Foreign Investment Reporting, Is it Really Necessary? Checkpoints for Not Missing Out!

Law firm Veat received a request from Venture Capital Company A (hereinafter referred to as "the client") to review the eligibility for foreign investment reporting.

In the case where the client had proceeded with a foreign direct investment reporting while acquiring securities of a foreign company, the review was requested regarding whether the transferee (client) bears the obligation of foreign direct investment reporting and the obligation of post-management arising from foreign direct investment even if the transferor (client) acquires securities of a foreign company and subsequently transfers them to a third party, and the transferee does not meet the requirements for foreign direct investment reporting at the time of acquisition.

Law firm Veat thoroughly reviewed the eligibility for foreign investment reporting and legal aspects related to stock options (stock options) necessary for the client’s situation.

Check foreign exchange transaction regulations !

According to the foreign exchange transaction regulations, in principle, the transfer and acceptance reporting should be carried out through a foreign exchange bank between the transferor and the transferee, after which the transferee must report the acquisition of securities to the Bank of Korea. In this case, it appears that the transferee does not bear the obligation of post-management for foreign direct investment. That is, it is a basic principle that the transferor must report to the foreign exchange bank, and the transferee does not need to fulfill a separate foreign direct investment reporting obligation and no post-management obligation arises.

However, this regulation may be applied somewhat complicatedly in practice. That is, in foreign exchange-related practice, one must be aware that it may vary depending on the internal guidelines and practices of each reporting agency. In particular, if a foreign exchange bank or another reporting agency assigns post-management obligations to the transferee, the transferee may be required to fulfill the obligations of a foreign direct investor. Because these legal obligations require not only completing the report but also certain post-acquisition procedures, they must be thoroughly reviewed.

Check individual requirements of reporting agencies !

As seen in actual cases, whether the transferee bears post-management obligations after the foreign direct investment transfer and acceptance reporting between residents may vary depending on the handling of the reporting agency. In practice, each foreign exchange bank or reporting agency follows somewhat different internal guidelines, so unexpected obligations may arise during the reporting process for both the transferor and the transferee.

For example, even after the transferee has completed the reporting to the transferor’s foreign exchange bank, the transferee’s foreign exchange bank may receive the transfer and request the submission of additional documents. In this case, since the transferee may be subject to post-management obligations, including submission of a foreign currency securities acquisition report, failure to do so may lead to legal problems.

Also, if the reporting agency related to foreign exchange transactions does not fulfill the requested items, the reporting process that the transferor and transferee must carry out may be disrupted. If the reporting agency assigns post-management obligations to the transferee, the transferor and transferee must submit additional documents and data to each of their foreign exchange banks, which can be a hassle. Therefore, the transferor and transferee must individually confirm with their respective foreign exchange banks and prepare the necessary documents to carry out the reporting process.

Importance of legal review of foreign investment reporting !

When a venture company receives stock options (stock options) from a foreign company or conducts transactions related to foreign investors, foreign investment reporting is an essential procedure. In such transactions, stock options (stock options) often play an important legal role. When the foreign investor exercises the stock options, they acquire shares, and at that time, obligations for foreign exchange transactions and foreign direct investment reporting may arise. Thoroughly reviewing whether the transaction between a venture company and a foreign investor meets the requirements for foreign direct investment reporting is an important process to minimize legal risks.

Venture capital firms and related companies must thoroughly understand and prepare for the foreign exchange transaction regulations and obligations for foreign direct investment reporting. It is important to clearly identify post-management obligations, which may vary depending on the practical guidelines of each foreign exchange bank and reporting agency, and to prepare all documents accurately.

Law firm Veat supports companies in establishing efficient investment strategies while complying with foreign exchange regulations based on diverse investment cases. We provide rapid one-stop services from initial review regarding the necessity of reporting to foreign investment reporting and stock options (stock options) related issues, based on our diverse experience in foreign investment reporting agency.

If you need a legal review of whether you are subject to foreign investment reporting or need foreign exchange reporting, such as foreign direct investment reporting, please contact [Law firm Veat Foreign Investment Reporting Center] for inquiries.

This case study can also be found on the Law firm Veat blog.

- Is foreign investment reporting really necessary? Checkpoints to avoid missing it!

Thank you.

Law firm Veat