◦ FDI are stock investments for the goal of making short-term profits, or investments focusing on long-term operational profits by participating in the management, unlike portfolio management in which the investor does not participate in the management activities. It is under the Act on Foreign Investment Promotion.
◦ Foreign investments as prescribed in the Act on Foreign Investment Promotion refer only to FDI and the definition of foreign investments by law are as follows.
- Method of acquiring stocks or shares of domestic companies
▪ When a foreigner possesses a total of 10% of paid-in capital or total stocks with voting rights of a corporation or company with the goal of establishing a continuous economic relationship with a corporation or company by participating in the management activities of a company operated by a Korean corporation or person.
▪ When having less than 10% of stocks or shares, in the case of signing ① contracts that can send or appoint executives, ② contracts that delivers or purchases materials or products for one year or longer, or ③ signing contracts on providing, introducing or jointly developing technologies
- Method through long-term loans
▪ When a foreign investment company’s ① overseas mother company, ② foreign investor, ③ companies with capital investment relations with overseas mother company, or ④ companies with capital investment relations with foreign investors has five-year or longer loan relationship (based on the loan period as stated on the initial loan contract) that provides loans to the foreign investment company, it shall also be recognized as foreign investments
- Method by contribution
▪ When a foreigner contributes in a corporation with the goal of establishing continuous cooperative relations with non-profit corporations fitting the conditions according to the Presidential Decree for research personnel, facilities, etc as a Korean corporation in the science technology sector
▪ Other contributions by foreigners in non-profit corporations in which the foreign investment committee recognizes as foreign investments according to the criteria determined by the Presidential Decree in relation to the business contents of the non-profit corporation
◦ Foreign investors refer to foreigners possessing stocks and shares according the Act on Foreign Investment Promotion
◦ The range of foreigners prescribed in this Act is as follows.
- Individual: Individual with foreign nationality (also including Korean nationals with permanent residency or similar sojourn status abroad)
※ Overseas Chinese (sojourn status of F5) living in Korea semi-permanently are foreigners, but foreign investment declarations using income sources from within the nation will not be accepted
- Foreign Corporation: Corporation established according to foreign laws
- International Economic Cooperation Organization: Institute that performs overseas economic cooperation activities of foreign governments, IBRD (International Bank for Reconstruction and Development, IFC (International Financial Corporation), ADB (Asia Development Bank), and other international organizations that deal with overseas investment operations
◦ General benefits
- Guarantee of international money transfers
▪ Dividends and liquidation funds of stocks and shares possessed by foreign investors shall be guaranteed international money transfers according to the contents of the wire transfer declaration or approval contents
- Equal treatment as Korean nationals
▪ Aside from special regulations by law, foreign investors and foreign investment companies will receive same treatment as Korean nationals for sales and operations
※ In terms of tax benefits and selection of lots, receive preferential treatment compared to Korean nationals
- Special cases for capital materials import declarations
▪ For capital materials that received capital material introduction goods list confirmation according to the Act on Foreign Investment Promotion, they shall be deemed as receiving approval for import according to international trade laws for improved convenience when making import declarations
- Special Case on Goods Investments
▪ Commercial law procedures softened and ‘payment-in-kind confirmation’ verified by the director of the Customs Service shall be deemed as ‘inspector verification report’ according to the regulations of Article 203 of the Non-litigation Case Procedure Act
◦ Tax Cut Benefits
- In the event that a foreign investor corresponds to tax cut businesses (high technology businesses or industry support service businesses) as prescribed by the ‘Regulations on Tax Reductions for Foreign Investments’, national and provincial taxes are reduced for a prescribed period
◦ Location Support Benefits
- Foreign investment companies can use, earn profits, lease or sell land or factories possessed by the national or local government or public institutes, or other national or public properties (hereinafter referred to as ‘land etc’ (available for businesses that are not subject to tax reductions as well)
- When leasing nationally possessed land, etc to foreign investment companies, lease for land, etc may be reduced
◦ Customs Reduction Benefits
- Following capital goods used directly in the business subject to tax cuts and when introduced within three years of declaration for investments through acquisition of stocks, etc that are newly issued, customs taxes can be reduced
▪ Capital goods introduced as domestic or foreign payment methods for investments from foreign investors by the foreign investment company
▪ Capital goods introduced by foreign investors with the purpose of making contributions
◦ For foreign investment amount (in the case of stocks, the acquisition amount), 100 million won or more
- When there are 2 or more foreigners, each must invest 50 million won or more
◦ The foreign investment ratio, in principle, must be over 10%, but when under 10%, but satisfying the following, it will be recognized as FDI
- Contract that can dispatch or appoint executives
- Contract that supplies or purchases materials or goods for 1 year or more
- In the case of signing contracts for providing, introducing or jointly developing technologies
◦ Tax cut applications must be submitted to the Minister of Strategy and Finance by the end of the tax year that the day of beginning business by the foreign investment company begins.
◦ The Minister of Strategy & Finance shall hold discussions with supervising ministers and come to a decision within 20 days and notify the applicant of such. When deciding it as a business not subject to tax reductions, it must be determined and notified within 20 days of the day of application.
◦ When changing the contents of business that received decision for tax reductions, application for change of contents for tax reductions must be submitted to the Minister of Strategy & Finance no later than 2 years from the date that the reason for change occurred.
In this case, contents of the decision for change will be applied for the remaining period of the initial tax reduction period.
When receiving determination for tax reduction after the tax reduction application period, reductions are available for the tax year that the tax reduction application date belongs to and the remaining tax reduction period following that. Taxes paid prior to this tax reduction period will not be refunded.