Foreign Direct Investment (FDI)

The Foreign Investment Promotion Act recognizes foreign direct investment (FDI) when certain requirements are met.

As a general rule, the investment must be at least 100 million won, and it must take a form in which a foreign national acquires at least 10 percent of the total voting shares issued by a domestic corporation or of its total equity contribution.

Even when the equity ratio falls below 10 percent, however, the investment may still qualify as foreign direct investment if the investor holds authority to participate substantially in the corporation's management, for example by dispatching or appointing officers.

A foreign investor must bring investment funds into the country under the procedures set by the applicable statutes, and a failure to follow those procedures can result in administrative sanctions and other consequences.

A foreign direct investment notification may call for both common documents and additional documents, depending on the investment method and the structure of the transaction.

Common Documents to Submit

Additional Documents to Submit

The most common method is the acquisition of equity, in which a foreign national acquires new or existing shares issued by a domestic corporation and takes part in its management.

Another form involves a foreign investor that has completed an equity contribution to a foreign-invested company, or a foreign corporation in a capital contribution relationship with it, extending the company a long-term loan of five years or more.

A foreign-invested company that applies its undistributed retained earnings to business expansion, such as building or enlarging a factory, may also have that use recognized as foreign direct investment under the applicable statutes.

In certain industrial sectors that may affect national security or the public interest, foreign investment may be prohibited entirely or restricted.

The following business sectors, for example, are among those excluded from foreign investment.

Some sectors, such as the cultivation of grains and other food crops, beef cattle farming, nuclear power generation, and the publication of periodicals, allow investment only under conditions such as equity ratio limits, so an investor must review the applicable regulations closely before proceeding.

When a party comes under inquiry for reasons such as a delay in bringing in funds or an unreported capital transaction, the first step is to organize objective materials that prove the source and inflow route of the investment funds.

For example, it is important to systematically secure materials that can confirm the movement of funds, such as records of overseas foreign currency remittances, foreign currency purchase certificates issued by a bank, customs declaration certificates, and loan agreements.

A party who makes speculative statements early in an inquiry, before the facts have been sufficiently organized, or whose statements keep changing may be interpreted unfavorably, so a careful response is required.

The party should also prepare materials that objectively explain compliance with the procedures, such as customer due diligence (KYC) documents that verify the actual investor and the power of attorney for an agent.

When suspicions arise, such as a fictitious payment, or disguised payment, of the object of an equity contribution, the issue may extend beyond criminal liability to an administrative disposition, for instance the cancellation of registration as a foreign-invested company by the Ministry of Trade, Industry and Energy or an entrusted institution.

In that situation, a party must show through accounting books and transaction records that the investment funds went to normal management activities such as operating the corporation, investing in facilities, and hiring employees.

Where an administrative disposition may be issued, a party can submit a written opinion at the prior notice stage or weigh response measures through remedial procedures such as an administrative appeal.

Foreign direct investment (FDI) matters often touch several areas of law at once, including criminal, administrative, foreign exchange, and tax law, so they call for a comprehensive review.

Various legal issues can arise while proving the flow of investment funds, responding to an inquiry, or carrying out administrative procedures, and many such matters lead to disputes between investment partners.

Drawing on an understanding of the statutes and procedures that govern foreign investment, the foreign investment attorneys of Daeryun LLC advise on reviewing investment structures, responding to regulations, and preventing disputes.

When complex criminal and administrative issues arise, they review response measures suited to the matter through collaboration with attorneys who concentrate on the relevant fields.

If you face difficulties with foreign direct investment (FDI) or need related legal advice, you may request assistance from a 🔗foreign investment attorney.