A Comprehensive Guide to Foreign Investment Notification Requirements
“If I send money from overseas to establish a company in Korea, does that automatically make it a foreign-invested company?”
The answer is no.
Simply remitting funds from overseas or incorporating a company in Korea does not automatically qualify the investment as a “foreign investment” under Korean law. To be formally recognized as a foreign investment, the investment must satisfy the requirements prescribed under Korea’s Foreign Investment Promotion Act (FIPA) and follow the proper foreign investment notification procedures before the investment funds are remitted.
Whether an investment qualifies under FIPA is more than a matter of terminology. Formal recognition as a foreign investment may be necessary to access certain tax incentives, government support for business locations and cash grants, and immigration benefits such as the D-8 Corporate Investment Visa. It also provides a legal framework for remittance of investment proceeds abroad.
Conversely, failure to satisfy the applicable requirements may result in the company being treated simply as an ordinary Korean company rather than a registered foreign-invested enterprise. This may create complications with D-8 visa applications, verification of the source of funds, and other regulatory matters.
This article provides an overview of the key requirements for properly reporting and registering a foreign investment in Korea.
- 1. What Is a “Foreign Investment” under the Foreign Investment Promotion Act?
- 2. Benefits Available to Foreign-Invested Companies under FIPA
- 3. Basic Foreign Investment Requirement: Minimum Investment Amount
- ① Minimum Investment of KRW 100 Million
- ② A Common Mistake in Joint Investments
- ③ Source and Inflow of Investment Funds
- ④ Documentation and Remittance Considerations
- 4. Basic Foreign Investment Requirement: Voting Rights and Equity Ownership
- 5. Basic Foreign Investment Requirement: Eligible Investors
- 6. Procedural Requirements for Foreign Investment Notification
- Prior Foreign Investment Notification
- Evidence of Foreign Currency Inflow
- Registration of the Foreign-Invested Company
- Failure to Comply with FIPA Requirements Can Have Significant Consequences
1. What Is a “Foreign Investment” under the Foreign Investment Promotion Act?
Foreign Investment Promotion Act:
The purpose of FIPA is to promote foreign investment in Korea by providing support and facilitating foreign investment, thereby contributing to the sound development of the Korean economy.
Foreign Investor:
A foreign investor may include a foreign national, a corporation established under the laws of a foreign country, or certain international economic cooperation organizations.
Foreign Investment:
Foreign investment may include, among other things, the acquisition of newly issued or existing shares, the provision of certain long-term loans with a maturity of five years or more, the contribution of intellectual property rights and other qualifying rights, and certain assets distributed upon liquidation, as prescribed by applicable laws and regulations.
Objects of Investment:
Permitted investment assets may include Korean won converted from foreign means of payment, capital goods, industrial property rights, copyrights and other qualifying rights, real estate located in Korea, and other assets prescribed by applicable laws and regulations.
2. Benefits Available to Foreign-Invested Companies under FIPA
| Category | Key Support | Benefits and Conditions |
|---|---|---|
| Cash Grants | Direct financial support for factories, R&D facilities, and employment | • Eligible sectors: Advanced technologies, new growth industries, materials/components/equipment, R&D, etc. • Eligible expenses: Land acquisition, construction, equipment purchases, employment, and employee training • Amount: A certain percentage of the investment may be supported through central and local government grants |
| Location & State-Owned Property Support | Preferential access to land and buildings | • Preferential locations: Eligibility for Foreign Investment Zones (FIZs) and Free Economic Zones • Rent reductions: Depending on the amount of investment and employment, rent for state- or publicly owned property may be reduced by up to 100% |
| Tax & Customs Benefits | Local tax and imported capital-goods incentives | • Local taxes: Acquisition tax and property tax reductions may be available under applicable local ordinances • Customs/VAT: Exemptions or reductions may apply to qualifying machinery and equipment imported for certain eligible businesses • R&D incentives: Preferential R&D tax credits and special income-tax treatment for qualifying foreign engineers may be available |
| Visa & Administrative Support | Immigration and investment-related administrative benefits | • D-8 Corporate Investment Visa: Eligible executives and professional personnel may qualify for D-8 status • Overseas remittance: Foreign investment proceeds may be remitted abroad subject to applicable law • Administrative support: KOTRA and local foreign-investment support offices may provide assistance with licensing, taxation, and other procedures |
3. Basic Foreign Investment Requirement: Minimum Investment Amount
① Minimum Investment of KRW 100 Million
As a general rule, an investment must amount to at least KRW 100 million per foreign investor to qualify as a foreign investment under FIPA.
Even a minor shortfall may prevent the investment from satisfying the applicable threshold. Accordingly, where the investment is remitted in foreign currency, exchange-rate fluctuations should be taken into account and sufficient funds should be remitted to ensure that the statutory threshold is met.
② A Common Mistake in Joint Investments
Particular care is required where two or more foreign individuals or foreign corporations invest jointly.
The relevant threshold is generally not an aggregate KRW 100 million investment. Rather, the requirement applies to each foreign investor individually.
③ Source and Inflow of Investment Funds
Investment funds should be properly introduced into Korea from overseas through legitimate channels and supported by documentation establishing the source and nature of the funds.
Examples of problematic funding methods include:
- Funds already accumulated domestically without an appropriate foreign-investment basis;
- Cash whose source cannot be properly verified; and
- Funds transferred through unauthorized or informal foreign-exchange channels.
Improperly introduced funds may create significant difficulties in obtaining recognition and registration as a foreign investment.
④ Documentation and Remittance Considerations
When foreign currency is remitted into Korea, the purpose of the remittance should clearly indicate that the funds constitute Foreign Direct Investment (FDI).
After the remittance is completed, the investor should obtain the appropriate foreign currency remittance or foreign-exchange transaction certificate from the designated foreign exchange bank as evidence of the source and nature of the investment funds.
4. Basic Foreign Investment Requirement: Voting Rights and Equity Ownership
To qualify as a foreign investment, the foreign investor generally must satisfy the investment amount requirement while acquiring at least 10% of the voting shares or total equity interest of the Korean company.
This requirement reflects the principle that foreign investment under FIPA is intended to involve a certain degree of participation in the management of the Korean enterprise rather than merely constituting a passive financial investment.
Accordingly, even where an investor contributes KRW 100 million or more, an investment resulting in an ownership interest of less than 10% generally may not satisfy the standard equity requirement.
However, FIPA provides certain exceptions. Even where the foreign investor holds less than 10%, the investment may still qualify as a foreign investment if the investor enters into an agreement establishing a qualifying management relationship with the Korean company.
Examples may include:
- An agreement under which the foreign investor appoints or dispatches an executive officer, director, auditor, or other qualifying management personnel to the Korean company;
- A long-term agreement for the supply or purchase of raw materials or products for a period of at least one year; or
- An agreement concerning the provision of, or cooperation involving, key technologies.
Accordingly, where a foreign investor intends to make a minority investment in a large Korean company, careful structuring of the investment and related contractual arrangements may be necessary to satisfy the applicable FIPA requirements.
5. Basic Foreign Investment Requirement: Eligible Investors
The investor must qualify as a “foreigner” or other eligible investment entity under FIPA.
The term generally includes not only individuals holding foreign nationality, but also corporations established under foreign laws and certain international organizations.
One area that frequently raises practical questions concerns overseas Koreans, including permanent residents and foreign citizens of Korean origin.
A person who has acquired foreign citizenship is legally a foreign national and may generally invest under the same framework as other foreign investors.
By contrast, a person who retains Korean nationality but holds permanent residency abroad remains a Korean national. Depending on the circumstances and applicable rules, however, an overseas Korean residing permanently abroad may be eligible to make an investment under the relevant foreign investment framework.
In such cases, supporting documents such as proof of permanent residency and overseas resident registration documents may be required. The investment funds should also be properly introduced from overseas and supported by documentation establishing their foreign source.
Ultimately, two important considerations are the investor’s nationality or residency status and the foreign origin of the investment funds.
Investments made through nominee arrangements or accounts that do not correspond to the actual investor may create serious issues in connection with D-8 visa applications, tax compliance, and verification of the source of funds. The identity of the investor and the source of the investment should therefore be structured transparently from the outset.
6. Procedural Requirements for Foreign Investment Notification
To obtain formal recognition as a foreign investment under FIPA, investors must not only satisfy the applicable investment amount and equity requirements but also properly complete the prescribed administrative procedures.
Prior Foreign Investment Notification
One of the most important steps is the foreign investment notification. In a typical incorporation involving foreign investment, the relevant notification should be filed with a designated foreign exchange bank or KOTRA before the investment funds are remitted into Korea.
If funds are remitted without properly identifying and processing them as foreign investment funds, they may instead be treated as an ordinary foreign-currency remittance, potentially creating difficulties in completing the subsequent foreign investment registration process.
Evidence of Foreign Currency Inflow
Following the foreign investment notification, the investment funds should be remitted through the appropriate banking channel with the purpose of the remittance clearly identified as Foreign Direct Investment.
The investor should thereafter obtain the appropriate certificate or documentation from the bank evidencing the inflow of foreign currency. This documentation serves as important evidence of both the source and legal character of the investment funds.
Registration of the Foreign-Invested Company
After the investment has been completed and the Korean company has been incorporated, the investor must complete the required foreign-invested company registration within the applicable statutory period.
Upon completion of the registration process, the company will be formally registered as a foreign-invested company and may, subject to the separate requirements applicable to each program, become eligible for the benefits and protections available under Korea’s foreign investment regime.
Failure to Comply with FIPA Requirements Can Have Significant Consequences
Even where the investor is a foreign individual or foreign corporation, failure to satisfy the applicable legal and procedural requirements may prevent the investment from being formally recognized as a foreign investment under FIPA.
In practice, issues frequently arise from ordinary overseas remittances that were not properly processed as investment funds, failure to complete the required foreign investment notification, or failure to satisfy the minimum investment amount or equity ownership requirements.
Where an investment does not qualify as a foreign investment under FIPA, the investor may be unable to obtain certain tax or local-government incentives originally contemplated for the project. It may also create substantial difficulties in obtaining a D-8 Corporate Investment Visa where foreign-investment status is required.
Furthermore, irregularities in the movement of funds into or out of Korea may raise separate issues under Korea’s foreign exchange and other applicable regulatory laws, potentially resulting in administrative sanctions or other legal risks.
For these reasons, foreign investors planning to establish or invest in a Korean company should carefully structure the investor, investment amount, equity ratio, source of funds, remittance process, and foreign investment notification and registration procedures before transferring funds into Korea.