March 20, 2012 § Leave a comment
Foreign Direct Investment in KOREA
FOREIGN DIRECT INVETMENT (FDI) FDI refers to an investment made by a foreign investor (a foreign company or foreign individual) for the purpose of doing business or establishing a continued economic relationship in Korea. FDI differs from a portfolio investment, whose purpose is to earn margins from stock transactions for short term profits.
A foreign investor may do its business in Korea by establishing a company or a branch office, and a branch office and a subsidiary company are allowed to do income generating business activities. If a foreign investor considers efficient operation of business or good reputation toward customers, establishing a subsidiary or company is the most popular method for a foreign investor to do business in Korea.
Foreign investors should invest to Korea in accordance with the Foreign Investment Promotion Act (“FIPA”), and they may establish a wholly-owned company or joint venture company.
REQUIREMENTS In order for FDI to comply with the FIPA, both the amount of the foreign investment and the stock ratio must be satisfied as prescribed in the FIPA.
- Minimum Foreign Investment Amount: 100 million Korean Won
- Foreign Investment Ratio: 10% or more of the voting stocks or total invested capital
TEYPS OF BUSINESS ENTITIES The Commercial Act of Korea provides 4 types of business entities, and they are:
- Jushik-hoesa: Equivalent to a corporation of the United States and most popular form of business entity. Main characteristics are investment by shares, limited liability, and 1 or more shareholders.
- Yuhan-hoesa: Equivalent to a partnership of United States but it is an incorporated entity. Partners have limited liability, and 1 partner up to 50 partners is allowed to form a company.
- Hapmyong-hoesa: Equivalent to a general partnership of US, but it is an incorporated entity. Number of partners is 2 or more, and partners have unlimited liability.
- Hapja-hoesa: Equivalent to a limited partnership of US, but it is an incorporated entity. Number of partners is 2 or more, and 1 type of partners having unlimited liability and limited liability.
Among the business entities, ‘ju-shik-hoe-sa (a stock-company)’is the most common form of entity that foreign investors wish to establish. Depending on a business which a foreign investor whishes to do in Korea, it may be required to invest more than 100,000,000Won in accordance with the Korean relevant laws. A foreign investor may recover and remit back the invested amount to its country if it decides not to do business in Korea any more.
ESTABLISHMENT PROCEDURES Establishment procedures are ① report of foreign investment to a foreign exchange authority, ② incorporation of a company in accordance with the Commercial Act, and ③ registration thereof with a court commercial registry. Upon completing the establishment procedures, a foreign investor has to obtain a business license certificate (tax ID No.) to start its business by submitting an application therefor to the competent tax office.