Korea Liaison Office Registration Guide for Foreign Enterprises

TOPIC : Business in Korea Incorporation Taxation & Accounting

For domestic liaison offices, no business activities take place, and only a unique identification number is issued. Court registration is unnecessary. To proceed, a foreign company needs to prepare a foreign corporate registration certificate and board meeting minutes. However, all documents in a foreign language must undergo translation and notarization. In fact, the crucial aspect of establishing a branch in Korea for international companies is the translation and notarization process of various documents in multiple foreign languages and the native language.

Prerequisites for Registration Procedures

If a foreign company intends to establish a liaison office in Korea, it must follow these steps:

1. Submit a report on the formation of a liaison office to a Korean bank.

2. After the report submission, the foreign enterprise must inform the tax office of the liaison office's establishment and complete the registration process.

Both of these steps typically take 2-3 days each after submitting the necessary paperwork and information. Consequently, the entire process may span up to a week, as detailed in the Government’s guide to establishing a foreign company in Korea.

Essential Documents

The formalities for establishing a liaison office entail submitting various documents, all of which must be in English. In some cases, these documents may require translation into Korean for submission to relevant government agencies in Korea.

Documents needed when notifying a foreign exchange bank include:

1. Articles of incorporation of the head office (certification required for the country of the head office) a. For corporations: Articles of incorporation of the head office b. For private businesses: Financial statement inspected by a licensed public accountant

2. Notification form to institute the formation of a foreign company

3. Appointment letter addressed to the head of a domestic branch, along with a copy of their passport or certified copy of resident registration

4. Power of attorney authorizing the establishment of a domestic branch to another individual (certification required in the country of the head office)

5.Attested copy of the company registry or a business license (If filing a copy, it may need certification in the country of the head office.)

6. Certificate of the resolution of the board of directors (minutes supporting the resolution to set up a regional branch in Korea)

Authorized Operations for a Liaison Office

When foreign companies establish a liaison office in Korea, a crucial consideration involves understanding the permissible activities and the legal regulations governing its establishment and registration.

In accordance with its designation as a 'liaison office,' this entity lacks authorization to engage in profit-generating functions, such as direct sales or any sales-related activities conducted on behalf of the headquarters. The permissible activities for a liaison office are confined to primary and secondary functions, including publicity, information gathering, and contributing market intelligence and research.

Should a liaison office venture into sales activities, it risks being deemed an integral part of the head office's operations, subjecting it to Korean taxation based on the income or profit generated in Korea as per the Corporate Income Tax Act of Korea. This entails acquiring an identification number from the relevant tax office, akin to a business entity registration number.

Establishing a liaison office in Korea is notably straightforward, devoid of registration requirements or initial equity obligations. However, the foreign company initiating a liaison office must report to a designated foreign exchange bank to facilitate fund movement between the head office and the liaison office.

It's crucial to emphasize that if a foreign company intends to conduct income-generating business operations, opting for a branch office instead of a liaison office is imperative. Additionally, a branch office necessitates registration with a court registry office.

Tax Responsibilities of a Liaison Office

Given that a liaison office does not generate income in Korea, it enjoys exemption from corporate income tax and is not obligated to file corporate income tax returns in Korea. However, it assumes the responsibility of withholding payroll income tax as an employer for employees compensated by the liaison office.

While a liaison office is not required to report and collect Value Added Tax (VAT), it must cooperate with the relevant tax agencies as mandated by law. Despite this, the liaison office must remit VAT to Korean dealers (Input VAT) when procuring goods or services in Korea.

Notably, a liaison office cannot seek a refund for input VAT; instead, it can treat it as additional costs or expenditures. To be exempted from tax payments, the liaison office must submit an application to the tax office for a business tax code number.

Operational Funding

Since a liaison office in Korea doesn't generate income locally, the funds needed to sustain its activities are typically transferred from its head office. Generally, repatriating operational funds to the home office is not allowed unless the liaison office ceases its operations and liquidates all assets in Korea.

Conclusion

To sum up, the regulatory framework specified by the Korean Foreign Exchange Transaction Law offers a structured approach for establishing liaison offices within the country. The unique attributes of a liaison office, such as its restriction to non-sales activities and exemption from certain taxable criteria, provide foreign companies with a strategic means for establishing a presence and obtaining operational support in Korea. Following the outlined prerequisites and essential documentation in the registration procedures ensures a smooth and compliant establishment process, with careful attention to permissible activities and tax obligations.

Pearson & Partners, a consulting firm specializing in assisting companies in expanding into Korea, offers comprehensive incorporation and tax accounting services. Utilizing our expertise, we assist foreign enterprises in navigating the complexities of setting up a liaison office, ensuring compliance with legal requirements, and facilitating a seamless integration into the Korean business landscape. For personalized assistance and expert insights, reach out to us.

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Business Establishment in Korea: Strategies and Insights

This article provides essential insights for foreigners interested in starting a business in Korea, particularly in Seoul, a prime location for global business with promising growth prospects. The country's effective post-COVID economic management has increased its appeal to foreign entrepreneurs. Expatriates bring innovative business ideas and a dedication to adding value to the Korean market. However, a strong business plan alone isn't enough for setting up a business in Korea. Foreigners need to understand the intricacies of establishment and operation in the country. The article explores four types of companies foreigners can consider when starting a business in South Korea. Starting a Business in South Korea This type of company setup is suitable for foreigners or entities operating under foreign laws, including those involved in cooperative economic development for foreign governments. Starting a business in South Korea, also known as establishing a local corporation or an FDI (Foreign Direct Investment) company, allows entities to expand their business and explore new opportunities in the country. Governed by the Foreign Invest Promotion Act (FIPA), a foreign subsidiary follows the same corporate and legal criteria as domestic companies. Compliance with FIPA facilitates recognition as an FDI, granting access to tax incentives, financial subsidies, and industrial facilities support. To qualify for foreign investment under FIPA, a foreign investor must inject over KRW 100 million into a company owned and managed by a Korean citizen. Common business structures for South Korean subsidiaries include partnerships, limited partnerships, limited liability companies, stock companies, and limited companies. Foreigners often prefer limited liability companies and stock companies due to their simplified regulatory processes and straightforward incorporation procedures. 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Coupang in Korea: Intellectual Property Rights Policy

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