South Korea boasts the 10th largest
GDP globally, reaching $1.66 trillion in 2021. Despite its size, it has secured
a top spot by embracing foreign participation in its economy. This openness
attracts many foreigners keen on establishing businesses in Korea. However,
navigating the Korean business landscape differs significantly from the UK or
US. Expect greater governmental involvement and paperwork requirements.
Adherence to distinct sets of laws is crucial for a seamless operation in this
dynamic Asian business hub.
Despite
the initial hurdles, venturing into the Korean market is rewarding. It's one of
the world's most vibrant and rapidly evolving business environments. Moreover,
South Korea is actively expanding its reach, targeting not only Southeast Asia
but also Europe and the US. Consequently, Korean companies are eager to forge
partnerships and collaborations with firms that can tap into these markets.
Four essential tips to consider before launching a business in Korea.
1. Need to Understand the Korean Visa
If you don't hold an F2,
F4, F5, or F6 visa (long-term residence, permanent residency), it's necessary
to change your visa to either a D8 or D9. Here are the South Korean visa types
eligible for conversion to a D8 or D9 visa.
D8 or D9 Visa
- Corporation investment,
minimum of 100 million KRW
- Restaurant investment,
minimum of 300 million KRW
- Private investment,
minimum of 300 million KRW
Navigating
the visa process can be challenging, underscoring the importance of having a
knowledgeable partner to assist you. Moreover, regulations may undergo frequent
changes, emphasizing the need for staying updated and vigilant throughout the
visa procedure.
2. You need to consider the Types of Corporations
Local Corporation (Direct Investment
by Foreigner)
This refers to when a
person of foreign nationality invests over 100 million KRW to establish a legal
entity in Korea. Despite the significant paperwork involved in the
establishment process, it offers legal protection, facilitates capital flow,
enables access to external credit, and presents various other benefits. It
typically takes at least two months to commence business operations in Korea. I
recommend incorporating your company as a limited liability company, similar to
an LLC in the United States. You'll need at least one director and shareholder,
who don't necessarily have to be Korean. Once established, you can apply for an
entrepreneur D-8 Visa.
Local Branch of Foreign Corporation
This approach involves
expanding business operations into South Korea by completing establishment
procedures in accordance with the Foreign Exchange Transaction Act. By
appointing a representative for the Korean branch, a foreign corporation can
conduct general business activities in South Korea. As the branch engages in
activities that generate profits in South Korea, it will be recognized as a
permanent establishment, subject to the same corporate tax rate as any other
legal entity. Regarding accounting, the balance of the Korean branch falls
under the oversight of the overseas headquarters, and discrepancies may lead to
tax implications in both the home country and the branch's location. Tax
obligations apply to income derived domestically from South Korea. Labor laws
and tariffs vary depending on factors such as employee deployment from the
headquarters, origin of invoices, and invoice volume.
Liaison Office
Unlike a
branch office, a Liaison Office is restricted to non-sales activities such as
marketing, market research, and networking. It cannot engage in direct sales or
inventory maintenance. While a registration number is issued by the tax office
of your jurisdiction, the registration process is less complex compared to
establishing a local corporation or branch office. However, like a branch
office, a Liaison Office is considered a foreign corporation.
Individual Business (Direct Investment by Foreigner)
Starting, closing, and
temporarily suspending an individual business are relatively easier processes.
However, individual businesses may face limitations in obtaining loans and
hiring employees due to lower external credit. Additionally, only certain visa
types allow for the establishment of individual businesses.
3. Opening a Korean Bank Account
Opening a bank account in Korea can pose challenges. It's
essential to have a partner or someone proficient in Korean to assist you
through the process. The information required varies depending on the type of
account being opened, but certain documents are consistently necessary. When
visiting a Korean bank to set up your account, expect to provide:
- Proof of business registration
- Company seal (stamp)
- CEO's signature
- CEO's identification
- Company ownership information
- Alien Registration Card
(ARC Card)
The Major Banks
in Korea for Foreigners
There's a variety of banks in South
Korea to consider. I suggest selecting from these four options:
- Shinhan Bank
- Hana Bank
- Kookmin Bank
- Woori Bank
All of
them offer online banking services, granting access to transaction history and
prompt payment processing. Hana Bank accommodates foreigners by offering
banking services even on Sundays, which can be particularly convenient for
those unable to visit during weekdays.
4. Understanding the Korean Culture
As you engage in business activities
in Korea, it's crucial to acquaint yourself with several cultural norms.
Understanding the traditions and customs of the country, particularly in
everyday interactions and communication, can be immensely beneficial. It's
essential to observe Korean holidays, special occasions, and cultural
practices. Adhering to proper business etiquette and showing respect for elders
is paramount.
Moreover,
this knowledge will enable you to design a comprehensive benefits program
tailored to the needs of your Korean employees, promoting their welfare.
Additionally, by embracing Korean culture, you can impress your business
partners and demonstrate your respect for their customs, ultimately gaining a
competitive edge for business growth.
Conclusion
Entering the Korean market presents significant
opportunities, but it requires careful consideration and preparation.
Understanding the visa process, selecting the appropriate business entity,
navigating banking procedures, and embracing Korean culture are essential for
successful business establishment. By adhering to these key guidelines and
comprehending the complexities of doing business in Korea, companies can thrive
in one of the world's most dynamic and rapidly evolving business environments. For further assistance, please don't hesitate to contact us.
