Doing Business In... 2023 Comparisons

The South Korean legal system is a civil law system under which the laws codified as statutes serve as the primary source of jurisprudence. Specifically, the laws of South Korea are found in the following sources: 

• the Constitution; 
• Acts; 
• Enforcement Decrees to Acts enacted by the President; 
• Enforcement Rules of Acts enacted by the Prime Minister or the various ministries; 
• Municipal Ordinances enacted by the various municipal councils; and 
• Municipal Regulations enacted by the head of the municipalities. 

The list of statutes above is in the order of precedence, and subordinate statutes may not prescribe anything that conflicts with superior statutes. Court precedents do not have the same legal effect as statutory laws but have persuasive authority, especially decisions rendered by the Supreme Court.

The highest court in the South Korean court system is the Supreme Court (the final appellate court), reviewing the decisions of the intermediate appellate courts. Immediately below the Supreme Court are the High Courts and the intermediate appellate courts. Below the High Courts are the District Courts, the trial courts of first instance having general jurisdiction to hear the full range of civil and criminal matters, including administrative and bankruptcy cases.

In general, there are no limits on foreign investment in South Korea, except in sectors and businesses specifically restricted under the Foreign Investment Promotion Act (FIPA). 

Under the FIPA:

• a total of 61 sectors – such as public administration, diplomatic affairs and national defence – are closed entirely to foreign investment; and
• a total of 30 sectors are open to foreign investment as long as the investments meet certain conditions, of which:
1. 16 sectors – such as the farming of beef cattle, wholesale selling of meat and publishing of newspapers – place limits on the foreign investment ratio;
2. 11 sectors – such as power generation (except nuclear power generation) and disposal of radioactive waste – impose specific requirements on the foreign investment; and
3. three sectors (nuclear power generation, radio broadcasting and terrestrial broadcasting) are closed entirely to foreign investment but can be opened in the future.

In addition, under the FIPA, if investment by a foreign investor in a Korean company qualifies as foreign investment, the foreign investor must file a foreign investment report with the Korea Trade-Investment Promotion Agency (KOTRA) or a designated foreign exchange bank in South Korea before such investment. While the foreign investment report must be filed with and accepted by the KOTRA or foreign exchange bank prior to completing the investment, this report is generally a matter of formality and will be cleared in one to two business days without an extensive review and approval process (in the absence of exceptional circumstances).

A "foreign investment" for the purposes of the FIPA means, among others, the investment by a foreign investor of KRW100 million or more in a Korean company, by which the foreign investor acquires:

• a 10% or greater voting equity interest in the company; or
• an equity interest in the company and a contractual right to appoint one or more directors or statutory auditors of the Korean company. 

In addition to the foreign investment report, investments in certain industries may require approval from the relevant oversight body. For example, under the FIPA, if a foreign investor intends to acquire shares of a defence industry company, they must obtain prior permission from the Ministry of Trade, Industry and Energy (MOTIE). 

Other approvals and their procedural requirements may be specified in the laws and regulations governing the industry in question, eg, the MOTIE’s approval is required for a foreign company to operate passenger or cargo air transport services, while approval from the Financial Services Commission is needed for a foreign bank to establish or close branches, or engage in the banking business in South Korea.

Recently, the "Special Measures Act on Strengthening and Protecting Competitiveness of National High-Tech Strategic Industry" (Strategic High-Tech Industry Act) came into effect as of 4 August 2022. The Strategic High-Tech Industry Act introduces foreign investment restrictions on companies holding "national strategic high-tech" (Strategic High-Tech) and administrative support for such companies.

If a foreign investor seeks to acquire shares in, merge with or establish a joint venture with a company holding Strategic High-Tech, such foreign investor will be required to obtain prior approval from the MOTIE. The MOTIE may deny approval or even unwind the transaction post hoc if such transaction poses a material threat to national security due to leakage of Strategic High-Tech.

If a foreign investor acquires existing shares of a Korean company without filing a foreign investment report, it may be subject to an administrative fine of up to KRW10 million. If a foreign investor acquires shares of a defence industry company without the MOTIE’s approval or violates the terms of a conditional approval:

• it is prohibited from exercising voting rights in such shares;
• the MOTIE may order that such shares be disposed of; and/or
• it may be subject to criminal penalties, including imprisonment (for the individuals involved) of up to one year or a fine of up to KRW10 million.

For FIPA investments subject to certain conditions, if it is ultimately determined that the foreign investor made an investment that failed to satisfy the relevant conditions, the MOTIE may issue a corrective order or impose other remedial measures on the foreign investor. If the foreign investor fails to take such measures, it may be subject to criminal penalties, including imprisonment (for the individuals involved) of up to one year or a fine of up to KRW10 million.

As foreign investment is generally not limited to South Korea, most investments do not require approvals other than filing a foreign investment report. 

However, in industries where approval of the oversight body is required, the approvals may be subject to conditions. For example, a foreign investor acquiring shares of a defence industry company may be required to ensure continuity of production of the relevant defence materials and maintenance of security or divest defence industry facilities to the government or a Korean company and not participate in the company's management.

The FIPA does not specifically provide for an appeal procedure to challenge the authorities’ decision; however, a foreign investor may seek cancellation of the authorities’ decision by filing an administrative lawsuit with the administrative court within 90 days of the decision.

The three most common types of legal entities under the Korean Commercial Code (KCC) are:

• the chusik hoesa (commonly described as a “joint stock company”);
• the yuhan hoesa (commonly described as a “limited company”); and
• the yuhan chegim hoesa (commonly described as a “limited liability company”).

Generally, all three entity forms have certain similar characteristics, including limited liability, and are treated similarly under the laws of South Korea.

The chusik hoesa, the most common form of incorporation, is a legal entity that provides limited liability to its shareholders and is governed by a board of directors. Other than certain matters conferred by law or in the articles of incorporation of the company (AOI) to the authority of the general meeting of shareholders (GMS), the board may make decisions on important corporate policies and management matters (except for regular day-to-day business matters decided by the representative director). Unless the AOI provides otherwise, all actions and resolutions of the board are adopted by the affirmative vote of a majority of the directors attending a properly constituted board meeting.

The chusik hoesa is typically appropriate for a large enterprise that will need substantial capital since it is the only type of legal entity eligible to list its shares on the Korea Stock Exchange or that may issue corporate bonds. Subject to certain restrictions, it may issue:

• multiple classes of shares with different dividend rights and liquidation preferences; and
• non-voting, convertible and/or redeemable preferred shares.

In contrast, a yuhan hoesa is a closely held limited liability company, which can be described as a mixture of a joint stock company and a partnership. Like a joint stock company, each member's liability is limited to the amount of their contribution to the company. A yuhan hoesa form is typically appropriate for small- or medium-sized businesses owned by a small number of individuals or entities. It is required to have at least one director regardless of size and has the option to have a statutory auditor.

In comparison with a chusik hoesa, a yuhan hoesa is also subject to other limitations. For example, a yuhan hoesa may not issue corporate bonds, may not invite subscription for capital contributions by means of public advertisement, or otherwise, units of contribution in a yuhan hoesa cannot be listed on any stock exchange, and it cannot issue debentures or other securities.

The yuhan chegim hoesa is a legal entity newly introduced in the Korean Commercial Code in 2012. This form of legal entity is modelled after the limited liability company (LLC) in the US and can be described as a mixture of a corporation and a partnership. However, unlike LLCs, a yuhan chegim hoesa is not taxed as a partnership and does not offer particular tax benefits. Nevertheless, a yuhan chegim hoesa is increasingly preferred by foreign companies as the form of their local entity since it is subject to public disclosure requirements more lenient than those applicable to other corporate forms and is also exempt from the external audit requirement. It is required to have at least one manager (similar to a director) regardless of its size and has the option to have a statutory auditor.       

While none of these entity types is subject to minimum paid-in capital requirements or requires a minimum number of shareholders/unitholders greater than one, an investment of at least KRW100 million is required to qualify as a foreign investment under the FIPA (as explained above).

The steps below describe the incorporation of a chusik hoesa, the most common entity form. However, the steps are substantially the same for a yuhan hoesa or a yuhan chegim hoesa. 

In the case of foreign investment, the foreign investor must first file the foreign investment report as mentioned above. After the foreign exchange bank accepts the foreign investment report, the incorporation procedures may begin as follows:

• The foreign investor must remit the funds for the company's initial capitalisation and subscription of the shares to a foreign exchange bank. Once the foreign exchange bank receives the funds, it will send a confirmation receipt. 
• Under the Korean Commercial Code, an inaugural shareholders’ meeting of the company must be held prior to the registration of the company’s incorporation, at which the shareholders will approve the election of the initial directors and statutory auditor and the adoption of the AOI. In practice, such inaugural shareholders’ meetings can be convened and presided over by the shareholders’ adviser pursuant to a power of attorney issued by the shareholders. The company must have at least one director unless its paid-in capital is at least KRW1 billion, in which case it must have at least three directors and one statutory auditor. There are no nationality or residence requirements for directors or statutory auditors, but directors and statutory auditors must be natural persons, and a director, officer or employee of the company may not serve concurrently as the statutory auditor.
• Once elected, the board of directors must hold a meeting to elect at least one representative director from among the directors (unless the company has one or two directors). If permitted under the AOI, the representative director may be elected at the inaugural shareholders' meeting instead of the board meeting. The representative director, who acts in a capacity equivalent to that of a chief executive officer in other jurisdictions, oversees the company's day-to-day operations.
• After completing the above steps, the company must register its establishment with the corporate registry office of the district court having jurisdiction over it. It generally takes two or three business days to complete the company registration. Please note that the registration tax of 0.48% (1.44% if the company’s registered office is located within the Seoul metropolitan area) of the paid-in capital is payable at the time of the registration.
• The company must then complete its business registration with the relevant district tax office, which takes up to five business days.
• Finally, the company must register as a foreign-invested company after its incorporation pursuant to the FIPA, which generally takes one or two business days.

As a general matter, for all three entity types, important corporate matters, including:

• appointment/resignation/dismissal/renewal of the term of office of directors and statutory auditors;
• change of corporate name or address;
• change of authorised share capital; and
• increase/decrease of paid-in capital must be registered with the corporate registry office.

A chusik hoesa must publicly disclose its balance sheet once the financial statements of the company are approved at the GSM and have its annual financial statements audited by an external auditor if certain requirements are met:

• if its assets are KRW50 billion or more;
• if its revenue is KRW50 billion or more; or
• if it meets at least two of the following criteria:
1. assets of KRW12 billion or more;
2. liabilities of KRW7 billion or more;
3. revenue of KRW10 billion or more; or
4. 100 or more employees as of the previous year-end.

The audit report (including the audited annual financial statements) must be submitted to the Securities and Futures Commission within two weeks after the GSM and disclosed on a publicly accessible website (DART, which is similar to EDGAR in the US). 

Due to a recent amendment of the Act on External Audit of Stock Companies, these requirements for chusik hoesa since 2020 became applicable to yuhan hoesas that meet certain criteria:

• if its assets are KRW50 billion or more;
• if its revenue is KRW50 billion or more; or
• if it meets at least three of the following criteria:
1. assets of KRW12 billion or more;
2. liabilities of KRW7 billion or more;
3. revenue of KRW10 billion or more;
4. 100 or more employees; or
5. 50 or more members.

As with a chusik hoesa, the audit report must be submitted to the relevant authorities and disclosed on a publicly accessible website (DART).

In addition, if a company is required to submit audited annual financial statements as mentioned above and has 500 or more shareholders, it must submit a disclosure report to the Financial Services Commission immediately after the occurrence of material business/operation events (such as a merger or transfer of a material business or asset).

As noted above, a yuhan chegim hoesa is exempt from such external audit requirements and increasingly used by foreign investors to minimise the burden of mandatory disclosures.

In the case of a chusik hoesa, ownership and ultimate control lie with the shareholders. Overall governance rests with the board of directors, whom the shareholders elect. The board of directors presides over and makes decisions on important policies, business transactions and other managerial matters other than those reserved for shareholder approval pursuant to applicable laws and/or the AOI. 

A chusik hoesa with paid-in capital of KRW1 billion or more must have at least three directors and one statutory auditor, whereas if it does not meet the foregoing paid-in capital threshold, it needs only one director and is not required to have a statutory auditor. The statutory auditor is a board-level in-house position whose role is to monitor the company's financial affairs and the directors' performance of duties. The statutory auditor is distinguished from the external auditor, appointed to conduct the required audit on the annual financial statements when certain requirements are met. 

Authority to carry out the day-to-day management is vested in the representative director, functionally equivalent to a chief executive officer. The representative director is appointed from among the directors by resolution of the board (or by the shareholders if appointment authority is conferred on the shareholders instead of the board). A representative director has broad authority to represent the company in its dealings and has the power to represent and bind the company in all of its external affairs. A company may have more than one representative director. In such cases, the representative directors may be designated either as independent, with each representative director having the authority to represent the company severally or as joint representative directors who must act in cooperation when exercising their representative powers.

Under the Korean Commercial Code, each company director has a duty of care and fiduciary duty of loyalty to the company. The Korean Commercial Code also provides certain derivative principles of such duties, including the following: 

• non-competition duty – no director may, without the approval of the board of directors, engage in any transaction (whether for their own account or that of a third party) that falls within the class of businesses of the company or become a member with unlimited liability or a director of any other company whose business purposes are the same as those of the company;
• restriction on self-dealing – a director may engage in a transaction with the company for its own account or the account of a third person only if it has obtained the approval of the board of directors; and
• non-disclosure duty – directors may not divulge their knowledge of the company's business secrets while performing their duties.

Additionally, the Supreme Court has ruled that directors have a duty to monitor the acts of other directors, particularly as to the legality of such acts. Directors will be deemed to have discharged this duty as long as they perform their duties in good faith and with reasonable care based on their reasonable knowledge. 

The Korean Commercial Code provides that if directors have violated any laws, regulations, or the AOI or have neglected to perform their duties, they will be jointly and severally liable for damages incurred by the company. Furthermore, under the Korean Commercial Code, if any such act has been performed pursuant to a board resolution, the directors who have assented to such resolution will all be liable. Additionally, the Korean Commercial Code provides that if directors have neglected to perform their duties wilfully or by gross negligence, they will be jointly and severally liable for damages to any third person. 

While there is no statutory basis in the Korean Commercial Code for piercing the corporate veil, the courts have pierced the corporate veil vis-à-vis controlling shareholders in certain limited and exceptional situations based on the general principle of good faith under the Civil Code. The criteria established by the courts in applying the "piercing the corporate veil" doctrine are very strict, and as a result, there have only been a few instances where this doctrine has been invoked.

The legal rules that govern the employment relationship are the Constitution, the Labour Standards Act (LSA), other labour-related laws, individual employment contracts, internal work regulations and collective bargaining agreements.

Of these rules, the basic principles of employment are enshrined in the Constitution, which states that all citizens have the right to work. The LSA sets minimum standards for various working conditions, including just dismissal of employees, working hours, wages, annual leave, treatment of minors and worker's compensation. Any provisions of an employment contract, internal work regulations, or collective bargaining agreement that attempt to establish lower standards are invalid.

The below laws govern other key aspects of the employment relationship:

• various minimum standards – the Minimum Wage Act, the Act on the Guarantee of Workers' Retirement Benefits, the Act on the Protection of Temporary Agency Workers, the Act on the Protection of Fixed-term and Part-time Workers;
• mandatory hiring guidelines – the Employment Security Act, the Equal Employment Opportunity and Work-Family Balance Assistance Act, the Act on Promotion of Employment and Vocational Rehabilitation of Disabled Persons, and the Act on Honourable Treatment of and Support of Persons of Distinguished Services to the State;
• mandatory social insurances – the National Pension Act, the National Health Insurance Act, the Unemployment Insurance Act, the Worker’s Industrial Accident Compensation Insurance Act and the Wage Claim Guarantee Act; and
• labour unions and labour-management relations – the Labour Union and Labour Relations Adjustment Act covers labour union activity and collective bargaining, and the Act on the Promotion of Workers' Participation and Co-operation covers labour-management councils (LMC).

In principle, when two sources of employment regulations conflict, the more favourable provisions for the employee will take precedence.

Under the LSA, when entering into an employment agreement, an employer must specify specific matters, including the items constituting wages, wage calculation and payment methods, prescribed working hours, holidays, and annual paid leave.

In addition, the Act on the Protection of Fixed-term and Part-time Employees further provides that when an employer enters into an employment contract with a fixed-term or part-time employee, it must clearly state, in writing, each of the following matters: 

• term of employment;
• working hours and recess;
• wages, including constituent items and calculation and payment methods;
• holidays and leave;
• place of work and duties; and
• workdays and working hours for each workday (only applicable to part-time employees).

An employer may specify the above items in the employment agreement, or if already stipulated in internal work regulations, the employer may elect only to specify provisions relevant to individual employees.

Under the LSA, employees are allowed to work up to 40 hours per week and eight hours per day, excluding recess. During working hours, employees must be given a minimum recess time of one hour for eight hours and 30 minutes for four hours. An employee may consent to a maximum of 12 additional work hours per week. 

An employer violating the overtime threshold under the LSA will be subject to strict criminal liability, meaning that the employer will be subject to imprisonment of up to two years or a criminal fine of up to KRW20 million). 

The LSA permits employers to adopt any of the following "alternative working hours systems" under a separate written agreement between the employer and an employee representative. 

• Flexible working hours system – extending working hours on a particular day or week while shortening working hours on other days or weeks so that the average hours worked over a certain period are within the statutory standard working hours. Under this system, hours worked during a certain period may exceed the statutory standard working hours without incurring overtime allowances. 
• Selective working hours system – employees are free to select the start/end times of working hours and/or workdays as long as the average hours worked over a certain period (not exceeding one month) are within the statutory standard working hours. 
• Deemed working hours system – when it is difficult or impossible to calculate working hours because employees carry out all or part of their duties outside the workplace, they are deemed to have worked for prescribed working hours. 
• Discretionary working hours system – for certain professions where the performance of duties is left to the employees' discretion, prescribed working hours agreed upon between the employer and the employees' representative will apply. 

For work performed beyond the statutory standard working hours, the employer must pay on top of ordinary wages at least an additional 50% of ordinary wages as overtime work allowance. A 50% uplift of ordinary wages also applies to any work done between 10 pm and 6 am as a night-time work allowance. For work during a holiday, the employer must pay an additional 50% of ordinary wages for up to eight hours of work per day. Night-time work, overtime work, and holiday work allowances are cumulative, not mutually exclusive; therefore, the employer must pay its employees each additional allowance as applicable. 

South Korea is not an "employment at will" jurisdiction. The LSA requires an employer to establish "just cause" when terminating an employee, interpreted by the courts to mean that such grounds have to be so significant that it would be unduly burdensome for the employer to continue the employment relationship with the employee. In practice, this is a very high threshold to meet. The burden of proof is on the employer to demonstrate that just cause exists. 

When terminating an employee, an employer must give the dismissed employee 30 days prior written notice or pay in lieu thereof. 

Employees terminated without just cause may challenge their termination by filing a complaint with the Labour Relations Commission or to a court to seek reinstatement and back wages from the point of dismissal until reinstatement. 

As with the termination of employment contracts for individual reasons, termination for redundancies attributable to business reasons also require just cause. The LSA considers that just cause exists for business reasons only when all of the following conditions are met:

• an "urgent managerial necessity" exists that the employer is able to demonstrate;
• the employer must exert its best efforts to avoid or minimise dismissals; 
• the employer must apply fair and reasonable criteria in designating the employees to be dismissed; and
• in connection with the second and third conditions above, the employer must act in good faith, and 50 days in advance of such dismissal, consult with the employees’ representative (or union).

The LSA does not specify what constitutes an "urgent managerial necessity" but provides that business transfers, mergers, or acquisitions needed to continue the business may constitute such a necessity. In determining whether an urgent managerial necessity exists, the court generally adopts a case-by-case approach, considering the totality of circumstances. 

Employers are subject to an additional reporting requirement if the number of terminated employees exceeds the applicable thresholds:

• more than ten employees for a company with fewer than 100 employees;
• more than 10% of the employees for a company of 100 to 999 employees; and
• more than 100 employees for a company of 1,000 or more employees.

In these instances, the employer must report to the Ministry of Employment and Labour at least 30 days prior to the mass dismissals:

• the number of employees to be dismissed;
• the reason for dismissal;
• details of consultations with the employees’ representative (or union); and
• the timeline for dismissal.

Other than the mandatory accrued retirement benefit (severance pay or retirement pension, whichever is applicable), no compensation must be paid to employees terminated with just cause. However, as the just cause standard for termination is generally very high, employers often try to induce voluntary separation by offering employees extra termination compensation on top of their accrued retirement benefit in exchange for a release and waiver.

The Act on the Promotion of Workers' Participation and Co-operation ("Act") requires any business entity with 30 or more employees to form a labour management council (LMC), comprised of three to ten employee-side council members elected by employees through a secret ballot and the same number of employer-side council members from the management. The Act requires the LMC to hold a meeting every three months where most of each side's representatives are present. Resolutions are passed by two-thirds of the votes of those in attendance. 

In addition, under the Labour Union and Labour Relations Adjustment Act, basic rights include:

• the right to form and join a labour union;
• the right to engage in collective bargaining with the employer; and
• the right to take collective action.

During collective bargaining negotiations, the chairman of the labour union has the authority to speak on behalf of the union members and negotiate with and enter into a collective bargaining agreement with the employer.

Employees are subject to income tax on remuneration and all benefits received from employment, including wages, salaries, bonuses and other amounts received for employment services rendered. Employment income includes the following payments in addition to the basic monthly payroll:

• reimbursement for personal expenses, entertainment expenses and other allowances provided to the employee that is not considered legitimate business expenses of the employer; and
• various allowances for family, position, housing, health, overtime and other similar payments made to the employee.

There are two methods of reporting employment income under the tax laws of South Korea. 

First, if employment income is paid by:

• a Korean resident;
• a Korean entity; or
• a domestic branch or representative office of a foreign entity.

The employer is required to report such employment income to a competent tax office through a payroll withholding tax return and pay the applicable withholding tax to the tax office. Second, if the employment income is paid by a non-resident or a foreign entity (excluding a domestic branch or representative office), the employee receiving such employment income is responsible for reporting it through a global individual income tax return (ie, the employment income will be included in the global individual income tax base) and voluntarily paying the applicable global individual income tax (6.6% to 49.5% depending on the applicable progressive individual income tax rates). Alternatively, the employee may pay the applicable tax levied on such employment income through a licensed taxpayers' association that collects and pays the tax on their behalf. 

Individual income tax rates (also applicable to employment income) (effective 1 January 2023) are as follows: 

• up to KRW14 million taxable income – 6% tax rate;
• from KRW14 million to KRW50 million – 15%;
• from KRW50 million to KRW88 million – 24%;
• from KRW88 million to KRW150 million – 35%;
• from KRW150 million to KRW300 million – 38%;
• from KRW300 million to KRW500 million – 40%;
• from KRW500 million to KRW1 billion – 42%; or
• in excess of KRW1 billion – 45%.

In addition, there is a local surtax of 10% on the foregoing rates resulting in the final rates ranging from 6.6% to 49.5% on the tax base.

A Korean company is required to pay:

• interim corporate income taxes within two months from the end of the first six months of the fiscal year; and
• annual corporate income taxes within three months from the end of the fiscal year. The company must file tax returns along with the tax payment for the interim and annual corporate income taxes.

The corporate income tax rates (effective 1 January 2023) are as follows:

• up to KRW200 million taxable income – 9% tax rate;
• from KRW200 million to KRW20 billion – 19%;
• from KRW20 billion to KRW300 billion – 21%; or
• in excess of KRW300 billion – 24%.
• In addition, there is a local surtax of 10% on the foregoing rates, resulting in the final rates ranging from 9.9% to 26.4% on the tax base.

VAT is levied at 10% on the sale of goods and services in South Korea, including imported goods, subject to certain exceptions. Every quarter, a business that sells or provides goods or services to its customers is required to pay the competent tax office value-added tax (output VAT) received from such customers. The amount of VAT to be paid to the tax office is the sum of the output VAT received from its customers minus the value-added tax (input VAT) paid to its suppliers for purchasing goods or services (so-called input VAT deduction). 

Certain income – such as dividends, interests or royalties paid to non-residents (Korea-sourced income) – is generally subject to withholding tax at the statutory rate of 22% (inclusive of local surtax) in the absence of an applicable tax treaty between the non-resident’s country and South Korea. In order to enjoy the benefits of a lower rate of withholding tax under a particular treaty, the beneficial owner of the Korea-sourced income must submit to the withholding party evidentiary documents demonstrating that the beneficial owner is eligible for the lower rate of withholding tax by virtue of a tax treaty. 

With respect to gains earned by a non-resident from the sale of its shares in a Korean company or listed foreign company, capital gains tax must be withheld and paid to the tax office by the purchaser of such shares at the rate of:

• 11% of the sale price; or
• 22% of the net gains (ie, the sum of the sale price minus the acquisition price), whichever is lower.

Such capital gains tax may be exempt by virtue of applicable tax treaties. In addition, the purchaser must withhold and pay securities transaction tax levied on the sale of shares in a Korean company at 0.35% (for the period on or after 1 January 2023) if the seller is a non-resident. For the transfer of shares through the designated Korean stock exchanges, the reduced tax rate of 0. 20% (for the period up to 31 December 2023), 0.18% (for the period from 1 January 2024 to 31 December 2024) and 0.15% (for the period on or after 1 January 2025) would apply.

Foreign-invested companies that engage in certain hi-tech businesses designated by the government or located in certain designated areas may apply for exemption of customs duties or local taxes if certain conditions are satisfied. Tax credits are also available for certain qualifying expenditures on R&D and investments in energy saving, pollution control, vocational training facilities and employee housing.

Tax consolidation is available between/among Korean companies in cases where such companies wholly own and are wholly owned by each other. The applicable company may elect the consolidation filing scheme subject to approval from the competent tax office, and such election may not be revoked for at least five years from the election date.

Interest incurred in a business's normal operation is generally recognised as a tax-deductible expense as long as the relevant loan is used for business purposes. A shareholder loan extended by a foreign controlling shareholder to its Korean subsidiary, however, is subject to the thin capitalisation rule, whereby any interest paid on the part of the shareholder loan in excess of two times the paid-in capital of the Korean company contributed by the shareholder (six times if the Korean company is a financial institution) cannot be recognised as a tax-deductible expense and will be subject to corporate tax. Furthermore, the excess interest will be deemed as a dividend and subject to withholding tax at the statutory rate of 22% (inclusive of local surtax) in the absence of an applicable tax treaty between the non-resident's country and South Korea.

In line with the Organisation for Economic Co-operation and Development′s (OECD's) recommendation on the limitation of interest expense deductions (Base erosion and profit shifting (BEPS) Action 4), effective from 1 January 2019, interest expense paid by a Korean company with respect to intercompany loan transactions with overseas related parties in excess of 30% of the "adjusted taxable income" (ie, taxable income before depreciation and net interest expenses) cannot be recognised as tax-deductible expenses and will be subject to corporate tax. 

As between the thin capitalisation rule and the OECD rule, the rule that imposes a higher tax burden (ie, recognition of lower tax-deductible expenses) applies.

International transactions between related parties are governed under transfer pricing rules modelled following the OECD transfer pricing guidelines. Domestic transactions in South Korea are subject to similar rules under the corporate income tax law, ie, income generated from a related-party transaction may be deemed an unfair transaction that is not conducted on an arm’s-length basis and may be, for tax purposes, re-computed by a tax authority based on the fair market value applicable to similar transactions between independent companies under comparable circumstances.

The tax laws of South Korea provide for a "substance over form" rule that allows a transaction that meets formality requirements to be recharacterised based on its substance. Under the substance over form rule, each transaction under a series of transactions undertaken for no purpose other than tax avoidance may be recharacterised for tax purposes by a tax authority to reflect the substance of such series of transactions.

Under the Monopoly Regulation and Fair Trade Act (MRFTA), each type of business combination listed below is notifiable when the applicable jurisdictional thresholds are met:

• acquisition of 20% (or 15% in case of listed companies) or more of the voting shares in another company (or acquisition of additional shares by an existing shareholder whose shareholding already exceeds such threshold where the additional share acquisition results in such shareholder becoming the largest shareholder);
• a statutory merger of one company into another;
• acquisition of all or a substantial portion of the business or fixed assets of another company (where such business or assets is at least KRW5 billion or 10% of such company’s total assets);
• participation in the establishment of a new joint venture as the largest shareholder; and
• interlocking directorate of a large company, ie, the appointment of an officer or employee of a “large-scale company” (a company with worldwide assets or annual turnover of KRW2 trillion or more on a consolidated basis) as an officer or director of another company.

Business combinations (other than an interlocking directorate) satisfying the turnover and/or total assets thresholds below are notifiable. A merger is notifiable if a party (ie, the acquiring party or acquired party) has worldwide assets or an annual turnover of KRW300 billion or more and the other party has worldwide assets or an annual turnover of KRW30 billion or more. Total assets and annual turnover are calculated worldwide, including all companies affiliated both before and after the business combination (except that in case of an asset transfer, total assets and annual turnover of the transferor are determined on a standalone basis). 

Further, the MRFTA recently introduced a "size-of-transaction test" to impose a filing obligation even if the target company's turnover or total assets do not meet the foregoing general jurisdictional thresholds. Based on this new standard, a transaction will be notifiable if:

• the transaction value exceeds KRW 600 billion; and 
• the target company has a "substantial level of activity in the Korean market", including selling or providing products or services in Korea or having R&D facilities or personnel in Korea.

Foreign-to-foreign mergers are notifiable if the nexus requirement is satisfied in addition to the jurisdictional thresholds. The local nexus requirement is satisfied if:

• the acquirer and the acquired party each have a turnover in Korea of KRW30 billion or more; and
• in case the acquirer is a Korean entity, and the acquired party is a foreign entity, the acquirer has a turnover in Korea of KRW30 billion or more.

Filing Deadline

In principle, a merger notification must be filed within 30 days of closing the transaction. However, where one party to the business combination has worldwide assets or an annual turnover of KRW2 trillion or more on a consolidated basis, the business combination becomes a pre-closing notification requirement.

Review Criteria and Timing

The KFTC's review period is 30 days, but the KFTC has absolute discretion to extend the review period by up to 90 days for a total of 120 days. However, for mergers that qualify for a "simplified review", a shorter review period of 15 days will apply. 

Recently, KFTC amended its merger review standard to add the following to the type of mergers which qualify for a simplified review:

• additional investments by existing private equity funds;
• concurrent holding of an executive position following investments in new technology or venture businesses;
• acquisition of real estate for investment purposes; and
• other mergers which can be proven to be solely for investment purposes.

Voluntary Pre-notification Review Request

In case of a pre-closing filing, the acquirer needs to file a merger notification soon after the execution of the definitive agreement. However, to shorten the KFTC’s formal review period, the acquirer may make a voluntary request for a preliminary review before the agreement is executed. Although a preliminary review does not relieve the acquirer from filing a formal notification, the review period may be shortened to 15 days.

The MRFTA prohibits any agreement on pricing or other terms that unreasonably restrain competition.

Unlawful cartel conduct includes agreements to:

• (i) fix prices;
• (ii) fix transaction or payment terms;
• (iii) restrict production, delivery, transportation, or transaction of goods, or limit the terms of service;
• (iv) allocate customers or sales regions;
• (v) restrict production capacity;
• (vi) restrict the types and specifications of goods or services;
• (vii) jointly carry out or manage a principal part of a business;
• (viii) determine the successful bidder, bid price or other bid matters;
• (ix) exchange competitively sensitive information; and
• (ix) otherwise restrict competition by interfering with or restricting the business activities of another company.

The KFTC's review standards for cartel conduct differ depending on the type of conduct. In the case of "hardcore" cartel conduct described in (i), (iii), (iv) and (viii) above, an anti-competitive effect is presumed. In contrast, for all other types of cartel conduct, a review is conducted to determine the anti-competitive effect and efficiency-enhancing aspects to determine illegality.

The KFTC may issue a corrective order or impose an administrative fine of up to 20% of the relevant turnover. In addition, participants may be subject to criminal liability, including imprisonment (for the individuals involved) of up to three years or a fine of up to KRW200 million.

A leniency regime exists for an applicant who satisfies the following:

• it must be the first or second-in time to file for leniency;
• it must immediately discontinue the cartel conduct; and
• it must fully cooperate with the investigation.

The first-in leniency applicant is completely exempt from fines and criminal charges, while the second-in applicant receives a 50% reduction in administrative fine, exemption from criminal charges and mitigation of corrective measures. The prosecutor’s office introduced its own leniency programme under which:

• the first-in leniency applicant is exempt from prosecution, and the second-in applicant receives a 50% reduction in the level of criminal punishment sought by the prosecutor's office; and
• unlike the KFTC leniency programme, individuals may also apply for leniency separate from the company’s leniency application.

The MRFTA prohibits abusive conduct by market-dominant companies. 

Market Dominance

Market dominance is found if a company’s market share is at least 50% or if the combined market share of two or three companies is at least 75%. In addition to market share, the KFTC also considers other factors, including entry barriers, competitors, the potential for cartel conduct and the ability to foreclose the market.

Abusive Practices

The following are enumerated in the MRFTA as abusive conduct:

• unreasonably determining, maintaining, or changing the price of goods or services;
• unreasonably controlling the output of goods or provision of services;
• unreasonably interfering with the business activities of other companies;
• unreasonably impeding the market entry of new competitors;
• engaging in transactions to unreasonably exclude competitors; and
• engaging in any transaction that may significantly harm consumer welfare. 

Illegality

In determining the illegality of the conduct, consideration will be primarily given to whether the act has an anti-competitive impact on the relevant market and whether there was intent or purpose of the market-dominant company to maintain or reinforce its monopolistic position in the relevant market. 

Sanctions

The KFTC may issue a corrective order or impose an administrative fine of up to 6% of the relevant turnover. In addition, criminal penalties may apply, including imprisonment of up to three years (for the individuals involved) or a fine of up to KRW200 million.

The invention must have industrial applicability, novelty and inventive step to be patentable. Ideas not utilising the laws of nature or inventions that violate public order or sound morals or are likely to harm public health, are not patentable.

The term of a patent right commences at the time of registration and ends 20 years after application filing, which is extendable for up to five years where separate regulatory approval or registration is required to practise the patent (such as in the case of pharmaceutical patents).

The Korean Intellectual Property Office (KIPO) is in charge of the registration of patents. Upon the application's filing, substantive examination proceeds only after the Request for Examination has been filed, which should be filed with KIPO within five years from the international (or Korean) application filing date. It takes about 18 months from filing the Request for Examination for KIPO to render its first official action. A patent infringement action can be brought against:

• direct infringement, such as:
1. making, assigning, leasing, importing, or offering for assignment or lease a patented product without authorisation; or
2. using a patented process or the act of making, assigning, leasing, importing, or offering for assignment or lease a product that is made by the process without authorisation; and
• indirect infringement, such as (i) making, assigning, leasing, importing, or offering for assignment or lease any article used exclusively for producing a patented product; or (ii) making, assigning, leasing, importing, or offering for assignment or lease, an article used exclusively for working a patented process. 

As amended as of 11 March 2020, the Patent Act has extended the scope of the protection against infringement of process patents to cover the act of selling patent-infringing software online. Specifically, as the definition for "practising an invention", the amended Patent Act has added the act of "offering the use of the process" to the existing definition of "using the process", thereby including intentional acts of selling patent-infringing software online as an act of patent infringement.

The remedies for patent infringement include an injunction against the infringement, compensatory damages and an order issued against the infringing party to take measures to restore the patentee's reputation. Six district courts (Seoul Central, Suwon, Daejeon, Daegu, Busan and Gwangju) are designated to adjudicate patent infringement cases as the first instance courts. The second instance court (appellate court) is the Patent Court, and the final instance court is the Supreme Court. 

The Patent Act was the first among Korea’s IP laws to introduce treble damages for intentional patent infringement in January 2019. The defences to patent infringement include proving non-infringement and the invalidation of the patent. The first instance of review for an invalidation trial is the Korean Intellectual Property Trial and Appeal Board (KIPTAB). The second instance is the Patent Court, and the final instance is the Supreme Court.

"Trade mark" means a mark used to distinguish goods or services of one from those of others, and "use of a trade mark" means:

• displaying a trade mark on goods or packages of goods;
• transferring, delivering, or providing through a telecommunications line goods or packages of goods on which a trade mark is displayed, or exhibiting, exporting, or importing such goods for transfer or delivery; and
• displaying a trade mark on advertisements for goods, price tags, transaction documents, or other means, and exhibiting or giving wide publicity to the trade mark; the following cannot be registered as a trade mark:
1. generic terms;
2. a mark customarily used on the goods or describing the features of goods;
3. a conspicuous geographical term;
4. a common surname or other name;
5. a simple and commonplace sign; or
6. marks that are identical or similar to another’s registered trade mark.

The term of a trade mark right is for ten years from the registration date, renewable every ten years.

To obtain trade mark registration, the applicant must file an application with KIPO specifying the mark and the designated goods and/or services. Absent objection from a third party or rejection from KIPO, the registration process takes approximately one year, including eight or nine months from application to publication and three or four months from publication to a registration decision. Since 2023, when there is a list of designated products on the trademark registration application and only a part of the designated products bears reasons for rejection, KIPO can only reject the part that bears reasons for rejection and have to accept the rest.

A trade mark infringement action can be brought against:

• the use of a trade mark identical or similar to another’s registered trade mark on goods or services identical or similar to the designated goods;
• delivering, selling, forging, imitating, or possessing a trade mark identical or similar to another's registered trade mark to use or cause a third party to use such trade mark on goods identical or similar to the designated goods;
• manufacturing, delivering, selling or possessing equipment to forge or imitate another's registered trade mark or causing a third party to forge or imitate such registered trade mark; and
• possessing goods identical or similar to the designated goods bearing another's registered trade mark or any other similar trade mark to transfer or deliver such goods.

The remedies for trade mark infringement include an injunction against the infringement, compensatory damages, destruction of infringing goods or implementation of other measures necessary to prevent further infringement and restore the reputation of the trade mark owner. Six district courts have been designated to adjudicate trade mark infringement cases as the first-instance courts. The second instance court is the Patent Court, and the final instance court is the Supreme Court. 

Following the lead under the Patent Act, treble damages were introduced into the Trademark Act in October 2020 as a remedy for intentional trade mark infringement. 

A third party interested in the registration of a trade mark may seek invalidation or cancellation of the trademark if the trademark was falsely registered (invalidation) or has been misused or not been used (cancellation). KIPTAB decides the first instance of such trial, the second is the Patent Court, and the final is the Supreme Court.

The term "design" means the shape, pattern, or colour of an article and font; each invokes a sense of beauty through visual perception. 

Under the Design Protection Act, as amended in October 2021, the definition of "design" now includes "image" designs. The term "image" is defined as [a design which is] "used or functions in the operation of devices with figures and symbols expressed in digital technology or electronic methods". The term of a design right commences at the time of registration and ends 20 years after the application filing. The invention must possess visually aesthetic shapes, patterns and/or colours, novelty, creativity, and industrial applicability to be registrable as a design.

The registration process takes approximately eight or nine months from applying with KIPO, absent objections from KIPO. Where the design requires no examination of novelty and/or prior arts, registration takes approximately four or five months. 

A design infringement action can be brought against:

• direct infringement, such as making, assigning, leasing, importing, or offering for assignment or lease a product associated with a registered design or any similar design; and
• indirect infringement, such as making, assigning, leasing, importing, or offering for assignment or lease articles used exclusively for producing a product associated with a registered design or any similar design.

The remedies for design infringement are an injunction against the infringement, compensatory damages, destruction of infringing goods or implementation of other measures necessary to prevent further infringement and restore the reputation of the design owner. Six district courts are designated as the first instance courts to review design infringement cases. The second instance court is the Patent Court, and the final instance court is the Supreme Court.

Treble damages were introduced into the Design Protection Act in October 2020 as a remedy for intentional design infringement.

A third party interested in registering a design may file a claim seeking invalidation of the registered design on the grounds of false registration. The first instance of such trial will be before KIPTAB, the second is the Patent Court, and the final is the Supreme Court.

Copyright protects the manifestation of the expression of human thoughts and emotions. Examples of copyrightable works under the Copyright Act are:

• novels, poems, theses, lectures, speeches, plays and other literary works;
• musical works;
• theatrical works, including dramas, choreographies and pantomimes;
• paintings, calligraphic works, sculptures, print-making, crafts, works of applied art and other works of art;
• architectural works, including buildings, architectural models and design drawings;
• photographic works (including those produced by similar methods);
• cinematographic works;
• maps, charts, design drawings, sketches, models and other diagrammatic works; and
• computer program works, including a database. 

Copyrights encompass a bundle of rights. An author’s moral rights are inalienable personal rights and include the:

• right to make public;
• right of paternity; and
• right of integrity.

An author’s economic rights include the:

• right of reproduction;
• right of public performance;
• right of public transmission;
• right of exhibition;
• right of distribution;
• right of rental; and
• right of production of derivative works. 

Neighbouring rights (ie, copyright-related rights) under the Copyright Act include:

• a performer’s:
1. right of paternity;
2. right of integrity;
3. right of reproduction;
4. right of distribution;
5. right of rental;
6. right of public performance;
7. right of broadcasting; and
8. right of interactive transmission;
• a phonogram producer’s:
1. right of reproduction;
2. right of distribution;
3. right of rental; and
4. right of interactive transmission; and
• a broadcaster’s:
1. right of reproduction;
2. right of simultaneous broadcasting; and
3. right of public performance.

The author's moral and economic rights (copyright) start at the moment of the work's creation and subsist during the author's life and for 70 years after the author's death. The copyright term of a work made for hire is 70 years after publication or creation if the work is not published within 50 years of creation. 

A copyright may be registered, but registration is not required; however, statutory damage claims for infringement are available only for registered copyrights. A copyright infringement action can be brought against:

• infringement of an author’s moral or economic rights; and
• infringement of neighbouring rights.

The remedies for copyright infringement include an injunction against the infringement, compensatory damages, destruction of infringing goods or implementation of other measures necessary to prevent further infringement and reinstatement of reputation. Copyright infringement actions may be brought in any district court as the court of first instance. The second instance court is the High Court, and the third and final instance court is the Supreme Court.

The Unfair Competition Prevention and Trade Secret Protection Act (UCPA) regulates unfair competition and trade secret infringement. Unregistered, well-known marks may be protected under the UCPA. However, the outcome of an infringement action under the UCPA is highly fact-specific and thus may not afford an adequate remedy to the rights-holder. 

Unregistered designs can be protected under the UCPA for three years following the manufacture or production of a prototype bearing the design.

Unauthorised use of another's technical or business ideas with the economic value provided in the course of business negotiation is an act of unfair competition and is therefore prohibited under the UCPA, except where the recipient was already aware of that idea at the time of provision or such idea is widely known within the industry. 

The UCPA also provides a "catch-all provision" that prohibits the misappropriation of another's achievement contrary to commercial customs and results in economic harm. 

As of April 2022, illegal acquisition and use of data is also an act of unfair competition. Data which are subject to fraudulent acquisition and use are limited to technical or business information, which:

• are generated for the purpose of the provision to a specific target;
• are managed electronically, such as by restricting access by way of ID and password;
• have accumulated considerable economic value; and
• are not managed as a secret.

The acts resulting in economic damage from unauthorised use of the names, portraits, images, voices, statements, etc, of celebrities are regulated as an infringement of the so-called "publicity rights" since the 2022 amendment. Previously, publicity rights had been recognised in a few court precedents while denied in some cases, as no codified law recognised such rights. Under the UCPA, the term "trade secret" means information – including a production method, sales method, useful technical or business information for business activities – that is not known publicly, is the subject of reasonable efforts to maintain secrecy and has independent economic value. Any act of infringing trade secrets, such as acquiring, using or disclosing trade secrets improperly, is prohibited.

The available remedies for violation of the UCPA include an injunction against the infringement, compensatory damages, destruction of infringing goods or implementation of other measures necessary to prevent further infringement and restore the reputation of the trade secret owner. 

The Unfair Competition Prevention and Trade Secret Protection Act (UCPA) regulates unfair competition and trade secret infringement. Unregistered, well-known marks may be protected under the UCPA. However, the outcome of an infringement action under the UCPA is highly fact-specific and thus may not afford an adequate remedy to the rights-holder. 

Unregistered designs can be protected under the UCPA for three years following the manufacture or production of a prototype bearing the design.

Unauthorised use of another's technical or business ideas with the economic value provided in the course of business negotiation is an act of unfair competition and is therefore prohibited under the UCPA, except where the recipient was already aware of that idea at the time of provision or such idea is widely known within the industry. 

The UCPA also provides a "catch-all provision" that prohibits the misappropriation of another's achievement contrary to commercial customs and results in economic harm. 

As of April 2022, the act of illegal acquisition and use of data is also an act of unfair competition. Data which are subject to fraudulent acquisition and use are limited to technical or business information, which:

• are generated for the purpose of the provision to a specific target;
• are managed electronically, such as by restricting access by way of ID and password;
• have accumulated considerable economic value; and
• are not managed as a secret.

The acts resulting in economic damage from unauthorised use of celebrities' names, portraits, images, voices, statements, etc, are regulated as an infringement of the so-called "publicity rights" since the 2022 amendment. Previously, publicity rights had been recognised in a few court precedents while denied in some cases, as no codified law recognised such rights. Under the UCPA, the term "trade secret" means information – including a production method, sales method, useful technical or business information for business activities – that is not known publicly, is the subject of reasonable efforts to maintain secrecy and has independent economic value. Any act of infringing trade secrets, such as acquiring, using or disclosing trade secrets improperly, is prohibited.

The available remedies for violation of the UCPA include an injunction against the infringement, compensatory damages, destruction of infringing goods or implementation of other measures necessary to prevent further infringement and restore the reputation of the trade secret owner.

Data protection in South Korea is mainly governed by the Personal Information Protection Act (PIPA), and financial transaction information is subject to additional regulations under Credit Information Protection. There are also, pursuant to these statutes, various ministry-promulgated regulations and agency-issued standards and guidelines. The Act on Promotion of Information and Communications Network Utilisation and Information Protection (ITNA) regulates the network security of IT services, encompassing virtually all online services and spam prevention.

An array of disclosure and consent requirements under PIPA apply to collecting, using or processing personal information (PI). The framework is similar to the regulatory framework under GDPR, the General Data Protection Regulation of the EU. Any "data handler" (an entity that manages personal information files) must, to process PI, obtain express, specific consent from each data subject (eg, a user in the case of online services) after disclosing various conditions and parameters of the data processing, including purposes, the items of PI targeted and period of retaining the PI. Disclosures must also be explicit about the data subject's right not to consent and the consequences for functionality in that case. Online, required consent can generally be in check box format.

For any online or other public-facing collection of PI, a data handler has to adopt a privacy policy and publish it on its website or app under PIPA. A number of matters are required to be stated in a privacy policy. Among other things, a privacy policy has to spell out:

• the purposes of collecting and using PI;
• the types of PI at issue;
• the retention periods for PI once stored and the method of destroying it at the end of the period;
• information on third parties to which the PI may be passed, including their names, the types of PI to be shared, purposes and retention periods;
• the various rights of the data subjects and methods to exercise such rights;
• information on the installation and operation of tools that automatically collect PI (eg, cookies) and how data subjects may refuse the use of such tools;
• the protection measures taken to ensure the safety of PI; and
• the name and contact information of the person or department in charge of PI.

For transfers of PI, there is an important distinction between "entrustment" (analogous to controller-to-processor transfer, less restricted) versus "third-party provision" (analogous to controller-to-controller transfer, more restricted) of PI to third parties. Generally, entrustment refers to a data handler's passing of PI to third parties for the data handler's purposes (third-party data back-up being a prime example) within the scope of services the data subject signed up for. In contrast, the third-party provision of PI involves passing of PI to a third party for that third party's purposes, eg, in cross-marketing. Third-party provision of PI will, in many instances, require additional disclosures and separate consents, where entrustment will not, although special constraints apply to the latter in the case of financial institutions.

For an offshore IT service provider – be it a social media site, online marketplace, cloud solutions provider, mobility app, aggregator, etc – two critical features of the laws of South Korea are as follows:

• in the case of active, significant targeting of Korean users (as evidenced by a Korean language website, large numbers of local users and so forth – standards of nexus to the Korean market), the service provider can be seen as subject to PIPA, including its panoply of consent and other requirements; and
• under PIPA, offshore IT service providers lacking a business presence in South Korea must appoint a local representative for data compliance and regulatory oversight purposes if they meet any of several thresholds of scale in revenue or local users, such as by reaching KRW10 billion in relevant Korean revenue or 1 million daily average users. 

Additionally, a data handler – including offshore, if subject to ITNA based on nexus – will be subject to requirements of designating a chief privacy officer and a chief information security officer (CISO). There are eligibility standards for these posts, such as engineering or data security training or experience in the case of the CISO. The CISO requirement will entail that the CISO serves exclusively in that capacity if the company meets any of certain special tests for scale, such as having KRW 500 billion in assets and a threshold amount of revenue or average daily user traffic.

Also, pursuant to PIPA, online services and other IT service providers, including offshore enterprises depending on nexus (see above), are required to maintain a minimum level of insurance, or reserve, to cover potential liability in case of data breaches or other violations of data safeguards if they meet any of several thresholds of scale, in revenue or local users. Required amounts of insurance/reserve range from a meagre KRW50 million to KRW1 billion, depending on user numbers and revenue metrics.

Upcoming Amended PIPA

In March 2023, extensive amendments to the PIPA were promulgated, most of which are set to come into effect starting September 2023. The amendments range across several important aspects of data processing, such as (i) easing of the current framework surrounding overseas transfers of PI, (ii) data portability rights and the right to refuse the use of PI in automated decision-making and (iii) increase in the maximum penalty under the PIPA from 3% of the data handler's sales "relating to" the violation to 3% of the data handler's "total" sales.

While PIPA does not specifically provide for extraterritorial reach to offshore businesses, ITNA has the extraterritorial reach concept adopted in 2020. Additionally, according to guidelines promulgated in December 2020 by the Personal Information Protection Commission, a key regulator of data privacy and the online space, offshore IT service providers are subject to PIPA, including disclosure and consent requirements for data collection and handling, depending on criteria of nexus to the Korean market and users, including whether they offer their services in South Korea, collect PI of a large number of Korean users and/or do business involving advertising orders from South Korea-based enterprises.

Two major agencies are the Personal Information Protection Commission (PIPC) and the Korea Communications Commission (KCC). KCC oversees IT service providers' security matters under ITNA, including offshore entities that fall under ITNA. PIPC will be the main agency, if any, of concern for businesses operating offshore. PIPC covers general data protection issues under PIPA. PIPC has enforcement authority, including issuing corrective orders and/or imposing administrative fines in the event of violations. Also, there is the Korea Internet & Security Agency, under PIPC and KCC, which occasionally conducts on-site inspections and preliminary investigations of data protection compliance.

On 10 February 2023, the Ministry of Strategy and Finance unveiled a plan to liberalise and streamline Korea's foreign exchange regulations, which involves (i) preliminary liberalisation during the first half of 2023, involving loosening of certain reporting thresholds (among others, for overseas money wiring and certain multinational capital transactions), and (ii) the general overhaul of the system, including discarding most of the prior filing requirements. While the government is formulating the specifics of the proposal, it is expected that such liberalisation will further facilitate foreign investment in Korea.

Merger Control

On 22 December 2022, the KFTC announced short-term and mid- to long-term legislative reform plans to overhaul the merger notification and review system. Amendment of relevant laws will begin in 2023, focusing on key short-term plans.

In the short term, the scope of transactions not subject to merger control will be expanded to include the following types of mergers, which are generally regarded not to pose a substantial impact on the market:

• mergers between a parent company and a subsidiary;
• establishment of a private equity fund; and
• interlocking directorate that constitutes less than 1/3 of the total number of directors in the target company.

In the mid to long-term, the KFTC plans to introduce formal phases to its merger review process, in line with practices of other competition authorities.

Lastly, the KFTC intends to (i) abolish the post-closing notification requirement and require only pre-closing notifications and (ii) review the need to raise the merger notification thresholds that better reflect current global economic standards.