SOUTH KOREA Law and Practice Contributed by: Heejun Choi, Kyoung-Ho Kim, Sungsok Yang, Eunjee Kim and Kwang-Chun Park, Dentons Lee
South Korea also maintains a limited list of sectors wholly or partially restricted to foreign investment through prohibitions, foreign ownership caps or sec - tor-specific approval or licensing requirements. These include defence-related businesses, broadcasting and certain media industries, air transport, financial services and businesses involving national core tech - nologies or national high-tech strategic technologies. In some cases, approval from the relevant sector regu - lator is also required. 2.2 Procedure to Obtain Approval and Sanctions for Non-Compliance As noted in 2.1 Approval of Foreign Investments , most foreign investments in South Korea are subject not to substantive approval but to a foreign investment reporting requirement under the Foreign Investment Promotion Act (“FIPA”). A foreign investor must gener - ally file a foreign investment report with the relevant authority (typically a designated foreign exchange bank or KOTRA) before completing the investment. Once the report is accepted and a filing certificate issued, the investor may subscribe for or acquire shares and remit the investment funds. Upon com - pletion and payment of capital, the foreign-invested company must complete the required post-closing registration procedures. Certain transactions – including listed share acquisi - tions, mergers, comprehensive share exchanges or transfers, inheritance, gifts, dividend reinvestment and conversions or exercises of convertible securities – may instead be reported after completion within the statutory period. A different regime applies to investments in defence industry companies. A foreign investor acquiring shares in such a company must obtain prior approv - al from the Ministry of Trade, Industry and Energy (“MOTIE”), following consultation with the Ministry of National Defence. The statutory review period is gen - erally 15 days, extendable once and approval may be granted subject to conditions. An investment may also be subject to national security review if it would result in effective managerial control over an existing Korean company and raise concerns such as the leakage of national core technologies,
national high-tech strategic technologies or other matters affecting national security. Such investments may be reviewed by MOTIE and the Foreign Invest - ment Committee. The consequences of non-compliance depend on the nature of the breach. Where a foreign investor acquires shares in a defence industry company without the required approval or in breach of approval conditions, the investor may not exercise the voting rights attached to those shares. MOTIE may also order the disposal of the shares and criminal sanctions, including imprisonment or criminal fines, under the FIPA may apply. Failure to file a required foreign investment report for an ordinary investment may result in an administrative fine. Criminal penalties may also apply where false documents are submitted in connection with a report or approval application. 2.3 Commitments Required From Foreign Investors Foreign investment approval in South Korea is gener - ally not subject to extensive undertakings because the Foreign Investment Promotion Act (“FIPA”) adopts a notification-based rather than approval-based regime. However, where an investment involves a sensitive sector or the investor seeks investment incentives, the authorities may impose conditions or require specific commitments. The clearest example is an investment in a defence industry company. A foreign investor seeking prior approval to acquire shares in such a company may receive approval from the Ministry of Trade, Indus - try and Energy (“MOTIE”), following consultation with the Ministry of National Defence, subject to conditions designed to protect national security and continuity of defence operations. These may include: • maintaining defence production; • preserving security controls and preventing leak - age of sensitive information or technology; and • separating and disposing of defence-related facili - ties to a Korean national or Korean company where required.
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