In 2024, the Korean government announced increased incentive packages to attract foreign direct investment. At the same time, the government further tightened its grip on foreign direct investment involving strategic industrial technologies by introducing several major amendments to key statutes and regulations governing foreign direct investment.

Summary of major changes in 2024

• As part of its 2024 FDI Policy Directive, the Ministry of Trade, Industry and Energy (MOTIE) rolled out extensive incentives aimed at stimulating foreign direct investment. The incentives included a quadrupled cash grant budget with a focus on high-tech industries, which now encompass biopharmaceuticals. In line with this strategy, the recently announced Economic Policy Directions for 2025 offer further increased cash grants covering up to 75 percent of investment for qualified foreign direct investments.
• The government introduced amendments to the Enforcement Decree of the Foreign Investment Promotion Act (FIPA). The amended enforcement decree allows administrative agencies to initiate an ex officio screening where a mandatory filing is not required if there are concerns of national security risk. Foreign investments that have applied for voluntary screening will not be subject to such deliberations.
• A FIPA screening may be bypassed if the transaction has already undergone a similar review process under the Act on Prevention of Divulgence and Protection of Industrial Technology (ITPA) or the Act on Special Measures for Strengthening and Protecting the Competitiveness of National High-Tech Strategic Industries (NHTSIA). The ITPA and NHTSIA regulate foreign investment involving technologies designated as National Core Technology (NCT) and National High-Tech Strategic Technology (NHTST), respectively.
• Partial amendments to the ITPA were passed, which strengthen foreign investment review for M&A transactions involving NCTs. Transactions that are deemed to pose a relatively low risk of the leakage of NCTs, on the other hand, will benefit from more relaxed review procedures.
• Under the amended ITPA, the MOTIE may issue ex officio decisions that require entities to seek an official determination of their NCT ownership if the MOTIE believes that they hold technologies qualifying as NCTs. The amended ITPA also mandates that entities holding NCTs register with the MOTIE.

Who files?

Notification must be filed by foreign investors whose direct investment qualifies as a foreign investment or an overseas M&A transaction, or their proxies. In case of notification filed by a proxy, a power of attorney must be submitted in addition to the notification.

The FIPA defines "foreign investment" to include, among other things: acquiring 10 percent or more of the shares in a company incorporated in Korea; acquiring shares of less than 10 percent of a company incorporated in Korea and appointing officers in Korea; and investing in local non-profit organizations. In each case, the investment amount is no less than KRW 100 million (US$69,000).

An "overseas M&A transaction" under each of the ITPA and NHTSIA includes transactions where a foreign investor: intends to own 50 percent or more of the target company's equity securities; or intends to own less than 50 percent of the target's equity securities but, as the largest shareholder, will have a dominant influence over the appointment of officers or management; intends to take over or leases all or a major part of the business of the target company; or can exercise a dominant influence over the appointment of officers or management as a result of providing loans or contributing funds.

Types of deals reviewed

All FDI that qualifies as a foreign investment under the FIPA is subject to filing a report. All FDI requires filing of a foreign investment report (FIPA report) with a designated foreign exchange bank. Additionally, if the foreign direct investment involves a target company designated as a defense industry company by the minister of the MOTIE pursuant to the Defense Acquisition Program Act, then the investment will require foreign investment approval (FIPA approval) from the MOTIE.

Overseas M&A transactions involving target companies possessing NCTs developed without government subsidies are subject to filing an ITPA report with the MOTIE before such investments can proceed. Overseas M&A transactions involving target companies possessing NCTs developed with government subsidies for research and development are subject to approval from the MOTIE (ITPA approval).

Overseas M&A transactions involving target companies possessing NHTST are subject to the approval procedure similar to the procedure for IPTA approval, although unlike NCTs, there is no procedural distinction between government-subsidized and independently developed NHTSTs.

Scope of the review

For a FIPA report, branches, offices and trade agencies entrusted by the head of the Korea Trade-Investment Promotion Agency or designated foreign exchange bank will accept the filing when all information and underlying documents are provided.

For FIPA approval, the key question considered is whether the transaction poses a risk to national security, specifically whether defense acquisition would be affected; and whether there is risk of technology being leaked, which could present a risk to the economy or national defense.

In case of FIPA approval, the MOTIE will consult with the Ministry of National Defense (in practice, the Defense Acquisition Program Administration) on whether to approve the application. The Ministry of National Defense will consent to granting approval if it deems that the relevant defense materials produced by the relevant defense industry company are replaceable by products of other domestic companies, or that granting approval will not pose a significant risk to national security.

In the event the foreign transaction at issue is determined to pose a serious risk to national security, the MOTIE may implement various measures to mitigate the risk, such as issuing an order to suspend, prohibit or even unwind the transaction.

For an ITPA report, the key question is similar—whether the transaction poses a risk to national security. For ITPA or NHTSIA approval, the factors considered by the MOTIE include impacts on national security as well as the national economy. In the event the foreign transaction at issue is determined to pose a serious risk to national security and/or have significant implications on the national economy, the MOTIE may order various measures to address the risk, such as issuing an order to suspend, prohibit or even unwind the transaction. A failure to comply with MOTIE orders may result in fines.

Review process timeline

A FIPA report is routinely granted within one or two business days unless the industry sector in which the target company receiving the investment operates is subject to other restrictions.

In the case of an application for FIPA approval by the MOTIE, the MOTIE has 15 calendar days, with an option to extend the review by up to 15 calendar days, to notify the foreign investor whether it approves the transaction. The MOTIE generally observes the review periods as stipulated under the FIPA.

For an application for an ITPA report, the MOTIE has 15 calendar days to notify the target company and foreign investor whether the MOTIE approves the transaction. If the MOTIE does not approve the transaction, it has 30 calendar days from the date of notice to order to suspend, prohibit or even unwind the transaction. Before the submission of a formal application, the foreign investor may informally consult with the MOTIE in connection with its application.

In the case of an application for ITPA or NHTSIA approval, the MOTIE has 45 calendar days to notify the target company and foreign investor whether the MOTIE approves the transaction.

However, the above review periods do not include the period necessary for the authority to examine the relevant technology, which can take several weeks or months, and the period that the foreign investor takes to respond to potential requests for information issued by the MOTIE. Requests for information stop the review clock until a response is submitted that is deemed sufficient by the MOTIE.

For more accurate estimates of review periods, before the submission of a formal application, the foreign investor can informally consult with the MOTIE in connection with such application. It is common for the report or approval process to take much longer than 15 to 30 calendar days due to the technology examination process. For example, an ITPA report generally takes four months, while ITPA approval may take up to six months.

How foreign investors can protect themselves

As of today, there is no publicly available list of "defense industry companies" currently designated by the minister of the MOTIE. The same applies to companies that hold NCTs and NHTSTs. Therefore, it is advisable to ask the target company whether it is designated as a defense industry company or whether it holds any NCTs or NHTSTs.

The MOTIE's Notice on Designation of NCT (no. 2024-114) and Notice on Designation of NHTST (no. 2023-108) do, however, provide a comprehensive list of technologies designated as NCTs and NHTSTs, respectively.

Entities in possession of industrial technologies may also apply to the MOTIE for determination of whether their technologies qualify as NCTs or NHTSTs. In particular, with the introduction of the ex officio decision notification system and the registration requirement under the amended ITPA, it would be crucial for entities that believe they hold NCTs to promptly undertake official determination and registration procedures to ensure compliance and avoid potential penalties.

Furthermore, either the target company or the foreign investor may contact the MOTIE before filing an ITPA report or approval application, an NHTSIA approval application or FIPA approval application to confirm the details required for such application.

The Korean government offers various channels of support to foreign investors. The foreign investment ombudsman handles all foreign investment-related complaints, while Invest Korea serves as an investment promotion agency and provides comprehensive services to foreign investors ranging from consultations, notification of investment opportunities and establishment of corporations in the country. Invest Korea maintains 36 overseas offices and 64 investment specialists to assist potential foreign investors. It is advisable for prospective investors to make use of these resources available to them when seeking investment opportunities in the Republic of Korea.

"Looking ahead": Likely developments in the next year

The Republic of Korea continues to maintain a relatively liberalized approach to regulating foreign direct investment that does not involve defense industries or technologies that are designated as NCTs or NHTSTs.

In the year 2024, the government has made efforts to further streamline the FDI process, and it seems likely that this trend will continue into the following years. That said, given the government's efforts to tighten its review on NCTs and NHTSTs, it is likely that foreign investors will continue to face stringent review with respect to transactions involving NCTs and NHTSTs. As such, it is advisable for prospective foreign investors to inquire whether the company is related to national defense or whether it holds designated NCTs or NHTSTs before making any investment in such company.

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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