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Business in Korea

OSUNG LAW OFFICE

Trusted Experts Osung Law Firm

As the best business partner, we will work together with you to create greater value.

Osung provides expert consulting service
to foreign investors considering entry into the Korean market.

Foreign Direct Investment (FDI) is a strategic investment approach that involves acquiring stocks or shares of a Korean company, fostering long-term economic relationships, and actively participating in management and technology transfer. FDI goes beyond portfolio investment, as it aims to exert substantial influence on company operations.
FDI differs from portfolio investment as it is intended to exercise substantive influence on the management of a company.

At Osung, we assist with various forms of FDI, including cash investments and investments in assets defined under the Foreign Investment Promotion Act. These assets encompass capital goods, industrial and intellectual property rights, local real estate, as well as shares of overseas-listed companies. Furthermore, FDI recognition extends to long-term loans with a maturity period of five years or longer, provided by foreign investors to domestic companies.
Partner with Osung today to unlock the full potential of your foreign investment endeavors in Korea.

Foreign Direct Investment

Types of Foreign Direct Investment (FDI)

■ Types of FDI

Description Examples
Portfolio investment (Indirect investment) Investment in stocks or bonds for short-term finacial gain rather than maintaining contnued economic rlations - Stock investment (not exceeding 10% of the equity shares of a business
- Ordinary borrowing
Greenfield investment Establishment of a new form of business, including investment of expansion of existing production/operational facilities - Establishment of a new legal entity
- Real estate purchase
M&A investment Investment intended to secure equity share for the takeover of the management right of a business as a strategy for outward growth - Establishment of a new legal entity through the purchase of equity shares of an existing business
- Securing voting rights related to an existing legal entity
- Merger of part of a Korean business by a foreigner-invested business
P&A investment Investment intended for the takeover of assets of an existing Korean business

■ Long-Term Loans

Loans with a maturity of not less than five years (based on the loan maturity prescribed in the first loan contract) supplied to a foreign-invested company by the following entities are recognized as FDI.

  • An overseas parent company (OPC) of the foreign-invested company (corporation)
  • A company that has capital investment relations with
  • A foreign investor (individual)
  • A company that has capital investment relations with a foreign investor (individual)

    (Article 2 (4), (5) of the Enforcement Decree of the Act)

■ Contribution to a Non-Profit Organization (NPO)

A contribution to a non-profit organization is considered foreign direct investment (FDI) under the following circumstances:

  • The foreign contribution amount is KRW 50 million or more, representing 10 percent or more of the total contribution amount.
  • The NPO has independent research facilities in the field of science and technology.
  • The NPO meets any one of the following conditions
    • It has a minimum of five full-time research staff members, as defined by Article 11 of the Employment Standards Act. These staff members must hold a master's degree or higher in the field of science and technology or possess a bachelor's degree in the same field with a research experience of at least three years.
    • The NPO's business falls under the category of 'research and experimental development on natural sciences and engineering' as per the Korea Standard Industrial Classification publicly announced by the Commissioner of Statistics Korea, in accordance with Article 22 of the Statistics Act. In addition, other contributions to an NPO by a foreigner amounting to KRW 50 million or more, accounting for 10 percent or more of the total contribution amount, are recognized as foreign investment if they meet one of the following conditions and are approved by the Foreign Investment Committee as stipulated in Article 27 of the Act:
  • The NPO is established with the purpose of promoting science, art, medical services, or education, and actively operates to develop professionals in those fields and enhance international exchanges.
  • The NPO serves as a regional office of an international organization engaged in civil or governmental international cooperation initiatives


Foreign Investment Promotion and Management

Korea has implemented various policies to protect foreign investors

Our clients' needs are at the core of our services, and we ensure accountability through active communication with them.

Foreign direct investment (FDI) refers to the acquisition of stocks or shares of a Korean company by foreigners, aimed at establishing long-term economic relations.
It typically involves active participation in management or technology transfer.
Unlike portfolio investment, FDI is intended to exert substantial influence on the company's management.

FDI encompasses not only cash investments but also investments in various assets defined by the Foreign Investment Promotion Act (the 'Act'), such as capital goods, industrial property, intellectual property rights, local real estate, and shares of overseas-listed companies.
Furthermore, long-term loans with a maturity of five years or more, provided by foreign investors to domestic companies, can also be classified as FDI.

■ Liberalization of Foreign Investment

Except as otherwise prescribed by the Acts of the Republic of Korea, a foreigner may conduct, without restraint, various activities of foreign investment in the Republic of Korea. There are certain instances in which foreign investment is prohibited: when it is deemed to threaten national security or public order; when it is deemed to have a harmful effect on public hygiene or environmental preservation; and when it violates the laws and subordinate statutes of the Republic of Korea

■ Protection of Foreign Investment

Foreign direct investment is protected stronger than indirect investment such as investment in securities and bonds, as prescribed by the Foreign Investment Promotion Act.

  • Guarantee of Remittance to Foreign Countries

    In regard to the proceeds from stocks, etc. acquired by a foreign investor; proceeds from the sale of stocks, etc.; and the principal, interest and service charges paid in accordance with the loan contract as prescribed by the Foreign Investment Promotion Act (Article 2 (1) 4 (b)), their remittance to foreign countries shall be guaranteed in accordance with the details of the notified or authorized foreign investment at the time when the said remittance is made.

  • Exceptions to the Safeguard Clause on Foreign Exchange Transactions

    The Minister of Strategy and Finance may temporarily suspend or restrict foreign exchange transactions, if such measures are deemed inevitable on account of the outbreak of a natural calamity, war, conflicts of arms, grave and sudden changes in domestic and foreign economic conditions, or other situations equivalent thereto (Article 6 (1) to (3) of the Foreign Exchange Transactions Act). However, such measures shall not apply to foreign investment as provided for in the Foreign Investment Promotion Act (Article 6 (4) of the Foreign Exchange Transactions Act).

  • National Treatment

    Except as otherwise prescribed by the Acts of the Republic of Korea, foreign investors and foreign-invested companies shall be treated in the same way as the nationals of the Republic of Korea and Korean corporations in respect of their business operations.

  • Equal Application of Tax Abatement Regulations, etc

    The provisions of the Acts of the Republic of Korea concerning the abatement or exemption of taxes from the tax laws that apply to Korean nationals and Korean corporations shall also apply to foreign investors, foreign-invested corporations, persons who have extended loans as prescribed by the Foreign Investment Promotion Act, and persons who have provided technologies related thereto.

■ Restrictions and Prohibitions on Foreign Investment

Out of a total of 1,145 categories of business listed under the Korean Standard Industrial Classification (KSIC), foreign investment is not permitted in 61 categories including public administration, diplomacy, and national defense (unpermitted categories of business), while foreign investment is partially permitted in 28 categories (restricted categories of business), as prescribed by the Foreign Investment Promotion Act.

  • Unpermitted Categories of Business

    The categories of business in which foreign investment is not permitted generally have public features, hence the difficulties in applying the Foreign Investment Promotion Act. The prohibition of foreign investment in the said categories is prescribed by the Regulations on Foreign Investment and the Integrated Public Notice of Foreign Investment.

    Unpermitted Categories of Business

    • Postal services, central banking, individual mutual aid organizations, pension funding, administration of financial markets, activities auxiliary to financial service activities, etc.
    • Legislative, judiciary, administrative bodies, foreign embassies, extra-territorial organizations ,and bodies
    • Education (pre-primary, primary, secondary, higher education, universities, graduate schools, schools for the disabled, etc.)
    • Artists, religious, business, professional, environmental advocacy, political, and labor organizations

  • Restricted Categories of Business

    In principle, foreign investment is also prohibited in certain restricted categories of business. However, when there are standards for permission, foreign investment is partially permitted. The restriction of foreign investment is prescribed by the Regulations on Foreign Investment and the Integrated Public Notice of Foreign Investment.

    No foreigner shall be permitted to invest in any company concurrently running both a category of business in which foreign investment is not permitted and a category of business in which foreign investment is only partially permitted. And, when intending to invest in any company operating two or more categories of business in which foreign investment is only partially permitted, a foreign investor shall be prohibited from investing in the company over the ratio of foreign investment in the category of business in which the ratio of permissible foreign investment is the lowest.

* Numbers indicated in the ( ) refer to KSIC code.

Growing of cereal crops and other food crops 01110
Farming of beef cattle 01212
Manufacture of other basic inorganic chemicals 20129
Manufacture of other smelting, Industry and Energy refining and alloys of nonferrous metals 24219
Nuclear power generation 35111
Hydroelectric power generation 35112
Fire power generation 35113
Other power generation 35119
Transmission and distribution of electric power 35120
Disposal of radioactive waste 38240
Wholesale of meat 46312
Coastal water passenger transport 50121
Coastal water freight transport 50122
Regular air transportation 51100
Non-regular air transportation 51200
Other Supporting Air Transport Activities 52939
Publication of newspapers 58121
Radio broadcasting 60100
Over-the-air broadcasting 60210
Program distribution 60221
Cable networks 60222
Broadcasting via satellite and other forms of broadcasting 60229
Wired telecommunications 61210
Mobile communications 61220
Satellite communications 61230
Other electronic communications 61299
News agency business 63910
Domestic commercial bank 64121


Foreign Investment Procedures

The procedures applied to foreigners are the same

Osung provides expert service
for a successful foreign- invested business.

Foreign investment procedures mainly consist of the following.

foreign investment notification, remittance of investment funds, registration of incorporation and business registration, and registration of foreign-invested company. The procedures applied to foreigners are basically the same as those applied to Koreans with the exception of two additional steps.

foreign investment notification and registration of foreign-invested company. Where a foreign investor registers a privately-owned business, ‘registration of incorporation’ is not required.

■ Foreign Investment Notification

A foreign investor may notify foreign investment as follows

  • Notifying person: A foreign investor or his/her agent (A power-of-attorney should be attached in the case of notification by an agent.)
  • Where to notify: Headquarters and branches of domestic banks, domestic branches of delegated foreign banks, KOTRA, or KOTRA’s overseas offices
  • Processing period: On the spot (The certificate of completion of notification is issued without delay.)

Foreign investment notification is classified into pre-notification - notification before the acquisition of stocks - and post-notification - notification after the acquisition of stocks or the conclusion of a contract

■ Required Documents

Two copies of the foreign investment notification form per investment type (new stocks, existing stocks, long-term loans ,etc.)
Documents certifying a foreigner's nationality

  • A foreign corporation or group: Certificate of incorporation issued by the government or other authorized organizations of the foreign country, or proof that the said corporation or group is based in the said country
  • Foreign individuals: Certificate of citizenship, passport, or other proof of a foreign investor's nationality, issued by the government or other authorized organizations of the foreign country
  • In case where a foreign investor holds the nationality of the Republic of Korea, the above documents can be replaced by a certificate of evidence of resident status issued by the government or other authorized organizations of the country where he/she stays, or certificate of overseas residence, etc. issued by embassies and legations abroad of the Republic of Korea Additional documents required when necessary

    Additional documents required when necessary

    • Documents certifying object of investment
    • Documents certifying share acquisition
    • Letter of attorney (where an agent, a foreign investor confers the right of representation, reports the investment ,and applies for permission)

Trusted Osung Law Office

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TEL : +82-2-2631-1230
FAX : +82-2-2631-2230
email : nami@osungac.com