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29 APR 2024

South Korea Company Formation

TOPIC : Business in Korea Incorporation

Almost anyone, be it an individual or a foreign entity, can start a business or form a company in South Korea. The type of business entity established depends on the nature of operations and compliance with relevant laws and regulations. Our services ensure high standards, with certified Korean legal experts overseeing the initiation, registration, and incorporation process.

For foreign investors considering company formation in South Korea, the following steps are essential:

1. Choosing the Business Structure

Decide between a Limited Liability Company (LLC) or a Joint Stock Company (JSC), with the former suitable for small to medium-sized enterprises and the latter for larger corporations.

- Local Corporation:

- This category includes Korean-owned companies, which are the most common type in South Korea.

- No minimum capital is required, unlike the Foreign Direct Investment Company option.

- Two types of businesses can be established under this category: Joint Stock Company and Limited Liability Company.

- Joint Stock Company allows for publicly issued shares and limited shareholder liability.

- Limited Liability Company is closely held with a maximum of 50 shareholders, and their liability is limited to their share capital.

- Foreign Direct Investment Company:

- Foreign individuals and companies can establish a local corporation with a minimum capital requirement of 100 million KRW.

- These companies may receive certain advantages under Korean law based on their activities.

- Branch Office:

- Viewed as a foreign corporation, where the foreign headquarters and Korean branch are legally one entity.

- Subject to the same tax laws and rates as domestic Korean companies.

- Liaison Office:

- Also considered a foreign corporation, primarily serving foreign investors not immediately conducting business in South Korea.

- Activities are restricted to non-commercial tasks like market research and marketing.

- Mandatory registration with the appropriate tax office.

2. Naming the Company

Ensure the chosen name is unique, written in Korean characters, and compliant with Korean laws and regulations.

3. Obtaining a Business Registration Number

Submit a business registration application to either the Korean Trade Register or the KIPO.

4. Getting a Corporate Seal

Obtain a corporate seal from a registered seal maker in South Korea, necessary for signing contracts and legal documents.

5. Registering for Taxes

Every company in South Korea must register for taxes with the National Tax Service (NTS), including obtaining a tax identification number and registering for value-added tax (VAT) and corporate income tax.

Once registration with the Korean government is complete, foreign investors are ready to launch their business operations in South Korea.

Compliance with Labor Laws and Investment Climate in South Korea

Ensuring compliance with strict labor regulations and fostering an attractive investment environment are key priorities for foreign investors recruiting a workforce in South Korea. The legal framework primarily revolves around the Labor Standards Act and the Employment Permit System, guiding employment practices.

Key considerations for foreign investors include:

1. Employment Contracts: Craft comprehensive employment contracts covering job roles, compensation, working hours, and termination clauses.

2. Working Hours: Adhere to the statutory 52-hour workweek, ensuring employees receive at least one day off per week.

3. Minimum Wage: Observe the minimum wage set at KRW 9,160 per hour as of 2023.

4. Employment Visas: Secure employment visas for foreign workers, with employers responsible for visa applications.

5. Labor Unions: Recognize and uphold employees' rights to unionize given the prevalence of labor unions in South Korea.

Tax Regulations and Investment Opportunities in South Korea

South Korea offers a range of tax incentives and investment prospects to attract foreign investment, supported by initiatives like the Foreign Investment Promotion Act (FIPA) and Free Trade Agreements (FTA).

Highlighted benefits include:

1. Tax Incentives: Access corporate tax rate reductions, income type exemptions, and tax credits for research and development activities.

2. Investment Incentives: Access financial aid, subsidies for land acquisition, and government-backed loan guarantees to support investment projects.

3. Free Trade Agreements (FTA): Benefit from tariff reductions and eased trade barriers under South Korea's FTAs.

4. Foreign Investment Promotion Act (FIPA): Streamlined administrative processes, enhanced access to government support, and simplified approval procedures for foreign investors.

5. Special Economic Zones (SEZs): Enjoy tax breaks, regulatory simplification, and other incentives in SEZs across South Korea.

Strategic Engagement with Korean Business Culture

In addition to understanding legal and regulatory frameworks, foreign investors must navigate Korea's unique business culture, emphasizing hierarchy and collectivism.

Effective strategies include:

1. Cultivating Personal Bonds: Build trust and personal connections with Korean counterparts.

2. Honoring Hierarchy: Show deference to seniority and authority through language and behavior.

3. Exercising Patience: Develop trust over time through patience and persistence.

4. Preparing for Negotiations: Thoroughly prepare and understand potential risks and benefits before negotiations.

5. Language Proficiency: Basic language skills can facilitate rapport-building and convey respect for Korean culture.

Embracing these cultural insights enhances foreign investors' effectiveness in navigating the Korean business landscape.

Conclusion

Pearson & Partners Korea specializes in facilitating the establishment and incorporation of foreign enterprises in South Korea. We offer comprehensive support, including selecting the best registration structure, providing necessary documentation, assisting in bank account setup, VAT registration, and visa applications for foreign managerial personnel.

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South Korea's Robotics Industry: Innovation and Investment Opportunities

The global landscape has propelled South Korea's Robotics sector to the forefront of innovation and growth. This article delves into what makes South Korea a prime destination for investment in Robotics. This advanced industry integrates connectivity, intelligence, and interaction, driving digital transformation across sectors. The convergence of manufacturing robots with AI, cloud technology, and the rise of service robots, particularly in response to post-COVID-19 changes in non-face-to-face services, highlights its versatility in addressing societal needs like welfare, safety, and logistics. Analyzing South Korea's Robotics Sector South Korea's Robotics industry epitomizes high-tech innovation, blending connectivity, intelligence, and interaction to drive digital transformation across industries. AI, cloud technology, and advanced manufacturing processes in South Korean Robotics usher in a new era of sophistication and productivity in manufacturing, setting higher standards for intelligent production. The surge in service robots post-COVID-19 underscores their role in addressing societal challenges such as welfare and logistics, further cementing Robotics' importance. The industry's integration across sectors requires significant technological expertise, creating substantial barriers to entry and establishing a competitive global market dominated by major players like China, Japan, the United States, Germany, and South Korea. Despite entering later than others, South Korea excels in collaborative robotics, leveraging AI and autonomous driving to expand applications and solidify its position in the competitive landscape. In essence, South Korea's Robotics industry thrives on innovation, sophistication, and adaptability, driving its dynamic evolution. Exploring the Future of the Korean Robotics Sector The Korean Robotics industry is poised for substantial global growth, with both its manufacturing and service segments making significant advancements, reflecting a consistent upward trend projected to continue. Globally, the robotics market, valued at $24.3 billion in 2020 ($13.2 billion for manufacturing robots and $11.1 billion for service robots), has shown impressive growth rates in recent years. Manufacturing robots grew by 8.5%, while service robots surged by 10.2% from 2015 to 2020. Forecasts indicate further expansion, with the global manufacturing robot market expected to reach $17.9 billion by 2024 and the service robot market to grow to $16.2 billion (World Robotics 2021, IFR). Domestically, South Korea's robotics industry has demonstrated steady growth, reaching approximately 5.5 trillion KRW in sales in 2020, with an average annual growth rate of 5.4% from 2015 to 2020. Projections anticipate significant growth, with sales expected to reach 6.7 trillion KRW by 2024. The manufacturing segment is forecasted to grow by 2.1%, service robotics by 6.4%, and robot parts by 11.7%. To support this growth trajectory, the Ministry of Industry has implemented strategic policies aimed at nurturing the robotics industry. The formulation of the 3rd Basic Plan for Intelligent Robots (2019-2023) underscores the government's commitment to positioning South Korea among the top four global leaders in robotics. This initiative aims to achieve a domestic robot market size of 15 trillion KRW by 2023, distribute 700,000 units of manufacturing robots, and foster at least 20 specialized companies with annual sales exceeding 100 billion KRW. References: KIRIA, Invest Korea Advantages of Investing in the Korean Robotics Sector Investing in the Korean Robotics sector offers numerous benefits, making it an attractive destination for investors and entrepreneurs seeking to capitalize on opportunities in this dynamic field. South Korea's strengths across various dimensions enhance its appeal as a prime investment hub in robotics. 1. Strong Ecosystem of Related Industries South Korea's manufacturing sector, which accounted for 25.4% of GDP in 2020, ranks second globally. This robust industrial foundation fosters innovation and technological advancements, providing a strategic platform for the growth of the robotics industry. 2. Abundant Skilled Workforce South Korea boasts a significant pool of skilled human resources, ranking first globally with 16.6 researchers per 1,000 economically active individuals in 2020. This surplus of researchers underscores the country's commitment to research and technological progress, facilitating innovation within the robotics sector. 3. Diverse Investment Incentives The Korean government offers various incentives to attract and support investors, including tax relief, cash support, and location-based assistance. These incentives aim to alleviate financial burdens and create a supportive environment for investors entering the robotics industry in South Korea. 4. Government Support for Industry Development The government actively supports the robotics industry, designating 11 regions as specialized hubs for robotics businesses and projects. This commitment is evident in initiatives and policies aimed at fostering innovation and advancing the industry. 5. Extensive Free Trade Agreement Network South Korea's extensive Free Trade Agreement (FTA) network, encompassing agreements with 59 countries as of 2022 and ongoing negotiations with over 10 countries, provides a significant advantage for investors. This network facilitates global expansion opportunities, enhancing the import and export of robotics technology and products. Combined, these advantages position South Korea as an appealing and supportive destination for investors looking to establish a robust presence in the dynamic and evolving robotics industry. Strategic Guidance for Global Investors and Entrepreneurs 1. Cultivate Strategic Partnerships and Collaborations: Building alliances with local Korean companies or research institutions is a proven strategy for success in South Korea's Robotics industry. These partnerships provide access to shared expertise, insights into the local market dynamics, and opportunities to customize products to meet specific consumer needs. South Korea's focus on collaborative robots, emphasized in the World Robotics 2021 report, offers foreign investors avenues to leverage unique expertise and cultural insights, potentially accelerating market entry. 2. Leverage Government Support and Incentives: Utilizing South Korean governmental support and incentives can significantly impact the success of foreign investors. The government actively promotes the robotics industry through initiatives such as tax relief, financial grants, and dedicated organizational frameworks. These incentives have played a crucial role in driving industry expansion, evident in the ambitious targets set forth in the Robotics Industry Survey. Aligning business strategies with governmental initiatives can provide strategic advantages for investors aiming to establish a foothold in South Korea's dynamic robotics market. Conclusion South Korea's Robotics industry stands at the forefront of global innovation and growth. This article has explored the sector, highlighting South Korea's pivotal role and the investment opportunities within the dynamic field of robotics. The industry's advanced capabilities, including connectivity and intelligent technologies, address critical societal challenges, underscoring its significance. For global investors, South Korea's Robotics industry presents a promising arena. Its strategic ecosystem, skilled workforce, governmental backing, and expansive Free Trade Agreement network underscore its attractiveness. Pearson & Partners, a consulting firm specializing in facilitating expansion into Korea, offers incorporation and tax accounting services. Contact us for expert guidance in navigating South Korea's Robotics industry landscape.

Set Up A Company in Korea: Foreign Investor Guidelines

Foreign investors exploring business opportunities in South Korea face a promising landscape. The government supports company registration, but understanding regulatory requirements is crucial. This article outlines the basics of setting up a company in South Korea for foreign investors. Can Foreigners Set Up a Company in Korea? The government allows foreign investors to register companies in South Korea, but compliance with government policies is essential. According to these policies, businesses registered by foreigners can be wholly owned, granting you complete ownership of your business. For instance, foreigners can establish a South Korean Limited Liability Company (LLC). The requirements for registering such a company are minimal and include:* One director of any nationality * One shareholder of any nationality * A legally registered office address There is no minimum capital requirement for setting up a company in Korea. However, if you wish to apply for an investor visa (D-8) and move to Korea, you must invest KRW 100 million (approximately USD $90,000) into the company as stipulated by the Foreign Investment Promotion Law (FIPL). Basic Types of Foreign Investors As a foreign investor looking to start business operations in Korea, selecting and establishing the right type of entity is crucial. The options include a liaison office, branch office, or subsidiary, and this choice should be based on three factors: (i) the scope of activities planned in Korea; (ii) the need for limited liability; and (iii) tax considerations. Liaison Office and Branch Office A liaison office is the most restrictive in terms of activities, as it can only perform non-taxable activities on behalf of its overseas head office. Therefore, it cannot engage in taxable activities such as sales or business support services. Additionally, since a liaison office is not legally separate from its overseas head office, the head office is fully liable for any obligations of the liaison office in Korea. Similarly, a branch office does not provide liability protection. However, unlike a liaison office, a branch office can engage in taxable activities and is subject to Korean corporate income tax and VAT on its taxable activities and income. Subsidiary Establishing a subsidiary is typically aimed at actively engaging in sales within Korea. A subsidiary offers limited liability protection as it is a separate legal entity from its parent company. It is subject to Korean corporate income tax at the same rates as a branch office. Additionally, foreign investors are generally subject to a 22% withholding tax on dividend income from a Korean subsidiary, unless an applicable tax treaty specifies a different rate. Foreign investors usually choose from three main corporate forms for their subsidiaries: (i) a joint stock company (“Jusik Hoesa” in Korean); (ii) a limited company (“Yuhan Hoesa” in Korean); and (iii) a limited liability company (“Yuhan Chaegim Hoesa” in Korean). 1. Joint Stock Company ("Jusik Hoesa" in Korean) A joint stock company raises equity capital by issuing "shares," which are typically securitized and can be freely traded. If it meets certain criteria, it can be listed on a stock exchange. This type of company is suitable for attracting external investment as it can issue bonds to raise capital from third parties. Shareholders' liability is limited to their contributions and they are not responsible for the company's debts. Shareholders can vote at general meetings based on the number of shares they own. A joint stock company with capital of KRW 1 billion or more must establish a board of directors and appoint a statutory auditor. 2. Limited Company ("Yuhan Hoesa" in Korean) Members of a limited company have limited liability and can vote at general meetings based on their units of contribution, similar to shareholders in a joint stock company. However, the transfer of equity interests may be restricted by the company's articles of incorporation. A limited company cannot securitize or list its equity interests on a stock exchange or issue bonds. Key decisions are made at general meetings of members. Only one or more directors are required, and there is no need for a board of directors or a statutory auditor, allowing for operation by a small number of members and officers. 3. Limited Liability Company ("Yuhan Chaegim Hoesa" in Korean) A limited liability company offers more operational and managerial autonomy compared to the other types. Members must generally obtain consent from others to transfer their equity interests unless stated otherwise in the articles of incorporation. Management requires only the appointment of a managing member. Equity interests in a limited liability company cannot be securitized or listed on an exchange, and issuing bonds is generally not practiced. This form is less common and some legal principles are still developing, as it was introduced through a recent amendment to the Korean Commercial Act. Advantages and Disadvantages of Establishing a Company in South Korea Advantages 1. Strong Economy: South Korea's strong and stable economy ranks in the top 10 globally by GDP, making it an appealing destination for investors. 2. Well-Educated Consumers and Labor: With high literacy and secondary education rates, South Korea offers a well-educated workforce. While Korean is the primary language, many people understand and speak basic English. The advanced education system and strong R&D capabilities facilitate finding qualified employees. 3. Ease of Doing Business: South Korea is ranked 5th out of 190 economies for ease of doing business by the World Bank in 2023. This makes company registration and operation relatively straightforward. 4. Strong Market Demand: As a top 10 market for eCommerce, South Korea is an attractive destination for online businesses. 5. Strategically Located With Great Infrastructure: South Korea's position between Japan and China offers an ideal location for companies seeking a base in Asia. The country boasts modern infrastructure and the fastest internet speeds, enhancing business efficiency. 6. Advanced Infrastructure: The country's advanced infrastructure, including efficient transportation networks and telecommunications systems, supports business operations and connectivity with customers and suppliers. 7. Multiple Free Economic Zones: South Korea has designated Free Economic Zones to improve the business environment for foreign investors through deregulation initiatives. These zones make company formation in South Korea highly profitable for investors. Disadvantages 1. High Labor Cost: Labor costs in South Korea are among the highest in Asia, with average salaries starting from US$3,000 and above. 2. Limited Market Access: While South Korea has free trade agreements with some countries, not all are included. This can limit the export potential for businesses based in South Korea. 3. Competition: South Korea's market is highly competitive, with numerous local and international companies across various sectors, making it challenging for new businesses to establish themselves. 4. Monopoly by Large Conglomerates: Many sectors, including energy, electronics, manufacturing, and technology, are dominated by large local conglomerates, which can be a barrier for new entrants. Conclusion Establishing a company in South Korea offers both advantages and challenges. By understanding regulations, exploring entity types, and weighing pros and cons, foreign investors can navigate the process effectively and tap into South Korea's dynamic market. Contact us for assistance in navigating any hurdles you encounter throughout this process.

Registering a Company in Korea: Key Steps and Considerations

Navigating the company registration process in Korea requires a thorough understanding of the legal framework and procedural steps. Each stage, from choosing the right business structure to meeting documentation requirements, is crucial for establishing a successful business. This guide outlines essential considerations for foreign investors aiming to register a company in Korea. Prerequisites for Company Registration To register a company in Korea, you must meet specific prerequisites: 1. Capital Allocation: Determine the necessary initial capital based on your business structure and sector. Ensure you have the funds or a plan to secure financing. 2. Business Proposal: Create a detailed business proposal, including business nature, market analysis, target audience, and financial forecasts. 3. Identification Documents: Prepare identification for all involved individuals, such as passports or identity cards. Foreign nationals might need additional documents like a visa or Alien Registration Card (ARC). 4. Office Address: Secure a registered office address in Korea, either physical or a virtual office that offers a professional business address and services. Types of Business Entities in Korea Foreign investors can choose from seven types of business structures: 1. Limited Company: Popular among foreign investors, this entity can have up to 50 shareholders with liability limited to their share capital. 2. General Partnership: Partners share unlimited liability and joint responsibility for debts. Ownership transfer requires unanimous approval. 3. Limited Liability Partnership: Partners can have limited or unlimited liability. Limited partners cannot make business decisions, while those with unlimited liability manage daily operations. 4. Joint Stock Company: Shareholders’ liability is limited to their capital investment. Stock transfer is unrestricted with board approval, and annual shareholder meetings are mandatory. 5. Branch Office: A local extension of a foreign parent company, conducting business activities but not a separate legal entity. 6. Representative Office: Fully foreign-owned, it conducts promotional and market research activities but cannot engage in direct sales. Key Steps for Registering a Business in Korea 1. Choose the Right Business Structure: Select a structure that fits your business needs regarding liability and management. 2. Select and Register a Company Name: Ensure the name is unique and reflective of your business, then register it with the South Korean company registry. 3. Draft Articles of Association: Outline your company’s operational rules, including purposes and responsibilities. Notarize the document before incorporation. 4. Submit Required Documents: Provide the articles of association and other necessary documents to the South Korean registry, and pay incorporation fees. 5. Obtain a Business License: After incorporation, acquire a license from relevant authorities. 6. Register for Tax and Social Security: Register with the National Tax Service and the National Pension Service. 7. Comply with Ongoing Obligations: File annual reports and hold shareholder meetings to stay compliant. Steps to Register a Limited Liability Company 1. Notify the Foreign Exchange Bank (FEB): Inform FEB of your investment, providing necessary identification. 2. Transfer Share Capital: Deposit your investment capital in a temporary FEB account. 3. Register the Company: Register with the Korean court, providing required documents. Obtain a certificate of incorporation. 4. Register with the Tax Office: Complete business registration with the tax office. 5. Open a Corporate Bank Account: Transfer capital to the company’s account. 6. Register as a Foreign Direct Investment (FDI) Company: Complete FDI registration with FEB within 30 days of capital payment. Conclusion Registering a company in South Korea involves multiple steps, from government registration to obtaining a business license. Understanding these steps and the challenges posed by Korea’s evolving regulatory landscape is crucial. Pearson & Partners offers expertise in navigating these processes, ensuring a smooth incorporation experience. Contact us for assistance with your South Korean company registration.

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