S.Korean gov't eases restrictions on Korean investment in overseas startups

The companies founded by South Korean nationals abroad will be recognized as domestic companies if they contribute to the Korean economy, making it easier for them to receive venture capital investment.

The South Korean Fair Trade Commission (FTC) said it will implement revised guidelines, including the "Interpretation Guidelines for Holding Companies," starting Monday.

The revision aims to promote investments in companies founded by Koreans overseas, which had previously been excluded from the scope of corporate venture capital (CVC) investments under the Fair Trade Act.

Under the current Fair Trade Act, holding companies are allowed to own CVCs, but they can only invest in foreign companies within 20% of the total assets of the CVC to encourage investment in domestic small and venture businesses.

However, the previous interpretation guidelines categorized companies founded by Koreans abroad as "foreign companies," which placed them in a gray area, restricting investment. This had been a point of concern.

Such companies play a crucial role as a gateway for domestic startups to expand internationally and also contribute to the South Korean economy by operating local offices or research centers in South Korea.

To address this, the FTC has revised the guidelines to exclude companies founded abroad by Koreans from the definition of foreign companies if they meet the Small and Medium Business Start-up Support Act and contribute to the domestic economy.

The new policy will apply to businesses where a Korean national holds more than 30% of the shares and which are founded within seven years.

Companies must also have a business relationship with a domestic entity or employ full-time workers at domestic locations or offices.

Examples of companies likely to benefit include Moloco, an AI advertising solutions company founded in Silicon Valley by a South Korean entrepreneur and now a unicorn, and Noom, a healthcare unicorn company founded by a South Korean in the US.

Write to Sul-Gi Lee at surugi@hankyung.com