Foreign Equity Acquisition: Criteria for Applying the Foreign Investment Promotion Act and Practical Procedures
Not every foreign acquisition of equity in a Korean corporation falls under the Foreign Investment Promotion Act (FIPA).
The Act applies when a foreigner (individual or corporation) acquires voting shares in a domestic corporation worth at least KRW 100 million, representing 10% or more of voting rights.
This post walks through the FIPA application criteria, the timing of the report, the points that most often trip people up in practice, and how this differs from a standard Foreign Exchange Transactions Act filing.
Core Requirements for FIPA Application
FIPA does not automatically attach to every foreign equity acquisition.
The first thing to check is two numerical thresholds.
Investment Amount and Equity Ratio Requirements
To qualify as a foreign investment under FIPA, both conditions must be met simultaneously: an investment of at least KRW 100 million and a voting interest of at least 10%.
If only one is satisfied, the transaction is processed not under FIPA but as a securities acquisition report under the Foreign Exchange Transactions Act.
In practice, we often see cases where someone brings in KRW 99 million, falls outside FIPA, and still tries to register as a foreign-invested company — only to be rejected.
Note: Non-voting preferred shares are excluded from the equity ratio calculation. If the investment is mostly in preferred shares, it may not qualify under FIPA even if the amount is large.
Exception for Executive Dispatch–Type Investment
Even if the equity ratio is below 10%, there is room for recognition as a foreign investment under FIPA when a foreigner dispatches an executive and maintains the contractual relationship for at least five years.
This area is decided on a case-by-case basis by the Ministry of Trade, Industry and Energy and KOTRA, so prior review is essential when structuring the deal around executive dispatch.
In fact, many investors miss this route entirely and process the deal as an ordinary securities acquisition, forfeiting available incentives.
Timing and Procedures for the FIPA Report
The FIPA report must be completed before the remittance.
Filing after the wire transfer tangles the foreign exchange transaction itself and blocks proof of paid-in capital.
Order of Filing
The sequence is as follows.
- Prepare and submit the foreign investment report (to KOTRA or a foreign exchange bank)
- Open a foreign exchange bank account after the report is accepted
- Remit the investment funds and pay in the capital
- Register the corporation or subscribe to new shares
- Register as a foreign-invested company (within 60 days of completing the acquisition)
If you skip the final step — registration as a foreign-invested company — no incentives can be claimed.
The 60-day window is where most people stumble.
Choosing the Filing Authority
Most cases can be handled by a foreign exchange bank, but certain restricted or public-interest industries must go through KOTRA.
| Category | Handling Authority | Scope |
|---|---|---|
| General industries | Foreign exchange bank or KOTRA | Industries without restrictions |
| Restricted industries | KOTRA | Selected restricted/prohibited industries |
| Defense, etc. | Prior approval from MOTIE | National security–related fields |
If the industry classification is ambiguous, you may need to revisit it under the Korean Standard Industrial Classification code — the same business activity can lead to different outcomes depending on which code is registered.
FIPA Application by Type of Equity Acquisition
The procedure differs depending on whether you are subscribing to new shares or acquiring existing shares.
Subscribing to New Shares (Participating in a Capital Increase)
The most common form is participating in the establishment of a new corporation or in a capital increase of an existing one to receive newly issued shares.
In this case, the capital flows in fresh, so the remittance trail is clean and registration as a foreign-invested company is relatively straightforward.
Acquiring Existing Shares
Buying already-issued shares from a Korean shareholder or from another foreigner is a different beast.
Since the funds go into the seller's personal account rather than into the company, the foreign exchange remittance purpose code and the share transfer agreement must line up exactly.
This is where things diverge. If the transfer price is set arbitrarily without an external valuation, the deal also picks up a wrongful act calculation denial issue on the tax side.
Practical tip: For acquisitions of unlisted shares, it is safer to determine the price using the supplementary valuation method prescribed by the National Tax Service.
M&A-Type Equity Acquisitions
When the acquisition involves a change of control, business combination notification to the Korea Fair Trade Commission may run concurrently with the FIPA filing.
The timing of the reporting obligation here depends on revenue thresholds, so case-by-case review comes first.
If you are unsure whether your investment structure falls under FIPA, confirm before you remit. Once funds are sent in the wrong way, recovering them becomes a problem in itself. Request a free consultation now → 02-363-2251 / KakaoTalk: alexkorea
The Real Benefits of Foreign-Invested Company Registration
Registration is not just one more piece of paper.
Tax and Funding Incentives
If the business falls within certain new-growth or source technology categories under the Restriction of Special Taxation Act, corporate tax reductions may be available.
Moving into a Foreign Investment Zone can also bring rent reductions and cash grants, and the foreign-invested company registration certificate is a core supporting document when issuing D-8 visas to foreign executives and staff.
That said, the eligibility criteria for reductions are adjusted annually based on industry, amount, and employment, so each case requires prior verification.
Connection to Visas
The D-8 corporate investor visa effectively presupposes registration as a foreign-invested company under FIPA.
A D-8 does not issue automatically just because KRW 100 million has been remitted — the FIPA report and the foreign-invested company registration both need to be cleanly completed for the HiKorea review to go through.
In actual screenings, a weak explanation of the source and flow of funds is enough to derail the case.
Common Sticking Points in FIPA Filings
Even when the paperwork is complete, there are areas worth checking before you worry about passing review.
Proof of Source of Funds
The key question is whether the investment funds came directly from an overseas account in the investor's own name.
If the funds pass through a third party's account, or if the explanation of source is weak, the remittance itself can be held up at the foreign exchange bank stage.
In particular, with anti-money-laundering (AML) screening tightening recently, it has become more common to be asked for 6 to 12 months of account transaction history at the remittance stage.
Checking Industry Restrictions
Some industries are restricted or prohibited from foreign investment.
| Classification | Example Industries | Notes |
|---|---|---|
| Prohibited | National defense, certain broadcasting | Foreign investment not allowed |
| Restricted | Telecommunications, air transport, newspaper publishing, etc. | Equity cap or prior approval required |
| General | Most manufacturing and services | Free investment available |
A single difference in the industry code can determine whether a business is restricted or not.
For ambiguous cases like IT platform businesses, it is best to first check with the Invest KOREA one-stop center.
Holding Structure Issues
Whether a foreigner residing in Korea invests in a personal capacity (without going through a corporation in their home country) or through an overseas parent company changes who files the FIPA report.
Changing the holder later means going through the transfer procedure all over again — doubling time and cost.
If the initial structure is wrong, every subsequent step slips with it.
Fees vary by case, so we provide accurate guidance during the free consultation.
How FIPA Relates to the Foreign Exchange Transactions Act
The two laws do not operate in isolation — they interlock.
What Determines Which Filing Applies
| Category | Foreign Investment Promotion Act | Foreign Exchange Transactions Act (Securities Acquisition Report) |
|---|---|---|
| Amount threshold | KRW 100 million or more | No threshold |
| Equity threshold | 10% or more of voting rights | No threshold |
| Registration effect | Eligible for foreign-invested company registration | Simple securities acquisition report |
| Incentives | Tax, visa, cash grants available | Not available |
| Competent authority | MOTIE / KOTRA | Bank of Korea / foreign exchange banks |
The takeaway from this table is that what really matters is the two numbers: KRW 100 million + 10%.
Below that line, no FIPA incentives apply.
Filings That Still Need to Happen Together
Filing under FIPA does not eliminate obligations under the Foreign Exchange Transactions Act.
The remittance procedure, the foreign exchange filing codes, and proof of paid-in capital still operate within the Foreign Exchange Transactions Act framework.
The statutory text of both the Foreign Investment Promotion Act and the Foreign Exchange Transactions Act can be checked directly on the Korean Law Information Center.
Frequently Asked Questions (FAQ)
Q1. Does FIPA apply if I receive shares as a gift from a foreign relative, with no consideration?
A gratuitous acquisition is unlikely to qualify as foreign investment under FIPA.
Gift tax and a separate securities acquisition report under the Foreign Exchange Transactions Act do come into play, and the analysis varies by case, so prior review is essential.
Q2. Can I qualify for FIPA by splitting the KRW 100 million into two KRW 50 million remittances?
It is possible.
However, the split remittances must occur within a single investment contract, and the total investment of KRW 100 million or more must be stated at the time of filing.
The explanation of the fund flow needs to be clean enough that the split structure does not raise suspicion in itself.
Q3. If I buy shares of an existing Korean corporation, does the company automatically become a foreign-invested company?
It is not automatic.
Regardless of the equity acquisition itself, registration as a foreign-invested company must be filed separately within 60 days for FIPA recognition to take effect.
Surprisingly many investors miss this deadline.
Q4. After filing the foreign investment report, can I reduce the investment amount?
Yes, but a change report is required.
If the amount drops below KRW 100 million, the deal falls out of FIPA scope and the foreign-invested company registration may be revoked — and if tax reductions were already being claimed, there is a clawback risk.
Q5. Will a FIPA report alone get me a D-8 visa?
The filing by itself is not enough.
The D-8 review can only begin once the full chain is complete: remittance → paid-in capital → foreign-invested company registration → corporate registration.
If the order is broken, the case will be blocked again at the Korea Immigration Service review stage.
Q6. Which comes first — the FIPA report or business registration?
The FIPA report comes first.
The usual sequence is: remittance → corporate registration → business registration → foreign-invested company registration. If this order breaks, the paid-in capital itself gets tangled.
Need to Consult a Specialist?
Foreign equity acquisition is an area where FIPA, the Foreign Exchange Transactions Act, tax law, and visa rules all apply simultaneously.
A single line in a document or a single remittance code out of place can mean losing every incentive — or having the wire transfer blocked outright.
VISION Administrative Office handles the entire flow at once — from foreign investment structuring to FIPA filing, foreign-invested company registration, and the linked D-8 visa application.
VISION Administrative Office — Services
- Foreign Investment Promotion Act filing on your behalf
- Foreign-invested company registration (processed within 60 days)
- Foreign-owned corporation incorporation (joint-stock or limited company)
- D-8 corporate investor visa application linkage
- Fund remittance and foreign exchange filing consulting
- Pre-review of foreign investment restrictions by industry
Consultation
- Phone: 02-363-2251
- Email: 5000meter@gmail.com
- Address: (04614) 3F Sungwoo Building, 324 Toegye-ro, Jung-gu, Seoul
- Office: VISION Administrative Office
Fees vary by case, and we provide accurate guidance during the free consultation.
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