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Foreign Direct Investment System in Korea
 Foreign Direct Investment
Foreign Direct Investment (FDI) refers to an investment made by a foreigner for the purpose of establishing a continued economic relationship with a corporation of the Republic of Korea or a business owned by a citizen of the Republic of Korea, and is based on the Foreign Investment Promotion Act (FIPA) and other related laws. FDI differs from a portfolio investment, whose purpose is to earn margins from stock transactions for short term profits.
FDI, as prescribed in the Foreign Investment Promotion Act (FIPA), includes acquisition of shares or equity of a domestic corporation or business, provision of long-term loans to invested domestic corporations, a contribution to a non-profit organization etc.
 Acquisition of Shares or Equity of a Domestic Business
This refers to possession of shares or equity of a corporation of the Republic of Korea or a business owned by a Korean citizen for the purpose of establishing a continued economic relationship with the relevant corporation or business (including those being established) through participation in managerial activities.
In order for FDI to comply with the Foreign Investment Promotion Act (FIPA), both the amount of the foreign investment and the stock ratio must be satisfied as prescribed in the Act.
- Minimum Foreign Investment Amount: 50 million won
- Foreign Investment Ratio: 10% or more of the voting stocks or total invested capital
If the relevant investors are 2 or more, each shall meet the same conditions as above. The foreign investment ratio is equal to the ratio upon the completion of the foreign investment. However, when a foreign investor from a registered foreign-invested company makes an additional investment, the above ratio limit does not apply.
Although there are no exceptions in regard to the amount invested, exceptions may be allowed for the foreign investment ratio. That is, even if the foreign investment ratio is less than 10% with the amount of the foreign investment being 50 million won or more, the investment may be qualified as FDI exceptionally in one of the following cases:
- A contract that allows dispatch or assignment of executives;
- A contract for the delivery or purchase of raw materials or products for a minimum of 1 year; or,
- A contract for provision or import of technologies, or joint R&D
Long-Term Loans
An investment is recognized as FDI if the foreign parent company of the foreign-invested company, a foreign investor, or a business under a capital investment relationship* with the relevant foreign parent company and the foreign investor provides a loan with a maturity of 5 years or more for the relevant foreign-invested company (on the basis of the loan period stipulated at the initial loan contract).
* A company which has a capital investment affiliation with the parent company
· A company that owns 50 percent or more of the total issued shares or equity investment of its foreign
parent company
· A foreign-invested company of which 50 percent or more of its total issued shares or equity investment is
owned by its foreign parent company and qualifies for the following:
- A company that owns 10 percent or more of the total issued shares or equity investment of its foreign
parent company
- A company of which 50 percent or more of its total issued shares or equity investment is owned by its
foreign parent company
- A company of which 50 percent or more of its total issued shares or equity investment is owned by a
company that owns 50 percent or more of the foreign parent company's total issued shares or equity
investment.
· A company of which 50 percent or more of its total issued shares or equity investment is owned by
a foreign investor that owns 50 percent or more of the foreign invested company's total issued shares or
equity investment. |
Contribution to a Non-Profit Organization (NPO)
A contribution to an NPO is recognized as a foreign investment when the NPO has independent research facilities in the field of science and technology, and meets one of the following conditions:
- Having 5 or more regular employees with 3 or more years of research experience and a bachelor's degree in the field of science and technology or with an advanced degree (master's/Ph. D) in the science and technology field; or,
- Performing R&D for projects attended with high level technologies according to the Tax Exemptions and Exceptions Act
Other contributions to an NPO are recognized as a foreign investment when the investment amount is at least 50 million won and the investment falls under one of the following cases, and only if the Foreign Investment Committee recognizes it as a foreign investment:
- The NPO was established for the purpose of promoting academic, art, medical, and/or education etc. and continues to perform projects to nurture of related experts and promote international exchanges;
- The NPO is the regional headquarters of an international organization which carries out civil or intergovernmental international cooperation projects.
Terminology
| Terminology |
Definition |
| Foreign National |
· An individual with foreign nationality
· A corporation established under a foreign law (foreign corporation)
· An international economic cooperation organization
- An agent of a foreign government's external economic cooperation operations
- An international organizations such as the IBRD, IFC, ADB etc. which handle
development credit.
- An international organization handling or executing by proxy external investments
· A citizen of the Republic of Korea who has acquired foreign denizenship |
Foreign
Investor |
A foreigner holding shares etc. or having made a contribution as prescribed in the Foreign Investment Promotion Act |
Foreign-
invested
Company |
A business into which a foreign investor makes an investment, or an NPO into which foreign investors have made a contribution |
Foreign
Investment
Environment
Improvement
Facility
Administrator |
An individual operating facility such as a school or medical facility designated by Presidential Promotion Act as a facility to improve foreign investment environment |
Investment
Object |
An investment (investment vehicle) made by a foreign investor as defined by the Foreign Investment Promotion Act to hold shares etc. which qualifies as one of the following:
· A domestic payment vehicle resulting from an external payment vehicle under the
Foreign Exchange Trade Act or the exchange of such an external payment vehicle;
· Capital goods;
· Profits (dividends) from shares acquired through foreign investment ;
· Industrial property rights, intellectual property rights (copyrights, semiconductor
integrated circuit placement rights), and others including corresponding technologies and
usage rights for such technologies;
· Remaining property to be distributed to the forieign national from the liquidation of domestic branches, offices, or corporations owned by a foreign
national;
· Repayment of loans or other external debts;
· Foreign corporate shares listed or registered in overseas securities markets;
· Shares held by a foreigner under the Foreign Investment Promotion Act, or
the Foreign Exchange Trade Act;
· Domestic real estate owned by a foreigner; or,
· Funds from the disposal of shares and/or real estate of a domestic business owned
by a foreigner. |
Capital
Goods |
· Machinery, equipment, facilities, furniture, components, parts for industrial facilities, and
livestock, seeds, trees, fish and shellfish required for the development of agricultural,
forestry, and fishery industries;
· Other materials and spare parts recognized by the relevant ministry as required for an
initial test operation of the said facilities; or,
· Freight and insurance costs required to import the above, or technologies or services for
installation or advices
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Last Updated in August, 2009
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