Investing in a Korean Company That Runs a Defense Industry Business: Prior Permission Instead of a Report, the 15-Day Period, and What Happens Without Permission

For a foreign national to make an equity investment in a company that runs a defense industry business, it is not enough to file a report as in ordinary foreign investment: prior permission from the Minister of Trade and Industry is required. The decision is in principle made within 15 days from receipt of the application, after consultation with the Minister of National Defense. If shares are acquired without permission, the voting rights on those shares cannot be exercised, and the acquirer may face an order to transfer the shares and criminal penalties.

This guide is for foreign companies and investors considering subscribing to new shares, buying existing shares or forming a joint venture with a Korean defense-related company, and for Korean companies planning to take on foreign shareholders. Checking whether the deal requires permission before signing lets you set the schedule and contract terms properly.

Key Summary

Covered: a foreign national (including persons in a special relationship) making a share-acquisition type foreign investment in a company that runs a defense industry business
Instead of the ordinary foreign investment report, prior permission from the Minister of Trade and Industry is required, and permission is also needed to change permitted items such as the foreign investment ratio
Processing period: 15 days from receipt of the application, extendable once within 15 days if unavoidable; time spent on supplements or corrections is not counted
Before granting permission, the Minister of Trade and Industry consults the Minister of National Defense, who must reply within 10 days
Conditions may be attached (continued production and security, separate sale of defense industry facilities, etc.)
Shares acquired without permission or in breach of conditions: voting rights cannot be exercised, and a transfer to Korean nationals or Korean corporations is ordered
Acquiring without permission is punishable by imprisonment of up to 1 year or a fine of up to KRW 10 million

1. Which investments require permission?

Permission is required when a foreign national intends to make a foreign investment by owning shares or equity in a company that runs a defense industry business. This covers both acquiring new shares issued by a Korean corporation or company and acquiring shares or equity already issued (existing shares). In other words, both a subscription for new shares and a purchase from existing shareholders can require permission.

A foreign investment of this type means an investment of KRW 100 million or more in which the foreign national owns 10/100 or more of the total voting shares or total contributions, or owns shares while dispatching or appointing an officer.

A defense industry business here means a defense industry business under the Defense Acquisition Program Act. Whether the target company qualifies should first be confirmed from the company's designation status, and the specific designation criteria must be checked case by case.

2. Does it cover only the foreign national? Persons in a special relationship

Foreign nationals subject to permission include persons in a special relationship, namely:

The foreign national's spouse and lineal ascendants and descendants (including the spouse's lineal ascendants and descendants)
A foreign corporation in which the foreign national, together with the spouse, lineal relatives or employees, owns 50/100 or more of the total issued shares or total contributions, or which they effectively control
Employees of the foreign national and the like (officers for a corporation; for an individual, commercial employees, employees under an employment contract and persons living on that individual's money or property)
A foreign corporation in which the above foreign corporation and the foreign national and the like together own 50/100 or more of the total issued shares or total contributions

Splitting the acquisition among family members or subsidiaries does not take it outside the permission requirement, so look at all related parties together when designing the structure.

3. How does this differ from a report?

Ordinary foreign investment is reported in advance to the Minister of Trade and Industry, and receiving reports and issuing report certificates is entrusted to the Korea Trade-Investment Promotion Agency and foreign exchange banks. An investment in a company that runs a defense industry business requires prior permission notwithstanding these reporting rules. After permission is granted, permission is required again to change designated items such as the foreign investment ratio.

Category	Ordinary foreign investment	Investment in a defense industry company
Procedure	Prior report	Prior permission
Decision period	Report certificate issued without delay after the report	15 days from application (one extension within 15 days possible)

The application form, attachments and where to file are left to an ordinance of the Ministry of Trade and Industry and must be checked case by case. Note also that defense industry permission is not on the list of entrusted reporting tasks.

4. How long does processing take?

On receiving an application, the Minister of Trade and Industry must decide on permission within the set period and notify the applicant. That period is 15 days from receipt of the application. If unavoidable, the processing period may be extended only once, within 15 days.

If the application needs supplements or corrections, these can be requested with a deadline, and the time spent on them is not counted in the processing period. Missing documents delay the decision accordingly, so factor this in when setting the closing date.

5. Consultation with the Minister of National Defense and conditions

Before deciding, the Minister of Trade and Industry must consult the minister in charge, and for defense industry applications requests consultation from the Minister of National Defense. The Minister of National Defense must give an opinion within 10 days of receiving the request.

The Minister of National Defense must consent if the defense materials produced by the company can be supplied by another domestic company, or if the permission would not significantly affect national security. When giving an opinion, the Minister may ask that permission be granted with one of the following conditions:

Conditions necessary for continued production of defense materials and maintenance of security
A condition that the defense industry facilities be sold separately to Korean nationals or Korean corporations

If permission is granted with the separate-sale condition, a foreign national who acquired shares before the sale of the facilities is completed cannot take part in managing the company. The Minister of Trade and Industry may also attach conditions to the permission where deemed necessary.

6. What happens if shares are acquired without permission?

A person who acquires shares without permission or in breach of permission conditions faces the following:

The voting rights on those shares cannot be exercised.
Within 1 month of learning of the violation, the Minister of Trade and Industry must order the shares to be transferred to Korean nationals or Korean corporations. The transfer period is set within 6 months and may be extended within 6 months if there are unavoidable reasons.
A person (including the representative of a company) who acquires shares in a company running a defense industry business without permission is punishable by imprisonment of up to 1 year or a fine of up to KRW 10 million.
A person who submits false documents in connection with permission or a report is punishable by imprisonment of up to 3 years or a fine of up to KRW 30 million.

When voting restrictions and a transfer order combine, the investment purpose itself cannot be achieved, so it is safer to schedule share payment and acquisition after the permission decision.

7. Common problems

Filing only an ordinary foreign investment report without checking whether the target runs a defense industry business
Assuming that buying shares from existing shareholders does not require permission
Believing permission is unnecessary if acquisitions are split among family members or controlled foreign corporations
Raising the foreign investment ratio after permission without obtaining change permission
Looking only at the 15-day period without building supplement time and a possible extension into the schedule

8. How A-One Certified Administrative Agent can help

We make an initial assessment of whether the investment structure requires permission, and support preparation of the application documents, filing with the authorities and responses to supplement requests. We also look at subsequent administrative steps such as foreign-invested company registration and the stay status of investors and staff. We do not negotiate or review share purchase agreements or value investments. The authorities decide on permission, so no result can be promised, and we do not handle litigation or court representation (outside the scope of an Administrative Agent).

Frequently Asked Questions

Is a foreign investment report enough for a defense industry company?

No. To invest by acquiring shares in a company that runs a defense industry business, prior permission from the Minister of Trade and Industry is required instead of a report.

How long does permission take?

In principle 15 days from receipt of the application, extendable once within 15 days if unavoidable. Time spent on supplements or corrections is not counted.

Is permission needed to buy shares from existing shareholders?

Yes. The covered methods include not only acquiring newly issued shares but also acquiring shares or equity already issued.

What if I bought shares without permission?

You cannot exercise the voting rights on those shares, and you will be ordered to transfer them to Korean nationals or Korean corporations. It is also punishable by imprisonment of up to 1 year or a fine of up to KRW 10 million.

Can conditions be attached to permission?

Yes. Examples include conditions for continued production of defense materials and maintenance of security, or for separate sale of the defense industry facilities to Korean nationals or corporations.

Related Guides

Consultation

에이원 행정사사무소 (A-One Certified Administrative Agent) is an administrative office that supports document preparation and filing with the authorities. Fees vary by case and are explained during a consultation. Phone 02-309-3107 · Contact: https://investkorea.co.kr/en/contact