Hello, this is Attorney Kyusung Lee from WeOn Law Firm.

As of the first half of 2023, Foreign Direct Investment (FDI) reached its second-highest record. With the global economy recovering from the COVID-19 pandemic, FDI in Korea from January to May 2024 amounted to a staggering $26.9 billion, marking an increase of approximately 35% compared to the same period last year.

Today, we will take a closer look at the foreign direct investment influx into Korea and why it is important to undergo a legal review.

What is Foreign Direct Investment?

Foreign direct investment refers to the establishment of a new corporation or the acquisition of shares or stakes in an existing domestic corporation by foreign entities or individuals to establish an ongoing economic relationship with the domestic company.

However, to qualify, the investment must be over 100 million KRW (approx. $75,000), and the investor must own at least 10% of the total shares with voting rights or total equity.

Even if this percentage is not met, if a contract is signed to appoint or dispatch executives, the investment can still be recognized as FDI.

Additionally, foreign-invested companies' overseas parent companies, individuals, or those with capital relationships with these companies may engage in certain types of investments. These include ; ▲providing long-term loans of five years or more to the foreign-invested company ▲making donations to non-profit organizations ▲reinvesting undistributed earnings from domestic foreign-invested companies.

In Korea, the Ministry of Trade, Industry and Energy manages foreign direct investments. The ministry has established KOTRA, which runs various support programs.

When going through the foreign direct investment process, certain cases require mandatory reporting. This must be done before the activity commences, either through KOTRA or a foreign exchange bank. One key point to remember is that even if funds have been transferred before reporting, the transaction is considered valid if the procedures are completed on the day of currency exchange.

Additionally, the Financial Supervisory Service and the Korea Federation of Banks provide guidance on reporting obligations related to securities acquisition, money lending, reporting, and increasing capital. This means that obligations can arise in various situations.

Moreover, if the content or subject of the investment changes, or if a post-report is required, it is essential to file the report within the designated period or immediately. Therefore, it is important to understand these requirements in advance.

When establishing a foreign-invested corporation, you must first check the basic details.

You need to decide on the corporate structure (e.g., corporation, limited company) and clarify details like the company's name, executives, and address. Once the basic matters and legal review are completed, you can proceed with the establishment report and business registration.

At this point, you must prepare documents like the company’s articles of incorporation, a copy of the lease agreement, and a shareholder or investor statement to submit with the application to the competent tax office.

From this explanation, the foreign direct investment process may seem simple, but this is a very simplified overview. In reality, the process is much more complex and challenging.

Above all, you must account for legal variables that may arise throughout the process and minimize the risk of disputes such as transaction suspensions or fines, which is why having professional support is crucial.

If you ever need assistance, feel free to contact Attorney Kyusung Lee at WeOn Law.

Contact 

이규성 변호사 Kyusung Lee

(010-9023-5665, kslee@weonlaw.co.kr)