SOUTH KOREA Law and Practice Contributed by: Dongwook Kang, Chris Kim, Seung-Wan Chae and Jongwoo Kim, Bae, Kim & Lee LLC
At the investor level, distributions paid out to non- residents or foreign corporations are classified and taxed according to the source of income. 2.5 Loan Origination Private funds can make investments by way of origi - nating loans. A private fund that originates loans must comply with the following. • Loan-originating private funds must not make loans to individuals. • The investors in a loan-originating private fund must be limited to institutional investors and finan - cial institutions. However, if the loan-originating private fund extends loans to borrowers that are established for the purposes of acquiring, develop - ing, managing or improving real estate or special assets (meaning assets other than securities and real estate assets), the foregoing limitation on investors will not apply. • The constituent documents of the loan-origination GPF must specify the percentage of the loan origi - nations, and the limitation on the investors in the Korean law does not expressly prohibit private funds from investing in digital assets. However, it appears that there has not been any Korean fund established for the purposes of investing in digital assets since the regulators informally took the position that invest - ment managers in South Korea should not invest fund assets in digital currencies until the pending legislation creating the regulatory framework on the digital asset market is finalised. There are no specific restrictions on private funds’ investments in consumer credit and other loan port - folios or cannabis/cannabis-related assets. 2.7 Use of Subsidiaries for Investment Purposes It is common for private funds to establish special purpose vehicles (SPVs) as their subsidiaries. loan-origination private funds. 2.6 Non-Traditional Assets 2.8 Local/Presence Requirements for Funds Local funds must have South Korean investment managers as their managers. Specifically, a GPF
must have a GPF manager as its investment manager and an IPF must have a licensed IPF manager as its general partner. A GPF manager may outsource its investment management function, subject to certain reporting requirements and restrictions (see 3.7 Out- sourcing of Investment Functions/Business Opera- tions ). 2.9 Rules Concerning Service Providers A GPF is required to engage a trustee for custody of the fund’s assets. In addition, a GPF in the form of an investment company is required to engage a local administrator, and GPFs established in other legal structures usually engage local administrators. An IPF is required to engage a trustee for custody of its assets.
2.10 Anticipated Changes for Funds There are no anticipated changes for funds.
3. Fund Managers 3.1 Origin of Promoters/Sponsors of Alternative Funds Local companies are usually the promoters and spon - sors of local AIFs. 3.2 Legal Structures Used by Managers GPF managers are typically established as joint stock companies. IPF managers are established mostly as either joint stock companies or limited liability com - panies. 3.3 Regulatory Regime for Managers Both GPF managers and IPF managers are subject to the registration regime. The requirements for registra - tion as a GPF manager and an IPF manager are set out below. GPF Manager Registration The requirements are as follows. • Local presence – the applicant must be: (a) a local financial company; (b) a joint stock company; or (c) a local branch of a foreign financial investment
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