There are three types of a foreigner's advancement into Korea for the purpose of operating business: the establishment of a local corporation or a private business by a foreigner or a foreign corporation; or the establishment of a local branch or a liaison office in Korea by a foreign corporation.
How to advance into Korea
|Incorporation Type||Related Regulation||Note|
|Local Corporation||Foreign Investment Promotion Act||Recognized as a foreign investment|
|Branch||Foreign Exchange Transactions Act||Categorized as a domestic branch of the foreign corporation|
Comparison of Foreign investment and Domestic branch of foreign corporation
A Foreign-Invested Company under the Foreign Investment Promotion Act
Establishment of a local corporation in Korea by a foreign national or a foreign corporation is regulated by the Foreign Investment Promotion Act and the Commercial Act. A foreigner shall invest not less than 100 million won for the local corporation concerned to be recognized as foreign investment under the Foreign Investment Promotion Act.
Private business established by a foreigner with the investment of not less than 100 million won is also recognized as foreign investment under the Foreign Investment Promotion Act. (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.)
Domestic Branch of a Non-resident (a foreign company, etc.) under the Foreign Exchange Transactions Act
A 'branch' operates business that generates profits in Korea, and is not recognized as foreign direct investment. 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. An 'office' is granted a distinct number, equivalent to business registration, at a jurisdictional tax office in Korea without the need for registration, which is different from a 'branch.'
|Category||Foreign-Invested Company||Domestic Branch of a Foreign Company|
|Act||Foreign Investment Promotion Act||Foreign Exchange Transactions Act|
|Corporation Type||Domestic corporation||Foreign corporation|
|Identity||Foreign investors and foreign-invested companies are of separate entities (independent accounting & settlement)||Headquarters and branches are of a single entity (the same accounting & settlement)|
|Authorities in charge of accepting registration and granting permission||Invest KOREA (KOTRA) or headquarters of a foreign exchange bank||Headquarters of a foreign exchange bank for registration, and the Ministry of Strategy and Finance for permission of establishment of a financial business|
|Minimum/Maximum Investment||Minimum of KRW 100 million per investment (No upper limit)||No limit in investment amount|
|Scope of Tax Obligations||Tax obligations for all domestic and overseas income Corporate tax rate: 10% for KRW 200 million or less, 20% for over KRW 200 million and 20 billion or less, 22% for over KRW 20 billion||Tax obligations for income from domestic sources only Corporate tax rate: 10% for KRW 200 million or less, 20% for over KRW 200 million In some cases, branch tax shall be paid.|
Establishment of Local Corporation
The Procedure for Local Corporation Establishment
The procedures of local corporation establishment consist of foreign investment report, registration of the establishment of a corporation, business registration and registration of a foreign-invested company, which are the same with the foreign investment procedures. The following is the procedures of company establishment and business registration which are significant in establishing a local corporation.
The Procedure for Stock Company Establishment
Partnership company, joint stock company, limited liability company, stock company and incorporated company are recognized as companies under the Commercial Act. As most companies fall into the category of "stock company."
There are two types of stock company establishment: promotion of incorporation and subscriptive incorporation. Promotion of incorporation means that promoters subscribe for all of the shares issued at the time of incorporation. Subscriptive incorporation means promoters do not subscribe all the shares issued at the time of incorporation and offer shares for subscription.
When you decided on how to establish a stock company, let us know that we send you a 2-3 page form for stock company registration. It typically takes 2-5 business days to get a company registered.
The cost of registration is 600,000 KRW excluding related taxes. The taxes will need to be paid as followings,
|Registration Tax||0.4% of the capital, 3 times when a stock company is established in an overpopulation control area||1,200,000 won|
|Local Education Tax||20% of registration tax||240,000 won|
|Revenue Stamp of Supreme Court||Fee for registration application||30,000 won|
|Notarization Fee||Articles of association, etc. (exempted in case of promotion of incorporation whose capital is KRW 1 billion or less)||Approx. 150,000 won|
|Total||Approx. 1,620,000 won|
Establishment of a foreign company’s domestic branch
There are two types of domestic branches: a branch and a liaison office. A branch undertakes sales activities in Korea to generate profits. Meanwhile, a liaison office does not conduct sales activities to create profits, but instead carries out non-sales functions such as business contacts, market research, R&D, etc. Liaison offices can carry out quality control, market surveys, advertisements, and other incidental and supportive roles. However, they are limited in their scope of activities, since they are not allowed to sell products directly, or to stock inventory for sale on behalf of the headquarters.
The cost of registering foreign branch is also 600,000 KRW excluding related taxes. The taxes are the same as local corporation.
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