Definition of Foreign Direct Investment in South Korea

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Definition of Foreign Direct Investment in South Korea


The Foreign Investment Promotion Act provides for the following definitions related to foreign investment. Unless provided otherwise, the following definitions have the same meanings as provided in the Foreign Investment Promotion Act.

กแ Foreigners

A "foreigner" means an individual with foreign citizenship, a company established under the laws of a foreign country (hereinafter referred to as a "foreign corporation"), or an international economic coop-eration organization. International economic cooperation organizations include: (a) organizations carrying out international economic cooperation activities as an agent of a relevant foreign govern-ment; (b) international development financing organizations such as the International Bank for Re-construction and Development (IBRD), International Finance Corporation (IFC) and Asian Develop-ment Bank (ADB); and (c) international organizations engaged in foreign investment either as a concerned party or as an agent.

กแ Foreign Investment

"Foreign investment" consists mainly of two types: (i) purchase of shares or equity of a Korean company; and (ii) grant of a long-term loan to a Korean company.
"Purchase of shares or equity of a Korean company" means the ownership of shares or equity of a Korean company for the purpose of establishing a continuous economic relationship with the company, by participating in the management of the company and through other means. Specifically, in order to qualify as "foreign investment" under the Foreign Investment Promotion Act, the amount of the investment by each foreigner must be 50 million won or more and the foreigner must own 10% or more of the voting shares or equity of the Korean company. Even if the foreigner does not own 10% or more of the voting shares or equity of the Korean company, however, the investment by such foreigner will be considered "foreign investment" under the Foreign Investment Promotion Act, if the foreigner enters into one of the following types of contracts with the Korean company: (a) a contract that allows the foreigner to dispatch or elect officers (i.e., directors, representative directors, general partners, auditors or persons in similar positions that have the right to participate in important business decision-making processes; (b) a contract with a term of one year or more for the delivery or pur-chase of raw materials or products; or (c) a contract for the supply or introduction of technology or for joint technology research and development project.

A "long-term loan" means a loan with a maturity of five years or more, made to a foreign-invested company by its foreign parent company or by a company that has a capital affiliation with the parent company in the following manner: (a) a company that owns 50 percent or more of the total shares or equity of the foreign parent company; (b) a company, whose foreign parent company owns 50 percent or more of the total shares or equity of the foreign-invested company, (i) which owns 10 percent or more of the total shares or equity of the foreign parent company, or (ii) 50 percent or more of the total shares or equity of which is owned by the foreign parent company or a company that owns 50 percent or more of the total shares or equity of the foreign parent company.

กแ Foreign Investors

A "foreign investor" means a foreigner who owns shares or equity in accordance with the Foreign Investment Promotion Act.

กแ Foreign-Invested Company

A "foreign-invested company" means a company in which foreign investors have invested in accordance with the Foreign Investment Promotion Act.

กแ Operators of Facilities that Enhance the Foreign Investment Environment

An "operator of facilities for the promotion of foreign investment environment" means an operator running facilities to provide an improved environment for foreign investors such as schools, hospitals and clinics, pharmacies, residential buildings and business incubators.

กแ Investment Contributions

An "investment contribution" means an item that foreign investors contribute as consideration for the acquisition of shares pursuant to the Foreign Investment Promotion Act. The following table classifies investment contributions recognized under the Foreign Investment Promotion Act:


Investment Contributions
- Foreign currency, or Korean won acquired through foreign currency conversion
- Capital goods
- Income from the shares or equity acquired pursuant to the Foreign Investment Promotion Act.
- Industrial property rights, intellectual property rights and any technologies amounting to such
rights and the rights to use such technologies
- Assets remaining after liquidation of Korean branch office or representative office or company
- Repayment proceeds from certain loans provided to the foreign-invested company by the foreign parent company or its affiliate
- Shares of a foreign corporation listed in or registered with a foreign stock exchange
- Shares owned by a foreigner pursuant to the Foreign Investment Promotion Act and the Foreign
Exchange Transactions Act
- Real estate located in Korea
- Proceeds obtained from the disposal of shares and real estate owned by a foreigner.

 

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