooperation business between civilians or governments
- The NPO or company has independent research facilities in the fields of scienceand technology, and meets any one of the following conditions
- Reinvestment of Unappropriated Retained Earnings
Investment of a foreign-invested company's unappropriated retained earnings for certainpurposes such as construction or expansion of a factory. (in this case, the foreigninvested company shall be considered a foreigner and the foreign investment amount shall be calculated by multiplying the amount spent and the foreign investment ratio.)
〈 Foreign direct investment by using unappropriated retained earnings(enforced on August 5, 2020) 〉
- A foreign invested company applies (uses) its unappropriated retained earnings to the constructionof a new factory or expansion of its factory or to any of the purposes stipulated in Presidential Decree
- In such case, the foreign-invested business is considered to be a foreigner, and the foreigninvested amount shall be the amount obtained by multiplying the amount applied/used for suchpurpose by the ratio of equity investment by the foreigner(s).
- Applications:
- Construction or expansion of place of business or research facility (manufacturing business):
When a foreign investor purchases land or building to put up a production/research facility,pays rent or building construction expenses, provides funds for installing infrastructurefacilities including power and communication facilities for building a new production/research facility, or intends to purchase capital goods or research equipment and materials - Construction or expansion of place of business or research facility (non-manufacturing business):
When a foreign investor purchases land or building to put up a production/research facility, paysrent or building construction expenses, provides funds for installing infrastructure facilities includingpower and communication facilities for building a new place of business or research faci
- Construction or expansion of place of business or research facility (manufacturing business):
- A foreign invested company applies (uses) its unappropriated retained earnings to the constructionof a new factory or expansion of its factory or to any of the purposes stipulated in Presidential Decree
▶ INFORMATION - Key Terms
- Foreigner(s)
- Individual(s) with foreign nationality
- Corporation (foreign corporation) founded under the statute of a foreign country
- International economic cooperation organizations prescribed by Presidential Decree(Examples: IBRD, ADB, IFC)
- A person prescribed by Presidential Decree from among those residing in a foreign country permanently
Note: Permanent residents must also invest using foreign currency funds introduced from overseas
- Foreign investor(s)
A foreigner holding equity shares or who has invested in a domestic business as per the Foreign Investment Promotion Act
- Foreign-invested business or company
A company or NPO in which a foreign investor invested or contributed
- Objects of investment
Any object (means of investment) in which a foreign investor invests in order topossess stocks, etc., as set forth in the Foreign Investment Promotion Act
- A means of international payment (foreign currency) or a means of domestic payment(national currency) incurred by international payment
* Foreign currency inflow principle
- Capital goods
(*Customs clearance and certification of completion of investment in kind arerequired after applying for review/verification of statement of capital goods introduced)
- Proceeds (dividends, profit distributed) from the stocks, etc. acquired by a foreigninvestor
* Reinvestment in Korean won currency is allowed
- Industrial property rights, intellectual property rights, other technologies correspondingthereto, and rights pertaining to the use of such rights or technologies
* Appraisal agency
- Residual property to be distributed to a foreigner upon liquidation of a foreign-investedcompany or domestic branch/liaison office of a foreign corporation
- Any repaid amount of foreign loans or borrowings as per the Foreign Investment Promotion Act
* Investment in kind by loan claims - Offset-based investment is allowed based on the amendmentto the Commercial Act in 2012
- Equity shares or stocks prescribed by Presidential Decree
* Stocks of foreign corporations listed or registered on foreign stock markets
* Stocks held by foreigners pursuant to the Foreign Investment Promotion Act or Foreign Exchange Transactions Act
- Real estate in Korea (real estate acquired through a certified transaction)
- Proceeds from the disposal of equity shares of a domestic company or real propertiesheld by a foreigner
* Reinvestment in Korean won currency is accepted
- A means of international payment (foreign currency) or a means of domestic payment(national currency) incurred by international payment