How Foreigners Can Start a Business in Korea

12/18/2024

The methods for foreigners to start a business in Korea include either acquiring newly issued shares (including establishing a corporation) or existing shares under the Foreign Investment Promotion Act, or establishing a domestic branch or liaison office of a foreign corporation under the Foreign Exchange Transactions Act.

A foreign-invested company is a domestic corporation established under the Commercial Act, and its possible forms include partnerships (general or limited), limited liability companies, private limited companies, and corporations. Among these, limited companies and corporations are the most common business structures chosen by foreign investors.

If a foreigner invests more than KRW 100 million for the purpose of participating in management and acquires 10% or more of voting shares in newly issued or existing shares, the entity is classified as a foreign-invested company under the Foreign Investment Promotion Act. You can also call it Subsidiary. A company established in this manner is considered a domestic corporation under the Commercial Act.

Branch offices and liaison offices of foreign corporations are distinguished based on whether they engage in business activities and are governed by the Foreign Exchange Transactions Act. A branch office is a foreign corporation allowed to conduct business activities, whereas a liaison office is a foreign corporation that cannot engage in business activities but may perform tasks such as market research and marketing.

Comparison of Foreign-Invested Companies(Subsidiary), Branch Offices of Foreign Corporations, and Liaison Offices.

Foreign-Invested Companies(Subsidiary)

1. Applicable Law: Foreign Investment Promotion Act
2. Legal Status: Domestic Corporation
3. Recognition of Foreign Investment: Recognized.
4. The name of the company: Not limited
5. Scope of Operations: No limitations if it follows Korean law
6. Minimum Capital Requirement: KRW 100 million
7. Legal Liability: Liabilities extend to the entity in Korea
8. Independence: Legally independent
9. Domestic Loans: Possible based on creditworthiness in Korea
10. Setup Process: 1) Report foreign investment 2) Open bank account
    3) Incorporation registration 4) Business registration 5) Register foreign-invested company
11. Accounting & Tax Filing: Korean accounting standards apply; foreign entities must maintain accounting books as required by Korean corporate law
12. Corporate Tax: Taxable
13. Taxable Income: all income from Korea
14. Tax Exemptions: Possible tax exemptions for SMEs (Small and Medium Enterprises) as per “FRAMEWORK ACT ON NATIONAL TAXES”

Branch Offices of Foreign Corporations

1. Applicable Law: Foreign Exchange Transactions Act
2. Legal Status: Foreign Corporation
3. Recognition of Foreign Investment: Not Recognized.
4. The name of the company: should use the same name as headquarters
5. Scope of Operations: Possible only within the scope of the head office’s purpose
6. Minimum Capital Requirement: None
7. Legal Liability: Liabilities extend to the head office
8. Independence: Subordinate to the head office
9. Domestic Loans: Almost Impossible
10. Setup Process: 1) Report incorporation of foreign corporation 2) Business registration 3) Registration for corporate tax
11. Accounting & Tax Filing: Korean corporate law applies, but foreign entities are exempt from detailed requirements
12. Corporate Tax: Taxable
13. Taxable Income: Depending on nations. You can pay Branch tax.
14. Tax Exemptions: None

Liaison Offices

1. Applicable Law: Foreign Exchange Transactions Act
2. Legal Status: Foreign Corporation
3. Recognition of Foreign Investment: Not Recognized.
4. The name of the company: should use the same name as headquarters
5. Scope of Operations: Possible only for liaison activities; no direct business activities allowed
6. Minimum Capital Requirement: None
7. Legal Liability: Liabilities extend to the head office
8. Independence: Subordinate to the head office
9. Domestic Loans: Impossible
10. Setup Process: 1) Report incorporation of foreign corporation 2) Registration for Unique number
11. Accounting & Tax Filing: No obligations for detailed accounting
12. Corporate Tax: Not taxable
13. Taxable Income: Not applicable
14. Tax Exemptions: None

All of this information is come from KOTRA which is Korean official government organization.

Here is the link for our official medium blog. You can also check the article in here.

https://medium.com/bluebricks-ventures/how-foreigners-can-start-a-business-in-korea-14c2161f9a54