Foreign Direct Investment Procedure - Business Startup in South Korea

Foreign investment procedures consist of foreign investment report, remittance of investment fund, registration of incorporation & business, and registration of a foreign-invested company. The procedures applied to foreigners are basically the same as for Koreans except for the two additional steps: foreign investment report and registration of a foreign-invested company. Where a foreign investor registers a privately-owned business, 'registration of incorporation' is not required.

• 1. Foreign Investment Notification
• 2. Foreign Investment Report Procedures by Investment Type

1. Foreign Investment Notification

 Foreign Investment Notification

A foreign investor or an agent may report their investment at KOTRA, Korea Business Centers (KBC) of KOTRA, headquarters and branches of domestic foreign exchange banks, or domestic branches of delegated foreign banks.

 Reporting person: A foreign investor or an agent

 Delegated agency: Headquarters and branches of domestic banks, domestic branches of delegated foreign banks, KOTRA or Korea Business Centers (KBC) of KOTRA.

 Processing period of foreign investment report: Immediately (The certificate of completion of report is issued without delay)

The system to issue the certificate of completion of foreign investment notification without delay has been implemented since November 1998. There are pre-report, made prior to the acquisition of stocks, and post-report, made after the acquisition of stocks or the conclusion of a contract. The details are as follows:

< Pre- & Post-Report >

 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)

2. Foreign Investment Report Procedures by Investment Type

 Report of foreign investment by acquiring newly issued stocks or in form of contribution 

Where a foreigner intends to make an investment by means of purchasing stocks newly issued by a Korean corporation or a company run by a national of the Republic of Korea, the foreigner shall report such fact in advance (pre-report).

Acquisition of Newly Issued Stocks:

 Where a foreigner establishes a new corporation independently, or jointly with a Korean national

 Where a foreigner participates in the recapitalization of a Korean

 Where a foreigner (individual) operates a private business in Korea

 Where a foreigner makes contribution to a non-profit corporation (acquisition of newly issued stocks in form of contribution

Required Documents

 Two copies of the notification form of foreign investment by acquisition of newly issued stocks or in form of contribution (letter of attorney shall be included in case where an agent reports the foreign investment)

Documents certifying a foreign investor's nationality

Documents certifying object of investment (necessary only in the event of the application of the relevant Article of the Foreign Investment Promotion Act)

- Documents certifying the monetary value of an intellectual property right, etc(*)

- Documents certifying assets remaining after liquidation of a branch representative office, or corporation

- Documents certifying the amount the applicant has repaid against a domestic or overseas loan

- Documents certifying stocks of a corporation listed in overseas securities markets

- Documents certifying stocks held by a foreigner under the Foreign Investment Promotion Act or the Foreign Exchange Transactions Act

- Documents certifying the investor has duly registered all capital transactions involving the real estate of Korea to be invested

- Documents certifying the amount received through the sale of stocks or real estate under the Foreign Investment Promotion Act or the Foreign Exchange Transactions Act

- Documents certifying the contribution to a non-profit corporation

Modification shall be reported as well: Trade name or title and nationality of a foreign investor, foreign investment amount, foreign investment ratio (ratio of stocks held by a foreign investor to the total stocks of a foreign-invested company ), investment method, type of business intended for operation, etc.

(*) Technology evaluation agencies: Korea Institute for Advancement of Technology; Korea Technology Finance Corporation; Korea Evaluation Institute of Industrial Technology; Korea Environment Corporation (KECO); Korea Agency for Technology and Standards; Korea Institute of Science and Technology; Korea Institute of Science and Technology Information; and National IT Industry Promotion Agency

Where a foreign investor makes an investment in kind with the capital goods

A foreign investor is required to apply for the examination and confirmation of the specification of the imported capital goods prior to customs clearance, after reporting the foreign investment by acquisition of newly issued stocks, etc.

Required documents:

Three copies of the application form for the examination and confirmation of the specification of the imported capital goods

Three copies of the document certifying the monetary value such as offer sheet

Application for the written confirmation of the completion of the investment in kind to a dispatched officer from the Korea Customs Service at Invest KOREA, after the completion of the import of capital goods

 Report of and Application for Permission for Foreign Investment by Acquisition of Existing Stocks

Where a foreigner intends to make an investment by acquisition of stocks which have already been issued by a company run by a national of the Republic of Korea or a Korean corporation, he/she shall report the fact in advance (pre-report). Where he/she acquires existing stocks, etc. issued by a stock-listed corporation under the Financial Investment Services and Capital Markets Act, he/she may report such fact within 30 days after such acquisition.

* In cases where a foreigner, who has already acquired 9% of the stocks of a stock-listed corporation under the Financial Investment Services and Capital Markets Act, intends to additionally acquire 3.5% of the stocks of the said corporation (where a foreigner holds 10% or more of the stocks of a stock-listed corporation in total), the additionally acquired stocks of 3.5% is recognized as foreign investment under the Foreign Investment Promotion Act. Therefore, the said foreigner shall report or apply for permission for foreign investment by acquisition of existing stocks, etc. In such cases, a foreigner may exceptionally report the foreign investment within 30 days after such acquisition.

Acquisition of existing stocks:

 Where a foreign investor directly purchases unlisted stocks from a domestic shareholder

 Where a foreign investor acquires 10% or more of the stocks of a listed corporation

Where a foreigner intends to make a foreign investment by acquiring the existing stocks, etc. of a defense industry company, he/she shall obtain in advance permission of the Minister of Trade, Industry and Energy (application for permission). In cases where a foreigner has acquired existing stocks, etc. in violation of provisions for permission, he/she shall not exercise his/her voting rights of such existing stocks, and may receive an order to transfer the relevant existing stocks, etc. to a third party from the Minister of Trade, Industry and Energy.

Required documents:

 Two copies of the notification form of foreign investment by acquisition of existing stocks, etc. (A letter of attorney shall be included in case an agent reports the foreign investment.)

Documents certifying a foreign investor's nationality

Documents certifying the transferees' relationship to each other (in the event that the stock is being transferred to more than two parties)

Documents certifying object of investment (necessary only in the event of the application of the relevant Article of the Foreign Investment Promotion Act)

- Documents certifying assets remaining after liquidation of a branch, representative office, or corporation

- Documents certifying the amount of the applicant has repaid against a domestic or overseas loan

- Documents certifying stocks of a corporation listed in overseas securities markets

- Documents certifying stocks held by a foreigner under the Foreign Investment Promotion Act or the Foreign Exchange Transactions Act

- Documents certifying the amount received through the sale of stocks or real estate under the Foreign Investment Promotion Act or the Foreign Exchange Transactions Act

A foreign investor shall report or apply for permission for modification: Foreign investment amount, foreign investment ratio, grantors, etc.

 Report of Foreign Investment by Acquisition of Stocks, etc. by Mergers, etc. 

The acquisition of stocks, etc. by mergers, etc. shall be reported within 30 days after such acquisition (post-report). A foreigner, who report foreign investment by acquisition of stocks, etc. by mergers, etc., shall file an alteration registration of a foreign-invested company.

Acquisition of stocks, etc. by mergers, etc.:

Where a foreigner acquires stocks, etc. issued at the time of capitalization of reserves, revaluation reserves, or other reserves as prescribed by other Acts and subordinate statutes of the foreign-invested company.

Where a foreign investor acquires stocks, etc. of a newly incorporated corporation or a surviving corporation after a merger, the all-inclusive stock swap or transfer, or a company division with the stocks he/she is holding at the time of the relevant foreign-invested company's merger, all-inclusive stock swap or transfer with another company, or a company division.

Where a foreigner has acquired stocks, etc. of a registered foreign-invested company by means of purchase, inheritance, testamentary gift, or gift from a foreign investor.

Where a foreign investor has acquired stocks, etc. by means of investing the proceeds from the stocks, etc. which were acquired under the laws of Korea.

Where a foreigner has acquired stocks, etc. using convertible bonds, exchangeable bonds, stock depositary receipts, and such other similar ones as maybe converted into, available for the acceptance of, or exchanged for stocks, etc.

Required documents:

 Two copies of notification form of acquisition of stocks or shares (A letter of attorney shall be included in case an agent reports the foreign investment.)

 Documents certifying a foreign investor's nationality (in cases of new acquisition)

 Documents certifying the acquisition of stocks (certificate of incorporation, minute of the board of directors, and minute of general shareholders' meeting, etc.)

 Report of Foreign Investment in Form of Long-term Loans 

Where an overseas parent company of a foreign-invested company (foreign corporate investor), a foreign investor, or an enterprise with capital investment relationship with the overseas parent company or the investor intends to make a foreign investment in form of long-term loans with maturity of not less than five years supplied to the foreign-invested company, the foreign investment shall be reported in advance (pre-report).

Where an overseas parent company of a foreign-invested company, a foreign investor, or an enterprise with capital investment relationship with the overseas parent company or the investor intends to make a foreign investment in form of long-term loans with maturity of not less than five years supplied to the foreign-invested company, the foreign investment shall be reported in advance (pre-report).

Required documents:

 Two copies the notification form of the foreign investment in form of long-term loans (A letter of attorney shall be included in case an agent reports the foreign investment.)

 Copy of the loan contract

 Documents certifying the capital investment relationship, and documents certifying the lender's nationality

A foreigner shall report modification: Amount of loans, conditions of loans (interest rate, repayment period, grace period) etc.

Foreign Investment Procedures by Investment Type 

 Remittance of Investment Funds

In principle, investment funds shall be remitted through a foreign currency bank under the name of the foreign investor. Funds from domestic sources are not recognized as foreign investments. In the process of paying up for stocks, a bank issues a certificate of paid-up stocks (required in case of registration of incorporation) and a certificate of foreign currency purchase (required in case of registration of a foreign-invested company).

 Registration of Incorporation and Business

A foreigner shall get required documents to register incorporation and business at a jurisdictional court and tax office.

 Transfer of Paid-in Capital to Corporate Account

When the registration of incorporation and business is completed, a new company becomes a legally valid corporation. A bank requests the required documents and transfers paid-in capital to the account of the newly established corporation.

 Registration of a Foreign-Invested Company

A foreign investor (or an agent) or a foreign-invested company shall register the foreign-invested company at delegated authorities within 30 days after the occurrence of any of the following cases.

 Where he/she/it has completed the payment for the object of investment (acquisition of newly issued stocks)

 Where he/she/it has acquired existing stocks (acquisition of existing stocks)

 Where he/she/it has acquired stocks by mergers, etc (acquisition of newly issued stocks after a company division or using convertible bonds, etc)

 Where he/she/it has completed contribution to a non-profit corporation (acquisition of newly issued stocks in form of contribution)

 Required documents: 

 Registration form of a foreign-invested company

Copy of the certificate of incorporation and business registration of a foreign-invested company

Copy of foreign exchange purchase certificate or foreign currency deposit certificate

Shareholders' list (corporate seal, certified copy of the original) or documents certifying that payment of stocks is transferred

 Additional documents required when necessary 

 Documents certifying object of investment

Copy of documents certifying that the transfer of assets has been completed (where a foreign investor makes an investment in kind with capital goods)

Copy of an investigation report by an inspector or a written statement by an appraiser, in accordance with the Commercial Act (where a foreign investor makes an investment in stocks or domestic real estate)

- Documents pertaining to acquisition of stocks

- Letter of attorney where an agent makes the report

<Original Source : http://investkorea.org/ikwork/iko/eng/cont/contents.jsp?code=102040105>

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