[Published on July 2, 2024 edition of the "Korean Law Insights" column in the Korea Daily’s Economic Expert Section]
Advance Report of Foreign Investment or Securities Acquisition May Be Required
Address Early to Avoid Transaction Delays or Fines
When Korean Americans in the U.S. remit funds to Korea for establishing a company or investing in a Korean company, they may need to file a foreign investment report or a securities acquisition report. These filings are generally required before the remittance, as they involve the preparation of necessary documents and advance review. Neglecting this process could lead to complications. It is difficult to cover all the specific requirements for foreign investment reporting and securities acquisition reporting here, so I will review the key requirements based on commonly occurring scenarios.
First, the requirements for foreign investment reporting are specified in the Foreign Investment Promotion Act (FIPA). A common situation requiring such a report is when the capital/investment amount is at least KRW 100 million (approximately USD 75,000) and the foreign investor acquires a voting shareholding of at least 10% in return. Reporting foreign investment and registering as a foreign-invested company can provide benefits under the FIPA, so it is worth thoroughly examining whether a foreign investment report is necessary based on individual circumstances.
Reports are submitted to foreign exchange banks in Korea or the Korea Trade-Investment Promotion Agency (KOTRA). This can also be done through KOTRA's overseas trade offices (e.g., KOTRA LA). Based on my experience, handling foreign investment reporting through a local KOTRA office is significantly more convenient and efficient in terms of document preparation, procedures, and communication compared to working directly with a foreign exchange bank or KOTRA in Korea.
If the capital/investment funds sent to Korea do not meet the requirements for foreign investment reporting (i.e., the capital/investment is less than KRW 100 million or the shareholding is less than 10%), a securities acquisition report must be filed with either a foreign exchange bank in Korea or the Bank of Korea, in accordance with foreign exchange transaction regulations. To simplify, if the foreign investment reporting requirements are not met and the capital/investment is used to acquire shares in an unlisted Korean company, the securities acquisition report must be submitted to a foreign exchange bank in Korea. For acquisitions of (convertible) bonds or other securities issued by Korean companies, the report must be submitted to the Bank of Korea. Since securities acquisition reports are filed with financial institutions in Korea, it is necessary to work closely with the relevant officials and may require notarized or apostilled documents. The preparation of these documents and the procedures can be complex and time-consuming, so it is advisable to seek expert assistance from the beginning.
When establishing a company or investing in Korea, transactions often follow specific timelines. While many aspects of company establishment or investment require preparation, assessing whether capital/investment remittances require reporting, determining the type of report, and preparing documents accordingly in collaboration with relevant agencies is crucial. In some cases, funds sent to Korea without the required reporting can be temporarily frozen until the necessary filings are completed, after which the funds can be properly deposited into the Korean company’s account. Failure to complete the required reporting can delay transactions, disrupt schedules, and even result in fines. Particularly for large capital or investment remittances, foreign investment and securities acquisition reporting procedures can become significant issues. Therefore, careful attention from the initial stages of the transaction is essential.
▶Inquiries: (424)218-6562
Jin Hee Lee/K-Law Consulting Korean Attorney
[Reference link in original Korean]
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