I. Legal basis

– Foreign Investment Promotion Act (FIPA), 2017

– Regulations on the Implementation (Operation) of the security review procedure for foreign investment

– Decree No. 34859 amending and supplementing the Foreign Investment Promotion Act (FIPA), 2024

– Special Act on the Promotion (Development) of National Strategic Technologies, 2023

Foreign investment has consistently been a vital economic resource, playing a significant role in the development and operation of each country’s domestic economy. It can be observed that countries around the world are gradually adjusting their policies toward the common objective of trade liberalization, the opening of domestic markets, and the promotion of foreign investment activities. Accordingly, this not only promotes the development of the domestic economic market and addresses unemployment issues, but also ensures sustainable and long-term overall development as countries actively strengthen cooperative relationships through foreign investment protection agreements.

However, alongside the benefits that may positively contribute to the domestic economy, foreign investment—particularly foreign direct investment—also gives rise to various disadvantages and challenges for the domestic production market, as excessive and insufficiently controlled inflows may exert substantial competitive pressure on domestic enterprises. Otherwise, the upcoming risks related to national security should be dealt with. Upon the scholars and politicians’ perspectives, the lack of foreign investor supervision mechanism can impact strongly on national security as it establishes opportunities for the foreign investors to interrupt significantly to the national market, or control, manipulate, dominate the market through the predominant market share. Therefore, besides FDI encouragement policy, investment management mechanism is deemed to be important as well.

The Republic of Korea is known to be “the Asian dragon” with terrific economic development, thereby Korea is always considered to be the potential investment market in Asia where foreign investors pursue to invest in. Thus, Korean foreign investment law not only regulates protection measures, incentives and commitments for the foreign investors but also has the investment management and supervision for this group, whereas the Government also institutes the boundaries for majors regarding the secure, military or “core” major in the economy. Significantly, with a view to tightening investment flows related to science and technology, on 27 August 2024, President Yoon Suk-yeol promulgated a decree amending and supplementing the 2024 Foreign Investment Promotion Act (FIPA). The amendment aims to strengthen control over investments in “National Strategic High Technologies,” namely core strategic technologies that are critical to foreign relations and national security, have the potential to affect the national economy, and are closely linked to relevant industries.

At the same time, these technologies serve as a foundation for the future development of the science and technology sector, including the creation of new technologies and technical innovations, as provided under the Special Act on the Promotion (Development) of National Strategic Technologies of 2023.

II. Regulations Ensuring National Security in Relation to Foreign Direct Investment (FDI) in South Korea

2.1. Investment report

Pursuant to Article 5(1) of the 2017 Foreign Investment Promotion Act (FIPA), a foreign investor intending to carry out investment activities as prescribed in Article 2 of this Act is required to report such investment to the Ministry of Trade, Industry and Energy prior to its implementation, except for the cases specified in Article 5(2) of the 2017 FIPA. However, where the investment concerns, or involves the registration of changes to investment information in, a company operating in the defense industry as prescribed by law, the foreign investor must obtain prior approval from the Ministry of Trade, Industry and Energy before proceeding with the investment.

2.2. Prohibited or Restricted Business Lines for Investment

Pursuant to Article 4(2) of the 2017 Foreign Investment Promotion Act (FIPA), foreign investors are generally permitted to freely invest in various sectors and business activities in South Korea.

However, in certain circumstances, foreign investment may be prohibited for the purpose of safeguarding national defense and security, including the following cases:

• Where the investment threatens national security or public order;
• Where it adversely affects public health, public hygiene, environmental protection, or is contrary to the good morals and customs of South Korea;
• Where it violates any law or regulation of the Republic of Korea.

With respect to certain restricted investment sectors or business activities, foreign investors are required to satisfy specific conditions, including limitations on equity ownership ratios, investor qualifications, or the duration of the investment activities.

2.3. Registration for the establishment of a foreign-invested enterprise

In order to facilitate the management of foreign investment activities at the local level, Article 21 of the 2017 Foreign Investment Promotion Act (FIPA) requires foreign investors, whether individuals or economic organizations, to register the establishment of a foreign-invested enterprise after carrying out the following activities:

• Where the investor has completed payment for the investment assets;
• Where the investor has completed the acquisition of shares (i.e., payment for the purchase of shares, etc.) in accordance with Article 2(1)4(a);
• Where the investor has completed its capital contribution through the methods prescribed in Article 2(1)4(c) and (d).

However, in certain cases where the investor satisfies the conditions set forth in Article 27(2) of the Enforcement Decree of the Foreign Investment Promotion Act, the investor is required to submit the application for registration of the establishment of a foreign-invested enterprise prior to the above-mentioned timeframes.

In cases of non-compliance with these procedures, foreign investors may be subject to administrative penalties or criminal liability, depending on the severity of the violation, pursuant to Article 33 of the Foreign Investment Promotion Act.

III. Updates on Amendments to National Strategic Industry Safeguard Measures for Foreign Investment in South Korea

Ex Officio Review Procedures for Investment Activities in National Strategic High Technology Sectors 

Pursuant to the 2024 amended and supplemented Foreign Investment Promotion Act (FIPA), even where a foreign investor fails to voluntarily file a prior report with the competent authority, the Ministry of Trade, Industry and Energy (MOTIE) is still authorized to conduct inspections and reviews ex officio if there are grounds to believe that the investment activity is related to National Strategic High Technology sectors.

This provision is intended to strengthen the supervisory and regulatory capacity of state authorities over foreign investment activities, enabling competent agencies to act more proactively in procedural enforcement, promptly detect and investigate potential violations, and, in particular, enhance oversight of enterprises operating in National Strategic High Technology sectors.

Notably, the scope of cases requiring verification of ownership of National Strategic High Technologies, as stipulated in Article 9 of the Special Act on the Promotion (Development) of National Strategic Technologies (2023), has been expanded to include the following circumstances:

(i) technologies developed through state-funded R&D projects;

(ii) technologies recognized as National Strategic High Technologies through patents or scientific publications;

(iii) cases where violations related to technology have been reported, necessitating verification as to whether such technology constitutes a National Strategic High Technology;

(iv) cases where, based on information provided by the heads of relevant central administrative agencies, heads of investigative or intelligence authorities, or employees of the enterprise, it is determined that the enterprise may possess National Strategic Technologies (NSTs).

IV. Conclusion 

South Korea continues to maintain national security safeguard measures while introducing additional regulations aimed at ensuring the development of industries related to National Strategic High Technologies, alongside policies designed to protect foreign investors. The imposition of administrative procedures on foreign investors serves the dual purpose of strengthening oversight of foreign investment and protecting South Korea’s domestic manufacturing market. Nevertheless, South Korea’s overall investment promotion policy continues to prioritize the protection of the legitimate rights and interests of foreign investors, including incentives related to land use and production costs, thereby contributing to the attraction of increased foreign direct investment into South Korea in the coming period.

V. About NYLA – Korean Legal Office

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