O The foreign investment by acquisition of new shares, etc. means i) establishment of a new corporation either alone or as a joint venture or ii) participation in the capital increase of domestic enterprises including foreign-invested enterprises.
o Investment procedures
※ However, the foreign-invested enterprise which received the tax reduction decision before the commencement of business operations, should make an application for the business registration to the competent tax office within 30 days from the date of corporate foundation registration (It is recommended to register the business license before the customs clearance or agreement for the like kind investment or real estate acquisition)
※ Also in case of getting capital goods such as like-kind investment, etc., the application of business license should be made before the capital goods receipt and incorporation registration to get VAT deduction, and the business license may be applied to IK administrative support office.
O When the establishment of a factory is required, the license/ permit, filing and registration should be made but may be requested to the IK comprehensive administrative office.
The foreign investment is classified into five types and is as followings:
1) Foreign investment according to the acquisition of new shares, etc.
The participation in the establishment of a new entity (sole or joint) or in capital increase of domestic enterprises (including foreign-invested enterprises)
2) Foreign investment according to acquisition of existing shares
The acquisition of existing domestic shareholders of domestic corporations by a foreigner (or foreign-invested enterprise)
3) Foreign investment by long-term loan
When a foreign investment company’s 1) overseas parent company ii) foreign investor iii) a company with capital investment relationships with a foreign parent company iv) a company which has capital investment relationships with a foreign investor provide the loan for more than 5 years to the applicable foreign investment company, such a loan (based on the loan term specified in the first loan agreement) shall be constituted as a foreign investment.
4) Foreign investment by contribution on the non-profit corporation (enforced as of ‘07.10.28)
The contribution to the non-profit corporation in the field of science and technology, which is equipped with independent research facilities and correspond to the requirements prescribed by the Presidential Decree
5) Acquisition of shares due to the merger, etc.
• 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; Bequest • purchase • Where a foreigner has acquired stocks, etc. of a foreign-capital invested company registered in accordance with the provisions of Article 21 by means of purchase, inheritance, testamentary gift, or gift from a foreign investor;
o Object of investment
– Cash (in case of cash contribution, the applicable foreign capital should be directly received or transferred through a domestic bank and be withdrawn in won)
– Capital goods (including used capital goods): They acknowledged by the competent Minister as industrial facilities required for the initial test run. should be machinery, facilities, components, etc. as industrial facilities and raw materials and spare parts
– Proceeds from the stocks or equity achieved in accordance with the PA (dividends)
– Management of technologies equivalent to industrial property rights, intellectual property rights and others, and their use
– The remaining assets according to the liquidation of a foreign domestic branch of a foreign representative office
– The redemption amount against the loan for more than 5 years or other borrowings from a foreign investment company’s, overseas parent company, foreign investor, a company with capital investment relationships with a foreign parent company or a company which has capital investment relationships with a foreign investor should be acknowledged as the foreign investment.
※ The contribution in kind of loan or borrowings (in the place of a lender) is also accepted
– Domestic real estates owned by a foreigner
– Shares of foreign corporation owned and registered in the exchange of foreign country or domestic shares owned by a foreigner in accordance with the Foreign Investment Promotion Act or the Foreign Exchange Transactions Act
– Proceeds for the sale of stocks, equity or real estate which a aforeigner achieved in accordance with the Foreign Investment Promotion Act and the Foreign Exchange Transctions Act
o The business types which exclude the foreign investment are 63 such as public administration, foreign affairs, defense, etc. out of 1,121 business types in accordance with the Korean Standard Industrial Classification (the detailed classification: 5 units). And 1,058 business types excluding them are available to the foreign investment, which means the liberalization ratio for the foreign investment amount to 99.8% and is the level of OECD advanced countries’ openness.
– Fully open business types: 1,030
– Partially open business types: 26 (foreign investment available when * the allowance criteria are met)
– Not-open business types: 2 (as of December, 2007: radio broadcasting and television broadcasting)
o Notification in “Regulations on foreign investment and technology adoption“
o The amount of foreign investment (the acquisition amount in case of acquisition of stocks, etc.) shall be more than 100 million won per case.
– When there are more than 2 foreigners, it shall be 1 million a person.
o The ratio of foreign investment, as a rule, should be more than 10% but, even if less than 10%, if it is;
i) a contract which can dispatch or appoint an officer
ii) a contract which can deliver or purchase raw materials or products for more than a year
iii) a contract which intends to introduce or import technologies or make a collaborative R&D, such a contract should be instituted as a FDI.
o General benefits
– Guarantee of transfer to foreign countries
• With remittance of proceeds that come from the stocks, etc. acquired by a foreign investor, proceeds from the sale of stocks or equity shall be guaranteed in accordance with the details of the permission or report of the foreign investment contract.
– Equal national treatment
Except as otherwise prescribed by the Acts of the Republic of Korea, foreign investors and foreign-capital invested companies shall be treated in the same way as nationals of the Republic of Korea and Korean corporations in respect of their business operation.
※ Superior treatment to a resident in tax exemption or location selection
– Special exemption on capital goods at the import declaration
Capital goods which received the capital goods importation item confirmation in accordance with Foreign Investment Promotion Act are regarded as the income permit to provide convenience at the time of import declaration in accordance with the Foreign Trade Act
– Exemption on investment in kind
Ease of procedures under Commercial Act by considering the “completion confirmation on investment in kind confirmed by Commissioner of Customs as “the investigation report by an inspector” in accordance with article 203 of the Non-Contentious Case Litigation Procedure Act
o Tax reduction benefits
When a foreign investor engages in the tax reduction business specified in the “Tax Reduction Regulations on Foreign Investment” (high tech accompany business), such an entity may get reduction of national/ local taxes for a certain period of time
o Location support benefits
The land, factory and other state/ public properties (hereinafter called as “land”) owned by the government, local governments or public agencies may be used by, leased or sold to a foreign-invested company (it is available even not the subject to tax reduction).
– When the land, etc. owned by the government is leased to a foreign-invested company, the rents may be reduced
o Tariff reduction benefits
If the capital goods which are directly used in the tariff reduction business may get the reduction of tariffs in case such capital goods are introduced within 3 years from the date of investment filing according to the acquisition of newly issued stocks, etc.
– Capital goods which are imported as the object of investment by foreign investors
o A foreign investor means a person who owns stocks or the equity in accordance with the Foreign Investment Promotion Act
o The scope of a foreigner defined in the same Act is:
– Individual: a person who has the nationality of a foreign country
(Including the case where a Korean achieves a permanent residency or a equivalent residency permit)
※ A Chinese residing in Korea semi-permanently is a foreigner (status of residence (F5), the foreign investment filing with domestic resource income is not accepted).
– Foreign corporation: established in accordance with the laws of the foreign laws
– International Economic Cooperation: the organization acting for international economic cooperative works of foreign countries. One which handles or does international investment works for IBRD, IFC or ADB, etc.
o Foreign direct investment is one which aims to realize long-term business profits by participating in the corporate management unlike the stock investment for short-term capital gains or the portfolio investment including bond investment in which participation in management activities are not allowed, and is subject to the Foreign Investment Promotion Act.
The foreign investment defined by the Act only means the direct foreign investment, and the definition under the Act is as followings:
– Acquisition of stocks or equity of domestic companies
• In case a foreigner owns more than 10% of outstanding shares with voting rights or 10% of total investment amount with a view to establish continuous economic relationships with the applicable corporation or company by participating the economic activities of companies run by the corporation or people of Korea.
• Even if a foreign investor holds less than 10% of stocks or equity, in case i) any contract which empowers to dispatch or appointment of an officer or ii) any contract which enables to deliver or purchase raw materials or products for more than a year or iii) any contract which enables to suggest, introduce technologies or a collaborative contract is made.
– Long-term loan
• When a foreign investment company’s 1) overseas parent company ii) foreign investor iii) a company with capital investment relationships with a foreign parent company iv) a company which has capital investment relationship with a foreign investor provide the loan for more than 5 years to the applicable foreign investment company, such a loan (based on the loan term specified in the first loan agreement) shall be constituted as a foreign investment.
– Contribution (enforced as of ’07 .10.28)
• It is for a foreigner to contribute to the applicable corporation for establishing continuous cooperative relationships with non-profit corporation in the science sector which corresponds to the standard set forth in Presidential Decree per research manpower, facilities, etc.
•In addition, in case the contribution of a foreigner to a non-profit corporation is acknowledged as a foreign investment by the Foreign Investment Committee in accordance with standards prescribed by the Presidential Decree for business contents of non-profit corporation.
The hinterland of harbors which are designated as FTZs are close to piers for international freight ships. Therefore, it is more preferable and convenient for international logistics companies linked to the harbors, or else companies producing and assembling products to be re-exported, to move into the FTZ.
Accordingly, the focus is more on international logistics companies in the case of the 40,000 pyung hinterland of the Busan harbor and the Busan new harbor area. The Busan harbor hinterland has a well-developed service industry related to harbors and is close to the piers, and the Busan new harbor hinterland has an already well-developed industrial complex. Attracting manufacturing companies is limited to an extent, as they do not pose a problem to the harbor and its role of a logistics hub.
The hinterland of the Gwangyang harbor is a large international harbor, but nearby industrial complexes are not yet sufficiently developed. Gwangyang harbor plans to also attract manufacturing companies for export and expand the area into a compound production and logistics hub.
The hinterland of harbors is designated as an FTZ and both Korean and foreign-invested companies are eligible to enter the FTZ. However, there are mainly three broad differences concerning the benefits provided to the companies as stipulated in amendments of the Act on Free Trade Zones:
• First of all, if not all the applications can be accepted, the foreign-invested companies will be given priority.
• Secondly, Korean companies and foreign-invested companies will be offered very low rentals within the FTZ. However, the amendment of the Act on Free Trade Zones stipulates that foreign-invested companies fulfilling certain conditions will be provided with additional reductions to the already low rentals.
• Thirdly, Korean companies and foreign-invested companies enjoy an exemption from indirect taxes such as custom duty and value-added tax. However, incentives for direct taxes such as corporate tax will be given only to foreign-invested companies investing more than US$5 million (for logistics sector), which is a 100% reduction for three years and 40% reduction for the following two years.