by Andrew Baek

November 26, 2024

To acquire shares issued by a Korean company, a foreign investor must file a declaration (or a report) with the competent authority in Korea unless an exception applies.

To be more specific, a non-resident person must file a “Declaration of Securities Acquisition” with the Minister of Economy and Finance unless an exception applies.

Here, residency differs from nationality. For instance, a Korean national who does not reside in Korea must file the declaration when acquiring shares in a Korean company, whereas a branch office of a foreign company in Korea would not need to file the declaration when acquiring such shares. Therefore, the initial step in determining whether the declaration is necessary would be to assess whether the acquirer of the shares qualifies as a resident of Korea under Korean law. 

If the foreign investor acquiring shares in a Korean company is not a resident of Korea, then the investor must file the declaration with the Governor of the Bank of Korea when acquiring listed shares or with the head of a foreign exchange bank in Korea when acquiring unlisted shares, in accordance with delegations granted by the Minister of Economy and Finance.

The above obligation for non-residents to declare their acquisition of securities issued by a Korean company is governed by the "Foreign Exchange Transaction Act", a general law in Korea.

The fact that this law is a general law has an important legal implication because, under Korean legal principles, general laws are superseded by special laws, in this case, the "Foreign Investment Promotion Act".

The Foreign Investment Promotion Act mandates each foreigner to file a Report of Foreign Investment with the Minister of Trade, Industry, and Energy when making an investment that qualifies as a “Foreign Investment” under the Act.

This duty to report applies to individuals of foreign nationality or companies established under foreign law, irrespective of whether they are classified as residents or non-residents.

The above may give the false impression that the Foreign Investment Promotion Act is imposing a burden on the foreign investor when compared to the Foreign Exchange Transaction Act; However, the legislative intent is quite the contrary.

The Foreign Investment Promotion Act was enacted to provide benefits and convenience to foreign-invested enterprises, with the aim of promoting foreign investment. The filing of Report on Foreign Investment is a simple registration process designed to facilitate foreign investors in managing their foreign-invested enterprises and conducting outward remittances with ease. Moreover, if foreign individuals or companies file their Reports on Foreign Investment, they are exempt from filing their Declarations of Securities-Acquisition.

To recap, for any investment that qualifies as a Foreign Investment, the foreign investor is required to file a Report of Foreign Investment with the head of a foreign exchange bank in Korea, pursuant to the delegation granted by the Minister of Trade, Industry, and Energy. Consequently, the invested company will be registered as a Foreign-Invested Enterprise as defined under the relevant Act.

If you are a foreign investor planning to acquire shares issued by a company in Korea, we recommend that you first seek legal advice to determine the applicable declaration or reporting obligations for your investment, assess whether any exceptions apply, and identify the most suitable approach for your goals, intentions, or circumstances.

Additionally, you might require local assistance to handle the preparation and filing of requisite documents, as well as to represent and act on your behalf before the relevant ministries, government offices, or financial institutions.

Inpyeong Law provides comprehensive services to address both legal advisory and local representation needs. Please feel free to contact us via email at inpyeong@inpyeonglaw.com or by phone at +82 2038 2339.

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