INTRODUCTION Details of Enactment and Amendment * Enactment: This Act was enacted on September 16, 1998 as Act No. 5559, repealing the previously enforced Foreign Investment and Foreign Capital Inducement Act, in order to widely ease the regulations and restrictions on investment by foreigners and expand the tax incentives therefor, and to reorganize from all sides the systems related with foreign investment such as designation of foreign investment zones. * Amendment: This Act has taken its present form after going through one amendment (on December 29, 2000) since its enactment. Main Contents * The system of discretionary acceptance of reporting of investment by foreigners is changed to a simple reporting-based system, and such systems as that of reporting arrival of foreign capital and that of requiring appointment of a representative are abolished. * Immovables, stocks and intellectual property rights are included in the scope of objects which may be invested by a foreigner, in addition to cash, capital goods and industrial property right to promote foreign investments. * Foreign capital invested companies that conduct businesses accompanying advanced technologies are entitled to reduction of or exemption from corporate taxes and income taxes for ten years and exemption from one hundred percent of acquisition taxes, registration taxes, property taxes and aggregate land taxes for five years and fifty percent reduction thereof for three years thereafter. * State owned or public properties may be leased or sold to foreign capital invested companies by contract ad libitum, and for a lease of a state owned or public property, the term of the lease can be up to fifty years. * For the expenses that the local governments bear in their foreign capital inducement activities, such as for formation of foreign investment zones, reduction or exemption of rent for foreign capital invested companies and payment of subsidies, financial support is provided from the national treasury. * Korea Investment Service Center is established at the Korea Trade and Investment Promotion Agency to provide comprehensive supportive services such as investment consultation for foreign investors and foreign capital invested companies and representation in civil petition related affairs. * Mayors and Do governors may designate foreign investment zones in order to attract large-scale foreign investments, and a foreign investment zone may be developed as a local industrial complex if a necessity to develope it as a site for establishment of factories etc. exists. FOREIGN INVESTMENT PROMOTION ACT CHAPTER I GENERAL PROVISIONS * Article 1 (Purpose) The purpose of this Act is to promote foreign investment in this nation by providing incentives and inducements with the ultimate view of contributing to the sound development of this nation economy. * Article 2 (Definitions) (1) The definitions of the terms used in this Act are as follows: 1. The term oreigner shall refer to an individual of foreign nationality, a corporation established in accordance with any relevant foreign Act (hereinafter referred to as a oreign corporation) or an international economic cooperative organization as prescribed by the Presidential Decree; 2. The term ational of the Republic of Korea shall refer to an individual possessing the nationality of the Republic of Korea; 3. The term orean corporation shall refer to a corporation established in accordance with any relevant Act of the Republic of Korea; 4. The term oreign investment shall refer to any of the following; (a) Where a foreigner purchases, under the conditions prescribed by the Presidential Decree, stocks or holdings (hereinafter referred to as tocks) of a Korean corporation (including a Korean corporation in the process of being established) or a company run by a national of the Republic of Korea, for the purpose of establishing a continuous relationship with and participating in the management of said Korean corporation or company; (b) Where a loan with the maturity of not less than five years is extended to a foreign-capital invested company by its overseas holding company or by a company in a relationship with said holding company of the capital investment prescribed by the Presidential Decree; 5. The term oreign investor shall refer to a foreigner who is in possession of stocks, under the conditions prescribed by this Act; 6. The term oreign-capital invested company shall refer to a company a foreign investor has financed; 7. The term bject of investment shall refer to that which a foreign investor invests in order to possess stocks pursuant to this Act and which falls under any of the following: (a) Foreign means of payment as prescribed by the Foreign Exchange Transactions Act or domestic means of payment by the exchange of said foreign means of payment; (b) Capital goods; (c) Proceeds accruing from those stocks which are acquired pursuant to this Act; (d) Industrial property rights, intellectual property rights as prescribed by the Presidential Decree, technologies corresponding thereto, or any other right pertaining to the use of such rights or technologies; (e) Where a foreigner closes his own branch company or office located in the Republic of Korea and converts it into a corporation of the Republic of Korea, or where any other corporation of the Republic of Korea whose stocks are possessed by the foreigner is dissolved, the residual property allotted to said foreigner upon the liquidation of that branch company or office or any other such corporation; (f) Amount of redemption of either loans as prescribed in subparagraph 4 (b) or other loans from foreign countries; (g) Stocks as prescribed by the Presidential Decree; (h) Immovables located in the Republic of Korea; or (i) Other domestic payment means as prescribed by the Presidential Decree; 8. The term apital goods shall refer to machinery, facilities, equipment, parts, accessories in the category of industrial facilities (including vessels, motor vehicles, aircraft, etc.), to raw materials for which reserve supply is deemed necessary by the competent minister (referring to the head of the central administrative agency in control of the project concerned; hereinafter the same shall apply), for the initial test (including pilot projects) of the facilities concerned, to livestock, breeds or seeds, trees, fish and shellfish which are necessary for the development of agriculture, forestry, and fisheries, and to fees for transportation and insurance, and acquiring or providing know-how or service; and 9. The term ontract for the introduction of technology shall refer to a contract by means of which a national of the Republic of Korea or a Korean corporation takes over industrial properties or other technologies from a foreigner, or introduces the rights concerning the use thereof. (2) With respect to an individual who is of Korean nationality but holds permanent residenceship of a foreign country, the provisions of this Act concerning foreigners shall apply in addition to other provisions of this Act. * Article 3 (Protection of Foreign Investment) (1) With respect to the proceeds that come from the stocks, acquired by a foreign investor, proceeds from the sale of stocks, the principal, interest and service charges paid in accordance with the contract for such a loan as prescribed by the provisions of Article 2 (1) 4 (b), and the compensation paid in accordance with a contract for the introduction of technology, their remittance to foreign countries shall be guaranteed in accordance with the contents of the permission or report of the contract for foreign investment or for the introduction of technology, as of the time for the said remittance. (2) Except as otherwise prescribed by any relevant Act of the Republic of Korea, foreign investors and foreign-capital invested companies shall be treated the same way as nationals of the Republic of Korea and Korean corporations are treated in business operation. (3) Except as otherwise prescribed by any relevant Act of the Republic of Korea, the provisions concerning the reduction or exemption of taxes contained in other tax-related Acts applying to nationals of the Republic of Korea or Korean corporations shall also apply to foreign investors, foreign-capital invested corporations, persons who have extended loans as prescribed by the provisions of Article 2 (1) 4 (b), and persons who have provided technology in accordance with the provisions of Article 25. * Article 4 (Liberalization of Foreign Investment) (1) Except as otherwise prescribed by any relevant Act of the Republic of Korea, a foreigner may conduct, without restraint, various activities of foreign investment in the Republic of Korea. (2) Except for the following cases, a foreigner shall not be restricted in the investments prescribed in this Act: 1. Where it threatens the maintenance of national safety and public order; 2. Where it has harmful effects on public hygiene or the environmental preservation of the Republic of Korea, or is against Korean morals and customs; and 3. Where it violates any relevant Act of the Republic of Korea. (3) The categories of business in which foreign investment is restricted in accordance with one of the subparagraphs of paragraph (2), and the contents of the restriction, shall be prescribed by the Presidential Decree. (4) Where any Act and subordinate statute or public notification other than this Act permits the head of the relevant administrative agency to restrict any foreign investment, including unfavorable treatment for foreigners or foreign-capital invested companies compared with Korean nationals or Korean corporations, or additional liabilities to foreigners or foreign-capital invested companies, the Minister of Commerce, Industry and Energy shall aggregate and publicly announce the contents thereof every year pursuant to the Presidential Decree. If the head of the relevant administrative agency intends to amend or supplement them, he shall, in advance, consult with the Minister of Commerce, Industry and Energy. CHAPTER II FOREIGN INVESTMENT PROCEDURES * Article 5 (Foreign Investment by Means of Purchasing Newly Issued Stocks) (1) Where a foreigner intends to make an investment by means of purchasing stocks newly issued by a corporation of the Republic of Korea (including that in the process of being established) or by a company run by a national of the Republic of Korea, the foreigner shall, in advance, make report to the Minister of Commerce, Industry and Energy in accordance with the Ordinance of the Ministry of Commerce, Industry and Energy. The same shall apply to any modification of matters as prescribed by the Presidential Decree, such as the amount of foreign investment and the ratio thereof (referring to the ratio of the stocks owned by foreign investors against the total stocks of a foreign-capital invested company; hereinafter the same shall apply), among those reported contents. (2) Where a report is made under paragraph (1), the Minister of Commerce, Industry and Energy shall, without delay, issue a certificate of acceptance of said report to the reporter. * Article 6 (Foreign Investment by Means of Purchasing Existing Stocks) (1) Where a foreigner (including any specially related person as prescribed by the Presidential Decree; hereafter the same shall apply in this Article) intends to make an investment by means of purchasing stocks or shares which have already been issued by a company run by a national or corporation of the Republic of Korea (hereinafter referred to as the xisting stocks, etc.), the foreigner shall, in advance, make report to the Minister of Commerce, Industry and Energy in accordance with the Ordinance of the Ministry of Commerce, Industry and Energy. The same shall apply to any modification of matters as prescribed by the Presidential Decree, such as the amount and ratio of foreign investment, among those reported contents. (2) Where a report is made under paragraph (1), the Minister of Commerce, Industry and Energy shall, without delay, issue a certificate of acceptance of said report to the reporter. (3) Where a foreigner intends to make an investment by means of purchasing the existing stocks of any such defense industry company as prescribed by the Presidential Decree, he shall, in advance, obtain the permission of the Minister of Commerce, Industry and Energy in accordance with the Ordinance of the Ministry of Commerce, Industry and Energy notwithstanding the provisions of paragraph (1). The same shall apply to any modification of matters as prescribed by the Presidential Decree, such as the amount and ratio of foreign investment, among those permitted contents. (4) Where an application for permission under paragraph (3) is made, the Minister of Commerce, Industry and Energy shall determine whether or not to give the permission, and notify the applicant within any such period as prescribed by the Presidential Decree. (5) The Minister of Commerce, Industry and Energy shall, in advance, consult with the competent Minister before he determines whether or not to give the permission under paragraph (4). (6) The Minister of Commerce, Industry and Energy may, if deemed necessary, attach conditions to the permission under paragraph (4). (7) A person who acquires existing stocks in violation of the provisons of paragraphs (3) and (6) may not exercise any voting right accompanying them, and the Minister of Commerce, Industry and Energy may order such person to transfer the said existing stocks to a third party as prescribed by the Presidential Decree. (8) Necessary matters concerning the acquisition of existing stocks by a foreigner other than those prescribed in paragraphs (1) through (7) shall be prescribed by the Presidential Decree. * Article 7 (Acquisition of Stocks by Means of Mergers) (1) Where a foreigner makes a foreign investment by means of any of the following, he shall make report to the Minister of Commerce, Industry and Energy: 1. Where a foreign investor has acquired stocks issued upon the capitalization of the provision or reevaluation reserve of the foreign-capital invested company in which he has been involved, or of reserve funds as prescribed in other Acts and subordinate statutes; 2. Where a foreign investor has acquired stocks, of a corporation which continues to exist or is newly established after the merger of a foreign-capital invested company in which he has been involved and another company, based on rights arising from ownership of the stocks of the foreign-capital invested company; 3. Where a foreigner has acquired stocks of a foreign-capital invested company registered in accordance with the provisions of Article 21 by means of purchase, inheritance, testamentary gift, or gift from a foreign investor; 4. Where a foreign investor has acquired stocks by means of investing the proceeds from stocks which were acquired under the conditions as prescribed by any relevant Act; and 5. Where a foreigner has acquired stocks by the use of convertible bonds, exchangeable bonds, stock depositary receipts, and other similar bonds or deeds which may be converted into, used for the acceptance of, or exchanged for stocks. (2) Where a report is made under paragraph (1), the Minister of Commerce, Industry and Energy shall, without delay, issue a certificate of acceptance of said report to the reporter.