Setting up a company in South Korea
When setting up a company you may want to consider these factors:
Business Factors
- The industry and type of business
- Nationality of the headquarters/individual(s) and
- Presence of existing trade agreements or relationships
License and Product Approval
Ensure that your products can be lawfully imported into South Korea, that all legal requirements of customs and import laws are met, that you have all required licenses and permits to import and sell the products, and export and import documentation complies with Korean law.
Cultural Factors
Culture is always important. Korea is apparently one of the most hom*ogenous countries in the world, and doing business in South Korea can be a challenge for many business visitors. Similar to Japan, ‘face’ is of great importance and acknowledging the business culture and etiquette will be important.
Language
The local language is Korean and as such local bodies and official documents will be in Korean. While international business is often done in English, getting many things done will always be easier with some local language ability.
Free Economic Zones
The Korean government has established a number of free economic zones that provide additional incentives and tax benefits to foreigners who are investing or starting a business in South Korea. Generally, South Korea requires the business, or the foreign investor, to be located within the free economic zone in order to receive the benefits.
Your Options
When setting up a company in South Korea you have three options:
- Company
- Foreign Branch
- Liaison Office
This article provides a general guideline for foreign businesses on entering South Korea for business purposes. In particular it looks at common pathways to establishing a business presence in South Korea, generally through a liaison office, branch office or subsidiary company. In addition various economic, tax and regulatory facts are provided throughout as a source of useful information to assist those who will enter the Korean economy. The guide also looks at some immigration requirements such as obtaining the appropriate visa status.
Data is based on the time of writing this article, June 2015, or closest available dates.
South Korea is part of the Korean Peninsula situated between China and Japan. It is formally the Republic of Korea and governed by a democratic government. According to the CIA World Factbook, over the past decades the nation has worked towards global integration and seen incredible growth, becoming a high-tech industrialized economy. South Korea will host the 2018 Winter Olympic Games.
Population 50 million
Capital Seoul
Official language Korean
Calling code +82
Timezone UTC+9
Currency ₩ Won (KRW)
Nominal GDP $1.435 trillion ($28,338Per capita)
Domain .kr
The Korean economy continues to grow with the size of the economy ranking as one of the world’s largest economies. The country has a high standard of living, education and income levels and is well known for global high-tech companies such as Samsung, Hyundai-Kia and LG.
There are three types of business forms available to foreign companies in South Korea. Each of these business forms has distinct advantages and disadvantages, as well as differing scope of business activities, registration requirements and minimum capital requirements. In most cases it will depend on the degree of commitment a company has to South Korea and the planned business activity.
Company
A. Requirements/Restrictions
A foreign owned local corporation is recognized as a ‘foreign investment’ under the Foreign Investment Promotion Act in South Korea. According to InvestKorea, the company must invest at least 100 million won. If an investee corporation is a private business, the company cannot issue a business investment (D-8) visa. A trade (D-9) visa shall be issued if it invests KRW 300 million or more. Foreign investors and foreign-invested companies are of separate entities (independent accounting & settlement).
Shares in Korean companies do not have to be held by Korean resident shareholders.
B. Advantages/Disadvantages
The advantages/disadvantages to South Korean corporations are those typical for company structures. Thus, choosing a company structure rather than a branch or liaison office has the standard benefits, such as having a separate legal entity to the parent company to keep debts and liabilities separate, as well as the typical drawbacks such as higher administrative and compliance requirements.
SEE STEPS INVOLVED
However, a primary benefit may be due to the introduction of ‘Start-Biz’; registering and setting up a corporation is now manageable from a one-stop source, which can connect the various bodies from registration to tax. As branch and liaison offices do not appear to be able to be registered through this unified system, this suggests that corporations are probably even easier to set up than branches and liaison offices.
C. Registration Steps
1. Make company seal
Not much information could be found about the requirement for company seals. However, the Doing Business project listed it as the first required step to setting up a company in South Korea. It appears that the company can use any local ‘Sealmaker’.
Time: 1 day
Cost: KRW 30,000
2. Designate a Bank for Capital Deposit
While information wasn’t perfectly clear, it was suggested that it may be typical for corporations to first designate a foreign exchange bank to deposit the required capital before proceeding to register the company. After the company is registered, the company can open a commercial bank account and arrange for the transfer of the capital into the company’s bank account.
Time: 1 day
Cost: none (may include exchange fees, however)
3. Register company
Previously, companies had to be manually registered with bodies such as KOTRA. However, with the introduction of Start-Biz, the founder can pay the corporate registration tax bill and incorporation fee online from one source. Start Biz Online is found at: www.startbiz.go.kr.
As usual, articles of association and documents like a company constitution must be prepared before registering a company.
The service has combined the Internet Register Office, the Local Tax Payment System, the Electronic Notarization System, the National Tax Information System, the Financial Common Network, and the Social Insurance Information System which for the purpose of incorporation. Start Biz Online allows its users to process the entire incorporation process online, including:
- Checking the availability of trade name
- Obtain a certificate of name availability
- Filing the application package for incorporation
- Obtaining a corporate registration tax bill
- Register the company
- Obtaining a certificate of seal impression of corporation
- Registering and getting a tax identification number (TIN)
- Submitting the rules of employment
- Registering electronically for the Public Health Insurance Program,
- Registering electronically for the National Pension Fund,
- Registering electronically for Employment Insurance,
- Registering electronically for Industrial Accident Compensation Insurance.
Generally documents required will include the incorporation documents, which must be in Korean (or translated) and identification documents of members.
The first step is checking the company name, uploading incorporation documents as well as filing company information. During this period, the court registry office reviews the documents and information provided by the applicants, and due diligence of company address is conducted by the tax office. Afterwards, applicants can then proceed to payments for the corporate registration tax bill as well as the registration fee. Since the system already has the company information, there is no need to fill in separate forms for the payments.
Time: 3 days
Cost:
- e-registration KRW 2,000 fee
- 2% of capital for capital registration tax
- “education tax” (20% of the registration tax)
- KRW 10,000 for incorporation fee (certificate of seal impression of incorporation)
4. Pay Social Security registration fees
According to the Doing Business Project, after the submission of documents is completed, applicants can then proceed on the same Start-Biz system to payments for the corporate registration tax bill as well as the registration fee. Since the system already has the company information, there is no need to fill in separate forms for the payments.
Within the system it will apparently redirect the user as needed to pay various registrations for the Public Health Insurance Program, the National Pension Fund, Employment Insurance, and Industrial Accident Compensation Insurance.
Time: Instant (online)
Cost: No charge
5. Open Commercial Bank Account
There was not much information available on starting commercial bank accounts in South Korea. Generally, documentation such as identification documents would be required, and may require an initial deposit, as well as the business registration number.
Generally a company will likely deposit capital in an exchange bank as mentioned earlier, and at this stage organize with the bank to transfer in the capital funds.
Time: 1 day
Cost: No charges
6. Establish an Office
Generally a company is required to have a physical office in Korea. It seems that there is no restriction on using a virtual office as a business address. There appears to be no specific registration requirement of the office location with government authorities. Thus there is no estimated time or cost related to setting up a business (though of course there will be separate time and cost arranging lease agreements with a real estate agent or virtual office)
Time: n/a
Cost: n/a
7. File Rules of Employment
According to international HR consultancy Compandben, if a company has 10 or more employees in Korea its working conditions need to be documented in a “Rule of Employment” and this has to be filed with the Labor Authority as per the “Labor Standard Act”. Either one “Rule of Employment” or different “Rules of Employment” split by working type or occupation type are allowed. The Employer can prepare its own “Rule of Employment” but is obliged to hear opinion from half the employees at least or get consent in the case where an amendment will lead to worse working conditions.
Time: 1 day
Cost: no known charges
Foreign Branch
A. Requirements/Restrictions
A ‘branch’ operates business that generates profits in Korea, but is not locally incorporated and is not recognized as direct foreign direct investment. According to InvestKorea, headquarters and their foreign branches are treated as a single legal entity (the same accounting & settlement). There is no limit in investment amount or ownership.
B. Advantages/Disadvantages
Branches do not require formal incorporation, making them easier in principle to set up than a local corporation, and with less registration fees. Unlike liaison offices, branches are also allowed to engage in sales activity. They are considered a separate legal entity providing some separation of debts and liabilities from their parent.
Generally branch offices are suitable for smaller scale operations. Foreign companies can move on to a local subsidiary later as needed.
SEE STEPS INVOLVED
C. Registration Steps
1. Notify Designated Exchange Bank
Branches of foreign corporations must designate a foreign exchange bank for the usual purpose of channeling working capital, but also to receive permission to establish in Korea.
In order for a foreign company to establish a domestic branch, a notification must be sent to the head of the designated foreign exchange bank (any Korean bank which handles foreign exchange), according to Korea Law. Alternatively, Invest Korea reports that a financial business must register at the Ministry of Strategy and Finance for permission of establishment of a financial business. Required Documents generally include:
- Report form of the establishment of a foreign company’s domestic branch
- Article of association (Notarization of the location of the headquarters is required)
- A certified copy of registration or operation permission of headquarters
- General principles of headquarters
- Minutes of board of directors meeting that state the establishment of a branch or liaison office in Korea and the appointment of a Korean representative.
- A certificate of permission for business
- Power of attorney where the establishment of a domestic branch is commissioned to another person (Notarization of the location of the headquarters is required)
All documents from the home country need to be notarized, and most likely provided with a Korean translated copy (the translator need not be certified).
2. Register with Court Registry Office
Once notification is confirmed by the exchange bank, the company must submit this to a local court registry office. In addition to the report/confirmation from the bank, the branch must nominate a representative who is responsible for day-to-day administration of the branch. The representative does not have to be a Korean resident.
Little to no information was found on the actual procedure of registering, so time and cost is an estimation.
Time: 1-2 weeks (estimate)
Cost: no known charge
3. Register at Tax Office for Business Registration Certificate
The branch must register at a tax office to obtain a business registration number. This process covers registering for tax such as sales and payroll tax.
Korea4expats reports that most foreign employees are required to pay Korean income taxes, which are generally withheld and paid by the employer. Meanwhile, according to a guide by KPMG, every business engaged in supplying of goods or services, whether or not for profit is required to register for VAT purposes by applying for a business registration certificate.
There was not much information available on the actual procedure. It seems that the forms can be downloaded from the national tax office’s website at http://www.nts.go.kr/eng/data/Application(Forms-2).pdf and must be submitted to it, or to a district tax office.
Time: 1-3 days
Cost: no known charges
4. Open Commercial Bank Account
There was not much information available on starting commercial bank accounts in South Korea. Generally, documentation such as identification documents would be required, and may require an initial deposit, as well as the business registration number.
Generally a company will likely deposit capital in an exchange bank as mentioned earlier, and at this stage organize with the bank to transfer in the capital funds.
Time: 1 day
Cost: No charges
5. Establish an Office
It was not clear whether a branch is legally required to have a physical office in Korea. In any case, there appears to be no specific registration requirement of the office location with government authorities. Thus there is no estimated time or cost related to setting up a business (though of course there will be separate time and cost arranging lease agreements with a real estate agent or virtual office).
It seems that there is no restriction on using a virtual office as a business address or similar services in Korea.
Time: n/a
Cost: n/a
6. Register for Social Security Insurances
According to the National Pension Service website, since 1 Jan, 2011, the National Health Insurance Service (NHIS) has been collecting contributions for all social insurance programs (National Pension, Health Insurance, Employment Insurance, and Industrial Accident Compensation Insurance).
Korea has a mandatory state pension service which is contributed to by both employer and employee. The national pension scheme is run by the National Pension Service (NPS). All Koreans and foreigners aged between 18 to 59 who live and work in South Korea must contribute to the national pension scheme. A company only needs to start contributing when it has 5 or more employees (otherwise, employees must individually manage their own contributions).
Branches will be required by law to have some form of accident compensation insurance to cover any employees. The Korean Workers’ Compensation & Welfare Service states all workplaces subject to the declaration of WCI/EI relations shall submit a Declaration of WCI/EI Relations within 14 day after having started their business(es). An employer must report employment information including worker’s name, resident registration number, address, employment date, employment termination date, average monthly wages, etc. using “relevant declaration forms”; the reported information will be used to assess and bill relevant (insurance) premiums.
The employer must enroll and declare employees to the system. According to the NHIS, documents required include:
- Employee Health Insurance Application Form (Annexed Document Form: No. 27)
- Copy of the business registration
Presumably, details of employees and wages would also be required. The website and information is located at http://www.nhis.or.kr/static/html/wbd/g/a/wbdga0602.html however it does not appear provide more details of the exact procedure or where/how to enroll. The forms most likely need to be submitted to the NHIS, at least via post or in person. A listing of office locations can be found at http://www.nhic.or.kr/english/about/about04_5.html
Time: 1-3 days (estimate)
Cost: no known registration charges
7. File Rules of Employment
According to international HR consultancy Compandben, if a company has 10 or more employees in Korea its working conditions need to be documented in a “Rule of Employment” and this has to be filed with the Ministry of Labor and Employment. Either one “Rule of Employment” or different “Rules of Employment” can be created, split by working type or occupation type.
As with most other steps, while several sources mention the requirement to file at the ministry (e.g. Korean Law Blog or Reuters’ PLC Law Guide, among others), none provide any detail on the details of where or how to apply, or if there is any processing time or costs. It would be necessary to look up a local office of the ministry and apply there directly.
Time: 1-2 weeks (estimate)
Cost: no known registration costs
Liaison Office
A. Requirements/Restrictions
An ‘liaison office’ does not carry out business that generates profits in Korea, but instead undertakes a non-sales function such as market research, R&D etc.
While the liaison office does not need to incorporate or register like a company or branch office, it must still report to an exchange bank. According to InvestKorea, a liaison office must however register at the tax department, where it is granted a distinct number, equivalent to business registration, at a jurisdictional tax office in Korea. There is no restriction on foreign ownership.
B. Advantages/Disadvantages
The restriction on sales activities is the main disadvantage of a liaison office, as with the typical representative office structure. However, it is relatively simpler and less expensive to establish.
SEE STEPS INVOLVED
C. Registration Steps
1. File Notification to Exchange Bank
According to KoreaLaw, a liaison office does not need to formally register, however a notification must be reported to a designated foreign exchange bank. Or alternatively, InvestKorea states a financial business, must notify the Ministry of Strategy and Finance for permission of establishment of a financial business.
Usually required documents include:
- Company documents of head company
- Board resolution of setting up a branch office
- Certificate of appointment for the president of the liaison office
- The passport or ID card of the president of the liaison office
- Power of Attorney if a law firm is acting on the company’s behalf
2. Register at Tax Office for Business Registration Certificate
The branch must register at a tax office to obtain a business registration number. This process covers registering for tax such as sales and payroll tax.
Korea4expats reports that most foreign employees are required to pay Korean income taxes, which are generally withheld and paid by the employer. Meanwhile, according to a guide by KPMG, every business engaged in supplying of goods or services, whether or not for profit is required to register for VAT purposes by applying for a business registration certificate.
There was not much information available on the actual procedure. It seems that the forms can be downloaded from the national tax office’s website at http://www.nts.go.kr/eng/data/Application(Forms-2).pdf and must be submitted to it, or to a district tax office.
Time: 1-3 days
Cost: no known charges
3. Establish an Office
It was not clear whether a branch is legally required to have a physical office in Korea. In any case, there appears to be no specific registration requirement of the office location with government authorities. Thus there is no estimated time or cost related to setting up a business (though of course there will be separate time and cost arranging lease agreements with a real estate agent or virtual office).
It seems that there is no restriction on using a virtual office as a business address or similar services.
Time: n/a
Cost: n/a
4. Register for Social Security Insurances
According to the National Pension Service website, since 1 Jan, 2011, the National Health Insurance Service (NHIS) has been collecting contributions for all social insurance programs (National Pension, Health Insurance, Employment Insurance, and Industrial Accident Compensation Insurance).
Korea has a mandatory state pension service which is contributed to by both employer and employee. The national pension scheme is run by the National Pension Service (NPS). All Koreans and foreigners aged between 18 to 59 who live and work in South Korea must contribute to the national pension scheme. A company only needs to start contributing when it has 5 or more employees (otherwise, employees must individually manage their own contributions).
Employers will be required by law to have some form of accident compensation insurance to cover any employees. The Korean Workers’ Compensation & Welfare Service states all workplaces subject to the declaration of WCI/EI relations shall submit a Declaration of WCI/EI Relations within 14 day after having started their business(es). An employer must report employment information including worker’s name, resident registration number, address, employment date, employment termination date, average monthly wages, etc. using “relevant declaration forms”; the reported information will be used to assess and bill relevant (insurance) premiums.
The employer must enroll and declare employees to the system. According to the NHIS, documents required include:
- Employee Health Insurance Application Form (Annexed Document Form: No. 27)
- Copy of the business registration
Presumably, details of employees and wages would also be required. The website and information is located at http://www.nhis.or.kr/static/html/wbd/g/a/wbdga0602.html however it does not appear provide more details of the exact procedure or where/how to enroll. The forms most likely need to be submitted to the NHIS, at least via post or in person. A listing of office locations can be found at http://www.nhic.or.kr/english/about/about04_5.html
Time: 1-3 days (estimate)
Cost: no known registration charges
5. File Rules of Employment
According to international HR consultancy Compandben, if a company has 10 or more employees in Korea its working conditions need to be documented in a “Rule of Employment” and this has to be filed with the Ministry of Labor and Employment. Either one “Rule of Employment” or different “Rules of Employment” can be created, split by working type or occupation type.
As with most other steps, while several sources mention the requirement to file at the ministry (e.g. Korean Law Blog or Reuters’ PLC Law Guide, among others), none provide any detail on the details of where or how to apply, or if there is any processing time or costs. It would be necessary to look up a local office of the ministry and apply there directly.
Time: 1-2 weeks (estimate)
Cost: no known registration costs
Outsourcing Employment Through a GEO Employer of Record Service
Whether to incorporate in South Korea, and what sort of entity to setup are just two of the many choices companies must make when expanding into a new market.
If the company intends to have staff in South Korea they must also decide whether they will administer that employment internally or use a Global Employment Organization to handle payroll and Employer of Record responsibilities. A GEO Employer of Record solution is an attractive alternative where
- the company is looking to setup an office quickly
- the company wants to work within a defined budget
- the company wants to limit its initial commitment in South Korea
- the company needs help with tax, employment, immigration and payroll compliance in South Korea
The complexity of employment regulations in South Korea makes the use of a GEO advisable coupled with local legal counsel to ensure full compliance with employment laws, for example the drafting of local contracts for workers.
Shield GEO provides a comprehensive service in South Korea allowing companies to deploy their staff quickly with reasonable, clearly stated costs and timeframes. The company contracts directly with Shield to employ and payroll their staff on their behalf in South Korea.
Shield GEO then becomes the Employer of Record. Shield GEO assumes the legal responsibility for these employees, sponsoring them on work permits, complying with local employment law and running their monthly payroll. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into South Korea . Read more about outsourced employment through Shield GEO.
Read more about using Shield GEO for global outsourcing in South Korea
Summary of Set-Up Steps
| Subsidiary Company | Branch Office | Liaison Office | Time | Cost (KRW) | |
| Make Company Seal | Yes | – | – | 1 day | 30,000 |
| Designate Bank / Capital Deposit | Yes | Yes | Yes | 1 day | 0 |
| Register Company | Yes | – | – | 3 days | 12,000 (plus tax) |
| Register at Court Registry Office | – | Yes | – | 1-2 weeks | 0 |
| Business Registration | – | Yes | Yes | 1-3 days | 0 |
| Social Security Registration | Yes | Yes | Yes | instant | 0 |
| Open Commercial Bank Account | Yes | Yes | Yes | 1 day | 0 |
| Establish an Office | Yes | Yes | Yes | n/a | n/a |
| File Rules of Employment | Yes | Yes | Yes | 1 day | 0 |
| TOTALS:*applications and processing times, not including internal document preparation, lawyer fees, etc | Subsidiary7 days42,000 | Branch11-20 days0 | Liaison4-7 days0 |
Conclusion
The most common kinds of entry into South Korea are through a subsidiary company, branch office or liaison company. A foreign owned local corporation is recognized as a ‘foreign investment’ under the Foreign Investment Promotion Act in South Korea.
Due to the introduction of ‘Start-Biz’; registering and setting up a corporation is now manageable from a one-stop source which can connect the various bodies from registration to tax. Branch and liaison offices do not appear to be registered through this unified system, making subsidiary corporations possibly the easiest and most secure company form for foreign investors.
