Foreign Direct Investment

Overview

Foreign Direct Investment ("FDI") is a form of business activity conducted with the aim of directly participating in the management of the companies to be invested in ("subsidiaries") by transferring tangible assets such as capital and manpower, as well as intangible assets such as knowledge, experience, know-how and technologies to these companies overseas.

Bilateral Treaties for the Reciprocal Protection of Investments

The treatments to promote cross-border investments by protecting investors from the risks such as war, expropriation and limit on remittance.

Main Contents

Commitment to fair and equitable treatment of investors form other contracting party, prohibition of nationalization and expropriation, compensation for losses incurred by wars, riots and etc., guarantee of remittance of profit, capital gain and proceeds accruing from the sale or liquidation of investments.

Countries with the Treaty in force (62 countries)

Germany, Switzerland, Netherlands, Belgium, Luxemburg, Britain, France, Sri Lanka, Senegal, Hungary, Tunisia, Denmark, Bangladesh, Malaysia, Thailand, Poland, Pakistan, Mongolia, Austria, Russia, Italy, China, Uzbekistan, Lithuania, Vietnam, Paraguay, Indonesia, Rumania, Turkey, Spain, Czech Republic, Peru, Tajikistan, Greece, India, Finland, Portugal, Laos, Philippine, Argentina, Latvia, Kazakhstan, Cambodia, Egypt, Bolivia, South Africa, Sweden, Hong Kong, Belarus, Nigeria, Qatar, Ukraine, Chile, Nicaragua, Honduras, Morocco, Algeria, Panama, El Salvador, Mexico, Guatemala, Costa Rica, Japan

Signatories to the Treaty, not yet in force (6 countries)

Zaire, Brazil, Iran, Tanzania, Israel, Brunei, Saudi Arabia, Arab Emirate, Trinidad Tobago

Bilateral Conventions for the Avoidance of Double Taxation

The Agreements entered into between two countries to avoid double taxation and to define cross-border taxation

Main Contents

• Business Profit : Taxed in the country where the business takes place
• Income form Immovable Property : Taxed in the country where the immovable property is situated
• Profit form the operation of Ships and Aircraft : Taxed in the country where such companies reside
• Dividend and Interest : May be taxed in either contracting country, but the country, where the companies paying dividend or interest reside, usually imposes tax at a rate of 10~20%
• Elimination of Double Taxation : Tax paid in one contraction country shall be deducted form the tax payable in the other contraction country

Countries with the Convention in force (57 countries)

Japan, Thailand, Germany, Britain, Denmark, Belgium, U.S.A., Canada, France, Singapore, Netherlands, Switzerland, Finland, Sweden, Malaysia, New Zealand, Australia, Norway, Bangladesh, Turkey, Sri Lanka, India, Philippine, Luxemburg, Pakistan, Austria, Indonesia, Tunisia, Hungary, Ireland, Brazil, Poland, Mongolia, Italy, Egypt, China, Rumania, Vietnam, Fiji, Czech Republic, Mexico, Spain, Bulgaria, Russia, South Africa, Israel, Portugal, Malta, Papua New Guinea, Greece, Uzbekistan, Kazakhstan, Kuwait, Morocco, Ukraine

Signatories to the Treaty, not yet in force (7 countries)

Slovakia, Nepal, Algeria, Myanmar, Chile, Belarus, Croatia

Investment Procedure

step1 : Feasibillity Study

• Select the specific business and country to invest in.
• Conduct a feasibility study
  • NPV, IRR
  • Sensitivity analysis
  • Project risk analysis

step2 : Investment Plan FDI Registration

• Establish a business plan
  • Source of fund
  • Machinery and equipments to purchase
  • Employees to recruit
  • Plans for getting return on the investment and repayment of loans
• Draft a joint venture agreement, an article of association of the subsidiary and a loan agreement

step3 : Consulting Related Institution

• Consult related institutions with regards to "FDI Registrations"
• Consult related banks about Overseas Investment Credit, Local Financing or Off -Shore Financing, etc

step4 : Agreement on Related Contracts

• Reach an agreement on the joint venture agreement (in case of a joint venture) or other related contracts
• Get preliminary approval on FDI from the authorities of the country where the subsidiary is to be located
• Apply for Overseas Investment Credit or other loans to related banks
• Apply for FDI insurance to KEIC (if necessary)

step5 : FDI Registration

• Execute all related contracts
• Register for FDI with the primary creditor bank (registered bank)
• Get loan approval form banks
• Get FDI insurance approval form KEIC (if necessary)

step6 : Overseas Subsidiary Establishment

• Remit the amount of investment to the overseas subsidiary
• Establish an overseas subsidiary (either through capital injection of loan extension)
• Start running business

step7 : Business Operation and Return on Investment(ROI)

• Run business
• Get ROI either through dividend of loan repayments
• Post management of F (send all materials required by the registered bank)

step8 : Liquidation of Subsidiaries

• Liquidate the subsidiary
• Transfer proceeds accruing from the sale of liquidation of investments to one’s home country
• Report the liquidation to the registered bank