Are there any disadvantages when a foreign investor fails to register as a foreign-invested company?
Q. Are there any disadvantages when a foreign investor fails to register as a foreign-invested company?
A. A foreign investor who fails to register as a foreign-invested company cannot prove that his/her foreign investment has been completed. As a result, matters such as visa applications for a stay in Korea or the transfer of dividends or proceeds from the sale of stocks to foreign countries cannot be processed.
Therefore, all foreigners who have completed a foreign investment (including partial execution of investment satisfying the requirements for foreign investment under the Foreign Investment Promotion Act) should apply for registration (registration of alteration) as a foreign-invested company within 60 days from the occurrence of relevant events*, as prescribed by Article 21 of the Foreign Investment Promotion Act. (*Occurrence of relevant events: The completion of payment for the object of investment, the completion of acquisition of stocks, etc. (settlement of payments), or the completion of contributions)
In addition, a delay or other disadvantages may be experienced in cases requiring a certificate of the registration of a foreign-invested company (when renting an office or a facility in a foreign investment zone or applying for exemption from the mandatory bond purchase under the Housing Act or the Urban Railroad Act)
Can a long-term loan or a foreign loan be converted into capital through setoff? If yes, what is the procedure for notification of foreign investment?
Q. Can a long-term loan or a foreign loan be converted into capital through set-off? If yes, what is the procedure for notification of foreign investment?
A. A long-term loan or a loan from a foreign country is not included in the definitions of object of investment* under the Foreign Investment Promotion Act. However, an amendment made in April 2020 to the Commercial Act introduced a provision that allows a set-off against payment for shares based on an agreement with the corporation (Article 334 deleted and Article 421 (2) added). An authoritative interpretation of this provision recognizes as foreign investment conversion of a loan into capital via a set off between the amount of loan payment (principal) and payment for shares. (*In accordance with Article 2 (1) 8 (f) of the Foreign Investment Promotion Act, only “the amount of redemption of loans or other loans from foreign countries” constitutes an object of investment)
When the principal of a long-term loan prescribed by the Foreign Investment Promotion Act is converted into capital
1. Notify change of information for a long-term loan to reflect the redemption of the loan through a conversion into capital – Attach the revised loan contract
2. Notify the acquisition of stocks under the Foreign Investment Promotion Act (Object of investment: debt; Amount to be notified: the amount of the foreign currency loan arrived) – Attach the agreement on the conversion of the loan into capital and a written consent on the set-off
3. Apply for registration (registration of alteration) of a foreign-invested company (the capital registration date is deemed as the date of the arrival of investment) – Attach a certificate of corporate registration that reflects a cancellation resulting from the investment in kind with the long-term loan and a shareholder register
When a loan from foreign countries prescribed by the Foreign Exchange Transactions Act is converted into capital
1. Notify the designated foreign exchange bank (or the Bank of Korea) of the modifications to the reported details of the loan from a foreign country under the Foreign Exchange Transactions Act (by attaching a certificate of the initial loan notification) and prepare an agreement on the conversion of the loan into capital and a written consent on the set-off
2. Notify the acquisition of stocks under the Foreign Investment Promotion Act (Object of investment: debt; Amount to be notified: the initial amount of loan) – Attach a certificate of the initial loan notification under the Foreign Exchange Transactions Act and a copy of a document certifying the arrival of the loan, the agreement on the conversion of the loan into capital and a written consent on the set-off
3. Apply for registration (change of information) of a foreign-invested company (capital registration date to be deemed the date of arrival of investment) – Attach a certificate of corporate registration that reflects cancellations resulting from investment in kind with the loan and a shareholder register
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*This article is extracted from Invest KOREA information center, 2023