Any object in which a foreign investor invests in order to possess stocks, etc., and which falls under any of the following:
① A means of international payment (foreign currency) as defined under Article 3 (1) of the Foreign Exchange Transactions Act or a means of domestic payment (national currency) incurred by international payment
② Capital goods
③ Proceeds (dividend) from stocks, etc., acquired under the Foreign Investment Promotion Act
④ Industrial property rights, intellectual property rights (including copyrights to be utilized in industrial activities under the Copyright Act, and the layout-design right prescribed by the Act on the Layout-Designs of Semiconductor Integrated Circuits), other technologies corresponding thereto, and rights pertaining to the use of such rights or technologies
⑤ Residual property to be distributed to a foreigner upon liquidation of a foreign-invested company or domestic branch/liaison office of a foreign corporation
⑥ The amount of redemption of long-term loans or other loans from a foreign country
⑦ Stocks of foreign corporations listed or registered on foreign stock markets
⑧ Stocks owned by foreigners under the Foreign Investment Promotion Act or the Foreign Exchange Transaction Act
⑨ Domestic real estate owned by foreigners(attached certificate of completion of capital transaction report in accordance with the Article 18 of the Foreign Exchange Transactions Act)
⑩ Proceeds from the sale of the stocks of a Korean company or real estate in Korea, etc., owned by a foreigner
※ Related law : Article 2 (1) 8 of the Foreign Investment Promotion Act
Q2. When two individuals invest together and the total amount of their investment is at least KRW 100 million, can it be recognized as FDI?
Where two or more foreigners make a joint investment, the amount invested must be at least KRW 100 million per person.
[Article 2 (3) of the Enforcement Decree of the Foreign Investment Promotion Act]
Q3. How can the period of loan be calculated when a grace period or repayment in installments applies?
The loan period shall be calculated by considering the grace period and the period of the loan to be repaid in installments or prepayments, while the repayment period shall be calculated by multiplying the proportion of the loan to the total amount equal to the period of each installment or prepayment.
⇒ Concept of weighted average term to maturity
Example) What is the repayment period if a foreign-invested company borrows USD 10 million from its parent company for eight years and pays back the loan at a rate equal to USD 2 million per year starting from four years after? The weighted average repayment period of six years is met.
* 6 years = (8 years X 2/10) + (7 years X 2/10) + (6 years X 2/10) + (5 years X 2/10) + (4 years X 2/10)
[Article 2 (2) of the Enforcement Rules of the Foreign Investment Promotion Act]
Q4. Are non-voting preferred stocks included in the ratio of foreign investment?
Investment in non-voting preferred stocks is not recognized as FDI which requires notification since foreign investors must acquire at least 10 percent of stocks with voting rights when notifying their investment for the first time. However, when the same investor acquires preferred stocks after completing the FDI notification process, it is recognized as an increase in the total investment amount and thus, the total investment amount and its ratio increases.
Q5. Is it considered foreign direct investment when a foreign-invested company invests in another domestic company?
It is recognized as a foreign direct investment only if the foreign investor directly invests. Foreign-invested companies are classified as domestic corporations, and thus investments in other domestic corporations by foreign-invested companies cannot be considered foreign direct investment.
Q6. Investment associations such as the Small and Medium Enterprise Establishment Investment Association do not have a corporate personality and are therefore organizations, not corporations. However, in many cases foreign investors invest in 10 percent or more of such associations' shares. Do such cases constitute FDI as prescribed by the Foreign Investment Promotion Act?
Where a foreigner invests in an entity that is not a Korean corporation or a corporation managed by a national of the Republic of Korea, the investment is not recognized as FDI as stipulated by the Foreign Investment Promotion Act. However, a foreign investment in certain investment associations** that is prescribed as a special case according to a relevant special law* is recognized as FDI according to Article 2 (1) 4 of the Foreign Investment Promotion Act.
the Act on Formation and Operation of Agricultural, Fisheries and Food Investment Funds, etc.
** Small and Medium Enterprise Establishment Investment Association, Korea Venture Fund, Specialized Parts and Materials Investment Association, Agricultural and Food Investment Association, etc.
Source : e-People FAQ
Q7. Should foreign investors notify a merger if they take over a domestic company?
In the event of a merger, the entity must notify the merger under Article 12 of the Monopoly Regulation and Fair Trade Act, as is the case of a domestic company.
① Size of applicable companies
- Notifying company (foreign investor): Notifying company (foreign investor):
KRW 300 billion or more in total assets or sales
- Partner company (domestic company): KRW 30 billion or more in total assets or sales
② Mergers requiring notification:
- Where a company holds at least 20 percent (or at least 15 percent in the case of a listed corporation) of the total number of shares (excluding non-voting shares) issued by another company
- Where an individual who holds at least 20 percent of shares issued by another company becomes the largest shareholder by acquiring additional shares of that company
- Where an executive officer of a large company concurrently holds an executive officer position in another company
- In the case of a corporate merger - Where a company takes over the business
- Where the company participates in the establishment of a new company and becomes the largest shareholder thereof
※ Notification following the merger is permitted when a foreign investor’s total assets or sales is KRW 300 billion or more although a large company with total assets or sales of KRW 2 trillion or more is required to notify the merger prior to it taking place (prohibition of action). However, even in cases requiring pre-merger notification, FDI notification can be made through a delegated agency such as a foreign exchange bank.
Q8. Do capital goods only include facilities such as machinery and vehicles?
Capital goods include industrial facilities creating added value, testing materials, and technical services and exclude raw materials (excluding those for testing purposes), etc.
- Machinery, apparatus, facilities, equipment, parts, and accessories as industrial facilities (including vessels, motor vehicles, aircraft, etc.), livestock, breeds or seeds, trees, fish and shellfish which are necessary for the development of agriculture, forestry, and fisheries, and raw materials - Raw materials and reserve stocks deemed necessary for initial testing
(including pilot projects) of facilities
- Fees for transportation and insurance required for the introduction thereof and other know-how or service necessary therefor
[Article 2 (1) 9 of the Foreign Investment Promotion Act]
Q9. Where a foreigner establishes a corporation with income earned in Korea, is it recognized as FDI?
Foreigners can do business in Korea by acquiring new or existing stocks (including incorporation) pursuant to the Foreign Investment Promotion Act or by establishing a local branch or a liaison office as prescribed in the Foreign Exchange Transaction Act. A foreign-invested company is a domestic corporation established under the Commercial Act and classified as either a partnership company, a limited partnership company, a limited liability company, a limited company, or a stock company. The most common types of corporations established by foreign investors are a limited company and a stock company.