TITLE : FAQ on FDI in Korea 2023 (Q11~Q15)
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■ FAQ on FDI in Korea 2023 (Q11~Q15)
Q11 When a foreigner establishes a Project Financing Vehicle (PFV), can this be deemed foreign investment under the Foreign Investment Promotion Act?
A11 It can be deemed foreign investment because there are noparticular restrictions. In accordance with Article 104-31of the Restriction of Special Taxation Act and Article 104-28 of its Enforcement Decree a PFV is defined as a companywhose assets shall be used for investment in facilities andinfrastructure, the development of resources, or a specificbusiness requiring substantial time and money, and itsprofits shall be distributed to its stockholders. It shall hireno staff member or full-time executive and shall entrust themanagement, operation and disposal of its assets to an assetmanagement company and its treasury management to afinancial institution engaging in trust business pursuant to theFinancial Investment Services and Capital Markets Act.
Q12 When a foreigner acquires 4,000 shares of a company with total capital of KRW 2 billion (the par value of a share is KRW 5,000 and total number of shares issued is 400,000) at KRW 50,000 per share, can this be recognized as foreign investment under the Foreign Investment Promotion Act?
A12 The investment amount (KRW 200 million) meets therequirement for foreign investment, but the foreign investmentratio of 1% fails to meet the requirement under the ForeignInvestment Promotion Act.
- However, even when the amount invested by a foreigner is not less thanKRW 100 million but the foreign investment ratio is less than 10%, itcan be exceptionally recognized as foreign investment if the foreignerdispatches or appoints an executive officer pursuant to Article 2 (2) 2 ofthe Enforcement Decree of the Foreign Investment Promotion Act.
Q13 When a subsidiary established in the US by a domestic corporation (holding 100% of its voting stocks) invests in Korea, can this be registered as a foreign-invested company under the Foreign Investment Promotion Act?
A13 Where a subsidiary established by a domestic corporation in aforeign country invests back in Korea, it is referred to as a roundtrip investment. A round trip investment itself is not prohibitedunder the Foreign Investment Promotion Act because aforeign corporation established under applicable foreign lawsis deemed a “foreign investor” under the Foreign InvestmentPromotion Act, regardless of the owner of such corporation.Investment Promotion Act.
- However, it should be noted that such investment is not recognized asforeign investment in the following circumstances where special benefitsare 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) and116-2 (12) of the Enforcement Decree of the Act)
- Lease and sale of State or public property to foreign-invested companiesby a negotiated contract (Article 19 (1) of the Enforcement Decree of theForeign Investment Promotion Act)
- Reduction or exemption of rent for foreign investment zones (Subparagraph6 of Article 2 of the Guidelines for Operation of Foreign Investment Zones)
Q14 Does the Foreign Investment Promotion Act apply to a case where a foreigner intends to acquire 5% of the stocks of an unlisted domestic company owned by a resident for KRW 200 million?
A14 No, in principle. In such case, a report on the acquisition ofsecurities by a non-resident should be filed under the ForeignExchange Transactions Regulation.
- For the Foreign Investment Promotion Act to apply, a foreigner shouldinvest at least KRW 100 million and hold at least 10% of the total numberof issued voting stocks or the total equity investment of a domesticcorporation or a company (including corporations in the process of beingestablished).
- However, where a foreigner owns stocks, etc. of a Korean corporationor a company and dispatches or appoints an executive officer (referringto a director, a representative director, a managing general partner,an auditor, or a person in a similar position, who has the authority toparticipate in decision-making for important management matters) tosuch corporation or company, the foreigner can be subject to the ForeignInvestment Promotion Act even if he/she holds less than 10% of the totalnumber of issued voting stocks or the total equity investment of suchcorporation or company. (The investment amount should still be KRW100 million or greater.)
* Article 9-32 of the Foreign Exchange Transactions Regulation
Q15 Is it considered foreign direct investment when a foreign-invested company invests in another domestic company?
A15 It is recognized as foreign direct investment only when aforeign investor makes a direct investment. A foreign-investedcompany cannot be a foreign investor because it is classified as adomestic corporation. A foreigner means an individual of foreignnationality or a corporation established under foreign laws.Therefore, another domestic corporation in which a foreigninvested company invests cannot be a foreign-invested company(Article 2 (1) 1 of the Foreign Investment Promotion Act).