The third installment in a seven-part series
Series Schedule
1. FDI System in Korea
1-1 Foreign Direct Investment
1-2 Foreign Investment Promotion Act
1-3 Foreign Investment Promotion and Control
2. FDI Procedures
3. Corporation Establishment
4. FDI Incentive
5. FDI Related Law
1. FDI System in Korea
1-3 Foreign Investment Promotion and Control
Unless otherwise stipulated by law, a foreigner may carry out foreign investment activities in Korea without restrictions. However, restrictions will be placed when the investment is deemed harmful to national security, public order, the health and welfare of Korean nationals, and environmental preservation, or goes against established social morals, customs, and/or the laws of the Republic of Korea.
Through the Foreign Investment Promotion Act (FIPA), foreign investments are provided with a higher level of investment protection than indirect investments such as investments through securities and bonds. Overseas remittances of gains from the stocks acquired by foreign investors and stock transactions, principal and fees paid according to a loan contract under the FIPA, and compensation under a technology import contract are allowed in accordance to what has been permitted and reported under the foreign investment technology import contract at the time of the remittance.
The Minister of Strategy and Finance may temporarily suspend or restrict foreign exchange transactions when it is unavoidably required due to force majeure (war, calamities, etc.), substantial and drastic changes to internal and external economic conditions, or other matters in proportion to such. However, a foreign investment under the Foreign Investment Promotion Act (FIPA) shall be an exception to the application of the clause in Article 6 Paragraph 4 of the Foreign Exchange Trade Act.
Unless otherwise stipulated by law, the business operations of foreign investors and foreign-invested companies shall be treated equally as citizens and corporations of the Republic of Korea. Also, unless otherwise stipulated by an amendment, tax reductions on tax laws that apply to the citizens (corporations) of the Republic of Korea shall apply equally to foreign investors, foreign-invested companies, loan creditors and technology providers as prescribed in the FIPA.
Out of a total of 1,145 categories under the Korean Standard Industrial Classification, the FIPA protects 60 categories including public administration, diplomacy, and national defense from foreign investments. Although foreign nationals can invest in all of the 1,085 investment categories, 29 categories have restrictions on the foreign investment ratio.
Categories under protection for foreign investment have public features where it is difficult to apply the Foreign Investment Promotion Act (FIPA). In principle, these categories are protected from foreign investments. Related notices are made in the regulations on foreign investment and technology import and the general foreign investment notice.
The protected categories of foreign investment include postal business, the central bank, private mutual funds, financial market management businesses, and other financial support services. It also includes legislative, judiciary, and administrative bodies, official foreign residences in Korea, and other international and foreign institutions. It includes educational institutions such as infant schools, primary schools, high schools, colleges, and specialized schools. Finally, it includes artistic, religious, environmental, political, and labor movements and organizations.
In principle, foreign investments into the restricted categories are prohibited. However, some investments are allowed within certain permitted levels as specified. Categories in which foreign investment is prohibited are listed in the regulations on foreign investment and technology import and the general foreign investment notice.
Foreigners are not permitted to invest in a company that operates a business in both a protected category and a partially permitted category. When investing in companies that operate more than two businesses in a category in which partial foreign investment is permitted, the investment ratio cannot surpass the ratio of the category with the lowest investment permitted ratio.
| Business Categories(KSIC) | Permitted Level |
| Cultivation of grains and other food crops (01110) |
Rice and barley cultivation excluded |
| Beef cattle breeding (01212) | Permitted when the foreign investment ratio is less than 50% |
| Coastal fishing (03112) | |
| Other basic inorganic chemical production (20129) |
Permitted with the exception of production·supply of nuclear generator fuels |
| Other non-ferrous metal refining, smelting, and alloy production (24219) |
|
| Nuclear Generation (35111) | Prohibited |
| Hydro power generation (35112) Thermal power generation (35113) Other power generation (35119) |
The sum of generation facilities purchased by foreigners from KEPCO must not surpass 30% of the total domestic generation facilities |
| Power transmission and supply (35120) | - Foreign investment ratio must be below 50% - Ratio of voting stocks held by foreign investors < primary domestic shareholder ratio |
| Radioactive waste collection, transportation and handling (38240) |
Excluding radioactive waste management business under Article 82 of the Electricity Business Act |
| Meat wholesale (46312) | Permitted when the foreign investment ratio is below 50% |
| Inner harbor passenger transport (50121) Inner harbor freight transport (50122) |
- Permitted: Transport of passengers or freight between South and North Korea - Joining with shipping companies of the Republic of Korea - Foreign investment ratio must be below 50% |
| Regular aerial transport (51100) Special aerial transport (51200) |
Permitted when the foreign investment ratio is below 50% |
| Newspaper publication (58121) | Permitted when the foreign investment ratio is below 50% |
| Magazines and periodicals publication (58122) | Permitted when the foreign investment ratio is below 50% |
| Radio broadcasting (60100) | Prohibited |
| Terrestrial broadcasting (60210) | Prohibited |
| Program provider (60221) | Permitted when foreign investment ratio is below 49% (** General and special news program channel users is prohibited.) * Program provider refers to broadcasting channel users under the Broadcasting Act |
| Cable broadcasting (60222) | General cable broadcasting permitted when foreign investment ratio is 49% and under (** Relay cable broadcasting is prohibited) |
| Satellite and other broadcasting (60229) | Permitted when foreign investment ratio is below 33% (** Internet multimedia broadcasting is permitted when the foreign investment ratio is below 49%) |
| Cable communications (61210) | - Permitted when the sum of shares (only voting shares, including DR and other share equivalents and invested equities) held by foreign governments or foreigners (including fictitious foreign-invested corporations) is less than 49% of the total issued shares (Foreign nationals and foreign- invested corporations are not allowed to become a majority shareholder of KT. However, they may invest in the communications businesses when they own less than 5% of total shares.) * Ficticitous foreign-invested corporation: corporation
- However, there are no restrictions on additionalwhose majority shareholder is a foreign government or a foreign national (including those in special relations under Item 1, Paragraph 1, Article 9 of the Financial Investment Services and Capital Markets Act) in possession of 15% or more of shares issued communications businesses |
| Mobile communications (61220) | |
| Satellite communications (61230) | |
| Other electronic communications (61299) | |
| News (63910) | - Permitted when foreign investment ratio is below 25% |
| Domestic bank (64121) | Permitted for commercial banks and regional banks (** Investment in special banks, and agricultural/fisheries /livestock cooperatives is prohibited.) |
