What jurisdictional thresholds trigger a review or application of the law? Is filing mandatory?
If an investment constitutes a foreign investment, the Foreign Investment Promotion Act (FIPA) applies. In this case, an investor must file a foreign investment report, make an investment and then complete a formal registration.
The following thresholds apply:
- (1) where a foreigner obtains existing or newly issued shares of a Korean company (including a company in the process of being set up) to establish a continuous economic relationship with that Korean company, such as participating in the management of the company, (2) where a foreigner invests at least 100 million won in a Korean company and (3) where a foreigner owns at least 10 per cent of either the total number of voting shares issued by a Korean company or its total equity investment and dispatches or appoints an executive officer to the Korean company;
- where an existing foreign investor or foreign parent company provides long-term loans with a maturity of five years or longer to a foreign-invested company;
- where a foreigner contributes to a non-profit corporation in the field of science and technology to establish a continuous cooperative relationship with the corporation;
- where a foreign-invested company uses unappropriated retained earnings for the purpose of establishing or expanding the company’s factory facilities, workplaces, research facilities, etc, or purchasing capital goods, research equipment, etc, necessary for conducting its business; or
- other contributions to a non-profit corporation by a foreigner that the Foreign Investment Committee recognises as a foreign investment where the foreigner contributes at least 50 million won, accounting for at least 10 per cent of the total amount of contributions.
For any other foreign currency or cross-border transaction the Foreign Exchange Transactions Act (FETA) applies, and the transaction is subject to reporting requirements for acquisitions of securities.
Filing under the FIPA or the FETA is mandatory.
National interest clearance
What is the procedure for obtaining national interest clearance of transactions and other investments? Are there any filing fees? Is filing mandatory?
Any report to be made with respect to foreign investment under the FIPA shall be filed with either the Korea Trade-Investment Promotion Agency (KOTRA) or a foreign exchange bank (ie, a commercial bank) along with the supporting documents required thereunder. Among the documents required are those that:
- show the identity of a foreign investor (eg, a business registration certificate);
- evidence that the foreign investment requirements are satisfied (eg, underlying contracts); and
- show that requirements for exceptional post-reporting are met, if applicable.
Any application for approval of the foreign investment under the FIPA must be submitted to the Minister of Trade, Industry and Energy with the required supporting documents.
If a foreign investor acquires stocks or equity interests in a Korean company, the investor must report the acquisition of securities to a foreign exchange bank or, in exceptional cases, to the Bank of Korea. This report must include, inter alia, documents showing the relevant parties’ identities (eg, commercial registry extracts, seal certificates of representatives) and underlying contracts in addition to the report itself.
The aforementioned reports and applications are mandatory. There is no filing fee.
Which party is responsible for securing approval?
A foreign investor is responsible for filing a foreign investment report under the FIPA or a report on the acquisition of securities under the FETA. It is on the basis of these reports that approval is given.
How long does the review process take? What factors determine the timelines for clearance? Are there any exemptions, or any expedited or ‘fast-track’ options?
A review of a foreign investment report under the FIPA or foreign exchange report under the FETA can be, at least in principle, completed on the date of filing. However, an approval process for a foreign investment in a defence company can take up to 30 days.
Must the review be completed before the parties can close the transaction? What are the penalties or other consequences if the parties implement the transaction before clearance is obtained?
As a general principle, a foreign investment report must be made prior to closing. However, a post-closing report…