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From Liberalization to Security: Korea’s FIPA Discussions and Their Impact on Foreign Investment

2025.10.20

<span style="font-size:18px;"><span style="color:#c0392b;"><strong>Introduction</strong></span></span>
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<span style="font-size:18px;">On May 2, 2025, an amendment to the Foreign Investment Promotion Act (FIPA) was introduced before the National Assembly.<sup><span style="color:#c0392b;">1)</span></sup>  The bill was referred to the Standing Committee on Industry, Trade and Energy for review on September 2, 2025 and seeks to establish a clear legal foundation for screening foreign investments for national security purposes, aligning Korea with comparable regulatory frameworks in the United States (CFIUS), the European Union (FDI Screening Regulation), and Japan (Foreign Exchange and Foreign Trade Act).  <br />
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The proposed amendment marks a notable shift from Korea’s traditionally open investment regime toward a more security-focused framework.  While intended to safeguard national interests, the provisions are expected to have substantial implications for foreign private equity funds (PEFs) and cross-border M&A transactions involving Korean entities.  </span></div>
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<span style="font-size:18px;"><span style="color:#c0392b;"><strong>Transitioning to a National-Security-Focused Investment Regime</strong></span></span><br />
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<span style="font-size:18px;"><strong>A. Explicit Statutory Basis for Security Review</strong></span>

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<span style="font-size:18px;">The Minister of Trade, Industry and Energy (MOTIE) would be granted explicit authority to restrict or prohibit foreign investment that may “threaten the maintenance of national security,” subject to deliberation by the Foreign Investment Committee (Proposed Article 4 (4), FIPA).<sup><span style="color:#c0392b;">2)</span></sup>  This change would replace informal ministerial discretion with a codified, enforceable process supported by explicit procedural safeguards.  For foreign or foreign-backed funds, this will establish a formal clearance threshold, potentially stopping or conditioning transactions deemed security-sensitive.  Although the proposed amendment does not expressly define the sectors that “threaten the maintenance of national security,” transactions involving sensitive industries—such as defense, semiconductors, and energy—are expected to undergo heightened scrutiny and may require advance clearance prior to signing or closing.  This would introduce additional regulatory checkpoints and documentation requirements.  At a market level, the framework would increase procedural certainty but extend transaction timelines and place greater emphasis on front-loaded regulatory due diligence.  </span></div>

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			<td style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242); border-top: 2px solid #cc0000; padding: 8px; vertical-align: top;" width="50%"><span style="font-size:16px;"><strong>Current</strong></span></td>
			<td style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242); border-top: 2px solid #cc0000; padding: 8px; vertical-align: top;" width="50%"><span style="font-size:16px;"><strong>Proposed Amendment</strong></span></td>
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			<div style="line-height: 25px; font-size: 16px"><strong style="line-height: 25px;">Article 4 (Liberalization of Foreign Investment)</strong></div>

<div style="margin-top: 11px; line-height: 25px; font-size: 16px">① ∼ ③ (Omitted)</div>
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			<div style="line-height: 25px; font-size: 16px"><strong style="line-height: 25px;">Article 4 (Liberalization of Foreign Investment)</strong></div>

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<span style="font-size:18px;">The proposed change to the definition of foreign investment would explicitly include cases where a foreigner exerts effective control over a Korean company through a foreign-invested enterprise (FIE) (Proposed Article 4(6), FIPA).<sup><span style="color:#c0392b;">3)</span></sup>  This means that even domestic acquisitions executed through Korean entities could fall under the FIPA screening if the controlling capital is foreign.  The proposed change would expand the reporting base for private equity transactions and increase regulatory visibility into fund structures, limited-partner composition, and governance rights.  In practice, PEFs would need to maintain transparent records of ultimate beneficial ownership (UBO) and ensure accurate, consistent disclosure across all regulatory filings.  Legal advisors would need to classify each transaction vehicle to determine whether foreign-control thresholds are met under the forthcoming Presidential Decree of the FIPA.  </span><br />
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<div style="margin-top: 11px; line-height: 25px; font-size: 16px">① ∼ ③ (Same as current)</div>
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			<div style="line-height: 25px; font-size: 16px">(Newly Added)</div>
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			<div style="line-height: 25px; font-size: 16px">④ (Omitted)</div>
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			<div style="line-height: 25px; font-size: 16px">(Newly Added)</div>
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			<div style="line-height: 25px; font-size: 16px">⑤ <u>The scope and procedures</u> for deliberation or restriction under paragraph (4), and other necessary matters, <u>shall be prescribed by Presidential Decree</u>.</div>
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			<div style="line-height: 25px; font-size: 16px">(Newly Added)</div>
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			<div style="line-height: 25px; font-size: 16px">⑥ The scope of foreign investment under paragraphs (3) and (4) shall include not only the “foreign investment” as defined in Article 2(1)4 but also cases where a <u>foreigner</u>, as prescribed by Presidential Decree, <u>effectively controls another Korean corporation or enterprise through a foreign-invested enterprise</u>.</div>
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			<div style="line-height: 25px; font-size: 16px"></div>
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			<div style="line-height: 25px; font-size: 16px">⑦ Same as current paragraph (4).</div>
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<span style="font-size:18px;"><strong>C. Creation of a Specialized Security Review Sub-Committee</strong></span>

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<span style="font-size:18px;">To strengthen expertise and procedural transparency, a Security Review Expert Committee would be established under the Foreign Investment Committee (Proposed Article 27(3), FIPA).<sup><span style="color:#c0392b;">4)</span></sup>  The committee will likely assess whether a transaction poses national-security concerns and recommend corresponding actions to MOTIE.  As a result, deals involving advanced technologies, dual-use assets, or sensitive data would face sector-specific scrutiny.  Funds should expect to prepare more comprehensive sectoral and technical documentation, including details on the target’s operations, technology use, and data-handling practices.  M&A counsel should anticipate longer review cycles and additional information requests and consider corresponding adjustments to long-stop dates and deal timetables.  </span><br />
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<div style="margin-top: 11px; line-height: 25px; font-size: 16px">① ~ ② (Omitted)</div>
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			<div style="line-height: 25px; font-size: 16px"><strong style="line-height: 25px;">Article 27 (Foreign Investment Committee)</strong></div>

<div style="margin-top: 11px; line-height: 25px; font-size: 16px">① ~ ② (Same as current)</div>
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			<div style="line-height: 25px; font-size: 16px">1. ~ 12. (Omitted)</div>
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			<div style="line-height: 25px; font-size: 16px">1. ~ 12. (Same as current)</div>
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			<div style="line-height: 25px; font-size: 16px">③ A Foreign Investment Working Committee (hereinafter referred to as "Working Committee") shall be established to review and coordinate matters to be deliberated upon by the Foreign Investment Committee, and to deliberate on matters entrusted by the Foreign Investment Committee, as prescribed by Presidential Decree.</div>
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			<div style="line-height: 25px; font-size: 16px">③ ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------, <u>as well as establishing a Foreign Investment Security Review Committee (hereinafter referred to as the “Expert Committee”) shall be established to determine whether a foreign investment hinders the maintenance of national security</u>.</div>
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<span style="font-size:18px;">Other complementary revisions would require prior reporting by foreign investors involved in “major business or technology sectors” (Proposed Article 5, FIPA),<sup><span style="color:#c0392b;">5)</span></sup> authorize MOTIE to request information or opinions from other government agencies regarding matters involving foreign investments (Proposed Article 28(2), FIPA),<sup><span style="color:#c0392b;">6)</span></sup> and substantially increase criminal penalties for violations, from one year of imprisonment or KRW 10 million to five years or KRW 500 million (Proposed Article 35, FIPA).<sup><span style="color:#c0392b;">7)</span></sup>  Collectively, these measures signify Korea’s transition toward a codified, preemptive regime of institutionalized FDI security review.  </span><br />
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<span style="font-size:18px;"><span style="color:#c0392b;"><strong>Conclusion</strong></span></span>

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<span style="font-size:18px;">The proposed amendment to the FIPA marks a pivotal evolution in Korea’s investment governance, balancing economic openness with national security imperatives.  By codifying security review powers, expanding the definition of foreign investment to include indirect control, and institutionalizing expert oversight, Korea is signaling a decisive alignment with global FDI-screening norms.  For private equity funds and cross-border M&A practitioners, this shift introduces heightened transparency obligations, longer transaction timelines, and the need for early-stage regulatory strategy.  In practice, deal structuring and due diligence would need to integrate national security considerations alongside traditional antitrust and corporate review.  Stakeholders should closely monitor forthcoming developments and seek legal counsel before proceeding with any investment or transaction decisions.  </span></div>

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<div style="margin-bottom: 8px; font-size: 16px; line-height: normal;"><span style="color:#cc0000; line-height:10px">1) </span>Proposed Amendment to the Foreign Investment Promotion Act (Bill No. PRC_A2I5H0H5F0G2E1F4B3B8Z4A3Z2X9X8), National Assembly of the Republic of Korea (2025).</div>

<div style="margin-bottom: 8px; font-size: 16px; line-height: normal;"><span style="color:#cc0000; line-height:10px">2) </span>Proposed Amendment to the Foreign Investment Promotion Act (Bill No. 063B69E1-60BC-F02C-AD0C-CBD37C23FE0A), National Assembly of the Republic of Korea (2025).</div>

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