Restrictions on foreign investment
Reasons for restriction- A foreigner may, in principle, conduct foreign investment business in Korea, except as otherwise expressly provided for in the Act. However, if he/she interferes with the maintenance of the safety and public order of the country, if he/she harms the health and hygiene of the people or the environmental preservation, if it is significantly contrary to good customs, or if he/she is in violation of the Acts and subordinate statutes of the Republic of Korea, such investment shall be restricted (Article 4 (1) and (2) of the Foreign Investment Promotion Act).
※ Cases that “impede the maintenance of national security” are all of the following cases. It also refers to matters determined by the Ministry of Trade, Industry and Energy as a risk to national security at the request of the Ministry of State or the head of an intelligence investigation agency after deliberation by the Foreign Investment Committee (refer to Subparagraph 2 of Article 5 (1) of the Enforcement Decree of the Foreign Investment Promotion Act).
1. Where a foreigner intends to actually acquire management control of the relevant enterprise through the acquisition of stocks, etc. of a domestic enterprise already established
2. ① Where it is likely to interfere with the production of defense industry materials under the Defense Acquisition Program Act, ② Where goods, etc. subject to export permission or approval under the Foreign Trade Act are likely to be diverted for military purposes,③ Where the details of contracts, etc. treated as state secrets are likely to be disclosed pursuant to the National Intelligence Service Act, ④ Where it is likely to seriously interfere with the international efforts of the United Nations to maintain international peace and security, ⑤ Where there is a high possibility of leakage of national core technology under Subparagraph 2 of Article 2 of the Act on the Prevention and Protection of Leakage of Industrial Technology
Contents of restrictions on foreign investment- The Ministry of Trade, Industry and Energy annually integrates restrictions on foreign investment, such as disadvantageously treating foreigners or foreign-invested companies compared to Korean citizens or Korean corporations, imposing additional obligations on foreigners or foreign-invested companies, and publicly announcing them as the Regulations on Foreign Investment (Ministry of Trade, Industry and Energy Notice; refer to Article 4 (4) of the Foreign Investment Promotion Act).
- A foreigner shall not invest in a business in which foreign investment is prohibited or a business in which foreign investment is partially permitted. In addition, even if he/she intends to invest in a company that operates more than one type of business in which foreign investment is partially permitted, it shall not exceed the ratio of foreign investment in the business with the lowest foreign investment ratio (Article 5 (4) of the Enforcement Decree of the Foreign Investment Promotion Act).
Exceptions to the application of foreign investment restriction regulations- Even if the business of a foreign-invested company is a limited business, the company can invest in companies with limited sales of less than 1% of the company’s total sales (Article 5 (2) of the Enforcement Decree of the Foreign Investment Promotion Act).
- Where a foreigner acquires stock or stake of a company in which the ratio of sales of the restricted business is not more than 1% of the total sales, the stocks or shares acquired in excess of the relevant foreign investment allowance ratio shall be transferred to a Korean national or a Korean corporation within six months from the fixed date of settlement of the excess business year. However, if there are unavoidable reasons, the transfer period may be extended by up to six months (Article 5 (3) of the Enforcement Decree of the Foreign Investment Promotion Act).