TITLE : FAQ on FDI in Korea 2023 (Q6~Q10)
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■ FAQ on FDI in Korea 2023 (Q6~Q10)
Q6 When a foreigner (individual) registers an individual business in Korea, can this be recognized as foreign direct investment?
A6 Yes, it can be recognized as foreign direct investment.
• The 2020 amendments by the Ministry of Trade, Industry and Energyto the definitions of “foreign investment” under the Foreign InvestmentPromotion Act (promulgated on February 4, 2020 and enforced on August5, 2020) confirmed that an individual business (sole proprietorship)established by a foreigner shall be recognized as foreign investment.
※ Clarifications of the definitions of “foreign investment” (Article 2 (1) 3 andArticle 2 (1) 4 (a) of the Foreign Investment Promotion Act)
- The term “Korean corporation or a company” means a corporationestablished under the laws of the Republic of Korea or a companyregistered as a business (Article 2 (1) 3 of the Act)
- A person who has acquired a resident permit for four years or longer ina country without a permanent residency system
- The term “foreign investment” means where a foreigner holds stocks orshares (hereinafter referred to as "stocks, etc.") of a Korean corporation(including a Korean corporation in the process of establishment) ora company in order to establish a continuous economic relationshipwith the Korean corporation or company, such as participating in themanagement of such Korean corporation or company in accordancewith this Act (Article 2 (1) 4 (a) of the Act)
• The above amendments to the Foreign Investment Promotion Act werepromulgated and enforced in August 2020. Under the authority of the Ministerof Justice, however, the current visa system for foreign investors will remainunchanged: D-8 visa will be applied and issued for corporate businesses andD-9 visa for individual businesses in accordance with the Immigration Act.
(Please call the 1345 Immigration Contact Center for inquiries.)
1) D-8 (business investment) visa: Issued to a foreigner who invests in aKorean corporation or company.
- The term “Korean corporation or a company” means a corporationestablished under the laws of the Republic of Korea or a companyregistered as a business (Article 2 (1) 3 of the Act)
- A person who has acquired a resident permit for four years or longer ina country without a permanent residency system
- The term “foreign investment” means where a foreigner holds stocks orshares (hereinafter referred to as "stocks, etc.") of a Korean corporation(including a Korean corporation in the process of establishment) ora company in order to establish a continuous economic relationshipwith the Korean corporation or company, such as participating in themanagement of such Korean corporation or company in accordancewith this Act (Article 2 (1) 4 (a) of the Act)
2) D-9 (trade management) visa: Issued where a foreigner invests in adomestic individual business alone or jointly with others.
- The amount invested by a foreigner should be at least KRW 300million (a condition for visa issuance) and the investment ratioshould be at least 10% for both a sole or joint investment.
- Pursuant to a court ruling issued in January 2012 that denied thestatus of a foreign-invested company to a foreign-invested individualbusiness, the Ministry of Justice has issued D-9 (trade management)visa to foreign-invested individual business owners instead of D-8(business investment) visa since August 29, 2012.
Q7 Is the establishment of a branch in Korea by a foreign corporation subject to the Foreign Investment Promotion ACT?
A7 Establishment of a Korean branch by a non-resident is subjectto the Foreign Exchange Transactions Act (The Regulation onForeign Exchange Transactions) instead of the Foreign InvestmentPromotion Act. A branch established by a non-resident in Korea1)is divided into a “branch” that engages in sales activities thatgenerate profit in Korea and a “liaison office” that does not engagein sales activities that generate profit in Korea and only executesnon-sales business activities including liaison services, marketresearch, and research and development, etc. A foreign corporationestablishing a branch or a liaison office in Korea2) should report theestablishment to the head of a foreign exchange bank.
* A branch of a foreign corporation is often used interchangeably with asubsidiary of a foreign corporation. However, there is a clear demarcationbetween the two terms in that a subsidiary of a foreign corporation is adomestic corporation established with capital investment under the lawsof Korea (the Foreign Investment Promotion Act or the Foreign ExchangeTransactions Act) whereas a branch of a foreign corporation is eithera branch (sales office) or a liaison office established without capitalinvestment. Therefore, the two terms should be clearly distinguished.
**1) Article 9-32 of the Foreign Exchange Transactions Regulations
***2) Article 9-33 of the Foreign Exchange Transactions Regulations
Q8 Compared with foreign investment pursuant to the Foreign Exchange Transactions Act, what benefits or support are provided for foreign investment pursuant to the Foreign Investment Promotion Act?
A8 A foreign-invested company under the Foreign InvestmentPromotion Act is basically treated in the same manner as purelydomestic companies (national treatment) and can receivepreferential treatments in terms of taxes and location.
• General benefits
- Guarantee of remittance to foreign countries: Remittance of dividendsand proceeds from the sale of the stocks and shares owned by a foreigninvestor shall be guaranteed in accordance with the details of the reportor permission at the time of such remittance.
- National treatment: Except as otherwise explicitly prescribed by law,foreign investors and foreign-invested companies shall be treated in thesame manner as Korean nationals or corporations with respect to theirbusiness operation.
- Special treatment for import declaration of capital goods: Importedcapital goods for which confirmation of review of specification ofimported capital goods was obtained pursuant to the Foreign InvestmentPromotion Act shall be considered as having obtained import approvalunder the Foreign Trade Act.
- Special treatment for investment in kind: A “certificate of completion ofinvestment in kind” verified by the Commissioner of the Korea CustomsService shall be deemed an “investigation report by inspector” underArticle 203 of the Non-Contentious Case Procedure Act to ease theprocedures prescribed by the Commercial Act.
• Tax reductions and exemptions
- National taxes and local taxes may be reduced or exempted whenengaging in businesses subject to tax reductions and exemptions underthe Restriction of Special Taxation Act or the Restriction of Special LocalTaxation Act (businesses accompanying technologies for new growthengine industries, etc.). However, corporate tax reductions and exemptionswere eliminated on December 31, 2018.
• Industrial site support
- The land, factories, or other property owned by the State, localgovernment, or public institution may be used, profited from, lent, or soldto a foreign-invested company by a negotiated contract.
- When State-owned land is rented to a foreign-invested company, itsrental charges may be reduced or exempted
• Exemption of customs duty
- Customs duty shall be exempted for capital goods* that are directly usedin the business subject to tax reductions or exemptions and are importedwithin five years from the date of the report** of foreign investment by theacquisition of newly issued stocks. (Individual consumption tax and valueadded tax are also exempted for foreign-invested companies that operatein a business accompanying technologies for new growth engine industriesand a tenant company of an individual-type foreign investment zone.
* A means of international payment for the investment by a foreigninvestor in a foreign-invested company, or capital goods introducedas a means of domestic payment incurred by the exchange of sucha means of international payment, or capital goods introduced by aforeign investor as an object of investment.
** The date of notification of alteration (change of information) is notapplicable
Q9 When a foreigner invests at least KRW 100 million and registers a foreign-invested company, can he/she carry out any business in Korea?
A9 No. If separate requirements for minimum capital are prescribedfor each business under separate Acts, such requirements should be satisfied.
• Examples of minimum capital requirements under separate laws
- International logistics brokerage business: Any person who intends tofile for registration of international logistics brokerage business withthe head of the competent local government shall possess capital of atleast KRW 300 million (referring to the appraised value of assets of atleast KRW 600 million if he/she is not a juristic person) (Article 43 of theFramework Act on Logistics Policies).
- Civil engineering business: Any person who intends to file for registrationof civil engineering business with the head of the competent localgovernment shall possess capital of at least KRW 500 million (attachedTable 2 of the Enforcement Decree of the Construction TechnologyManagement Act).
- International travel business: Any company that intends to registeran international travel business with the head of the competent localgovernment shall possess capital of at least KRW 30 million. (A foreigninvested company shall possess capital of at least KRW 100 million toengage in international travel business.)
Q10 Are there any business categories where a foreigner cannot invest alone and should have a Korean partner to invest in Korea?
A10 In most business categories, a foreigner can invest alonein Korea without a Korean partner. However, a foreignershould have a Korean partner to invest in “restricted businesscategories” and there are restrictions as to the percentage ofstocks or shares that can be held by a foreign investor.
• The restricted and prohibited business categories are revised andannounced every year by the Minister of Trade, Industry and Energythrough the Integrated Public Notice of Foreign Investment pursuant toArticle 4 (4) of the Foreign Investment Promotion Act and Article 5 (11) ofthe Enforcement Decree of the Act.
• Restrictions on Foreign Investment (Example)
Business Categories (KSIC) | Overview | Criteria for Permission |
Electric power transmission and distribution (35120) | ndustrial activities of transmittingthe electric power generated to certain regions or distributing the transmitted electric power to endusers | Permitted only in the followingcases: 1. The foreign investment ratioshall be less than 50%. 2. The number of stockswith voting rights held bya foreign investor shall bebelow that of the largestdomestic shareholder. ※ These criteria only apply to tradeof electricity subject to the ElectricUtility Act |
Trade ofelectricity(35130) | Industrial activities of supplyingand selling electricity tohousehold, industrial andcommercial users | |
Collection,treatment and disposal of radioactive nuclear waste (38240) | Industrial activities of collecting,transporting and disposing ofradioactive wastes that need tobe disposed of | Permitted except forradioactive waste managementbusiness pursuant to Article9 of the Radioactive WasteManagement Act |
Wholesale of meat (46313) | Industrial activities of wholesalingfresh, refrigerated or frozen meatof livestock or other land animals | Permitted if the foreigninvestment ratio is less than50%. |