I n September 1998, the Korean National Assembly passed a number of new laws relating to foreign investment and the Korean financial market which are considered essential to improving the environment for the inducement of foreign capital and investment into Korea, as well as the normalization of the Korean financial industry. The enactment of such laws is also a part of the implementation of the International Monetary Fund's (IMF's) restructuring and assistance program that was adopted following the foreign exchange crisis in December 1997. Set forth below is a brief description of each of these laws, namely, the Foreign Investment Promotion Act, the Securities Investment Company Act, the Asset Securitization Act and the Foreign Exchange Trading Act.

I. Foreign Investment Promotion Act
(Law No. 5,559 of September 16, 1998)

 The purpose of this Act is to entirely restructure the Korean foreign investment system by abolishing restrictions on investment in Korea by foreigners, providing more tax incentives for such investment, and support for foreign-invested enterprises operating in specially-designated areas for foreign investment.
 Among other benefits, foreigners will only be required to make report of their investment in Korea, whereas before such report was also required to be accepted by the relevant governmental authorities under the Foreign Investment and Foreign Capital Inducement Act.
 Tax benefits for foreign direct investment in the form of exemptions or reductions in corporate tax, income tax and local tax will be granted in two areas of investment. First, tax exemptions and reductions will be available to a certain extent for foreign investment in advanced-technology businesses or service businesses which will serve to strengthen the international competitiveness of the domestic service industry. Second, foreign investment in foreign-invested enterprises engaged in business activities within Foreign Investment Zones will also be eligible for such tax exemptions or reductions. For example, foreign-invested enterprises engaged in such advanced-technology businesses will be exempt from corporate tax or income tax for ten years, and fully exempted from acquisition tax, registration tax and property tax for five years.
 In general, all foreign investment into Korea was governed in the past by the Foreign Investment and Foreign Capital Inducement Act (FCIA). The Foreign Investment Promotion Act replaces that part of the existing Foreign Investment and Foreign Capital Inducement Act which relates to foreign investment and technical licenses. The remaining part of the existing Act relating to the inducement of public loans will be replaced by the Act Concerning Inducement and Management of Public Loans.
 The Foreign Investment Promotion Act is scheduled to come into effect as of November 17, 1998.

II. Securities Investment Company Act
(Law No. 5,557 of September 16, 1998)

 The purpose of this Act is to provide for diversified means of investment in securities and to activate investment in capital markets by providing for the establishment and management of "securities investment companies." The purpose of such companies is to distribute income derived from investment primarily in securities to company shareholders. The concept of the securities investment company is similar to that of the mutual fund in the United States.
 This Act became effective as of September 16, 1998.

III. Asset-Backed Securitization Act
(Law No. 5,555 of September 16, 1998)

 This Act was enacted to provide the legal framework for asset-backed securitization transactions. Pursuant to the Act, a bankruptcy-remote special purpose vehicle may be established to issue securities based on assets purchased from Korean financial institutions or the Korea Asset Management Corporation. The vehicle so established may then distribute income derived from the management or disposition of such assets to the purchasers of such securities. Asset-backed securitization is expected to assist Korean financial institutions in improving their financial structure by early liquidation of marketable securities or real properties on their books.
 This Act became effective as of September 16, 1998.

IV. Foreign Exchange Trading Act

 This Act will replace the existing Foreign Exchange Management Act. The existing Act was aimed at regulating and managing foreign exchange transactions. However, the purpose of the new Act is to liberalize foreign exchange or other transactions with foreigners and minimize any regulations or restrictions on such transactions. As part of the government's reform of Korea's foreign exchange regime by dismantling foreign exchange controls related to corporate borrowing, trading and foreign investment, this Act is also intended to induce additional foreign capital by improving the environment for investment in Korea by foreigners.
 This Act will come into effect as of April 1, 1999.

For more details, please contact
Bae, Kim & Lee
Tel: 82-2-3404-0000, Fax: 82-2-3404-0006