Legal basis:
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- The Foreign Investment Promotion Act
- The Rules on Foreign Investment
South Korea’s vibrant development has turned the country into the fourth largest economy in Asia. With a rapid growth of the economy, Korea is a bustling market with high technology, optimal entertainment industry and limitless economic potential. Korea also owns other strong export industries such as materials, construction, oil refining, fashion and shipbuilding, industries that have special appeal on the Kospi stock market. If you are seeking an opportunity to join this market by investing, these are things you need to know.
In Korea, a foreign direct investment (FDI) is defined as one that is at least 100 million KRW investment made by the foreigners. For a company or firm to be recognised as such, foreign investors must possess at least 10% of the voting stocks it issues, or they must make up at least 10% of the total investment amount. As an alternative, foreigners may purchase less than 10% of the shares issued by a domestic company or business or contribute less than 10% of the total investment amount; however, they must designate or dispatch an executive member with the authority to take part in the company’s primary management and decision-making processes.
While foreigner means a foreign individual based on their nationality or a foreign corporation based on their origin country along with the country’s law or an international economic cooperative organization according to the Presidential Decree.
When a foreigner who holds stocks, etc., or has contributed as above, they are known as a foreign investor. A foreigner may engage in various business activities in Korea without restraint, except as otherwise prescribed by the Acts of Korea. There are 1,135 categories of business and 1,106 of them are unrestricted to foreign investors.
There are 3 unopened restricted categories that foreign investors should know: nuclear power generation, radio broadcasting and terrestrial broadcasting. This means foreign investors are prohibited to these 3 categories.
And according to Article 4 of the Rules on Foreign Investment, there are several categories of business excluded from foreign investment, which means foreign investors are not permitted to invest, including:
– Postal service, central banking, individual mutual aid, pension fund, financial market administration, and other activities auxiliary to financial service activities
– Legislative, judiciary, and administrative bodies, foreign official residences in Korea, and other international and foreign bodies
– Educational institutions (kindergartens, elementary, middle, and high schools, universities, graduate schools, special-education schools, etc.)
– Artists, religious groups, industry, professionals, environmental movement groups, political or labor movement groups, etc.
Besides, Korea is not allowed to invest where: An investment is deemed to threaten national security and public order; An investment is deemed to have harmful effects on public health and sanitation or environmental preservation or acts against Korean morals and customs; An investment violates any act or statute of Korea.
Foreign direct investment (FDI) is an important factor contributing to the economic growth of recipient economies. In developing economies, FDI creates opportunities to access capital sources and jobs, transfer technology and production techniques. Apparently, if these investments have a negative impact on Korea’s economy, there is no reason for Korea to approve those investment projects.
