Foreign Direct Investment (FDI) plays a pivotal role in the economic development of nations, and South Korea is no exception. In South Korea, FDI is defined as an investment contributed by foreigners, with a minimum threshold of at least KRW 100 million, representing 10% or more of the total investment. South Korea has fostered an environment where foreigners can engage in business activities with relative ease, accompanied by a well-structured regulatory framework and certain exceptions.
Types of FDI
- Acquisition of Stock or Shares in Domestic Companies:
New Stock: This entails the acquisition of newly issued stock, often associated with the establishment of new corporations and the augmentation of paid-in capital.
Existing Stock: Involves the acquisition of stocks or shares that have already been issued. For investments surpassing KRW 100 million per person and acquiring more than 10% of total stocks with voting rights or total capital, it qualifies as FDI.
Exemptions: Even if the investment proportion falls below 10%, it can still be recognized as FDI if a foreigner is appointed as an executive in the domestic company.
- Long-Term Loans to Domestic Companies:
Loans exceeding five years can be provided to foreign-invested companies, but only if capital investments by foreigners have been made in advance.
- Acquisition of Stock or Shares through Mergers and More:
This category encompasses various scenarios, including capital increases without consideration, corporate mergers and divisions, comprehensive stock exchanges and transfers, purchases, inheritances, bequests, bestowals by foreigners, and investments from earnings such as cash dividends and stock dividends.
- Investment in Non-Profit Corporations:
Investments exceeding KRW 50 million, accounting for more than 10% of the total, in non-profit corporations related to science and technology qualify as FDI.
- Reinvestment of Unappropriated Earned Surplus:
When a foreign-invested company reinvests its unappropriated earned surplus, particularly for purposes such as constructing or expanding a factory, it is considered FDI. The foreign investment amount is calculated based on the amount spent and the foreign investment ratio.
After successfully completing the investment fund transfer and successfully incorporating their local Korean company, corporations will be granted a Certificate of Registration for Foreign-Invested Enterprises.
Foreigners in South Korea enjoy the freedom to engage in various business activities unless restricted by specific regulations or Acts of Korea. However, there are certain restricted cases, such as when an investment poses a threat to national security, public order, public health, sanitation, environmental preservation, or Korean morals and customs. Additionally, investments that violate any Korean act or statute are also subject to restrictions.
Vehicles of Foreign Direct Investments in South Korea
FDI in South Korea commonly takes the form of incorporation. The two main legal structures for FDI are corporations, also known as joint-stock companies, and limited liability companies. These structures offer foreign investors flexibility and options for establishing their presence in the South Korean market.
It is worth noting that, while registering a company in South Korea under the form of FDI is recommended, it is not mandatory. South Korea also allows for the establishment of local Korean companies that may not meet the minimum capital requirement of KRW 100 million. This flexibility in company registration ensures that foreign investors can choose the most suitable legal structure based on their specific business needs and investment goals.
For comprehensive assistance and guidance regarding Company Registration in South Korea, we invite you to learn more about our Company Registration in South Korea Services. Our expert team is dedicated to helping you navigate the complexities of establishing and operating a business in South Korea, ensuring a smooth and successful entry into the market.