Rising overseas trade has been the driving force behind Korea’s out of the ordinary economic boom. No wonder, since it signed its first Free Trade Agreement (FTA) with Chile in the April of 2004, Korea has seen consistent growth in its network of FTA’s, all over the world. This is why Korea has become a major FTA nation that has a huge FTA network across the world.
Korea is one of its kind country in the world that has FTAs with all of the key economic alliances around the globe, as well as the United States, the European Union, the ASEAN (Association of South-East Asian Nations) and China. Therefore as an entrepreneur, you get to benefit from an FTA privileged duty rate when bringing in goods and services into Korea from almost every principal export nation.
Taking into account this remarkable growth, the Korea department of customs and similar laws have changed a lot and compliance requirements actually mean business do to business in Korea.
1. Prior to the conclusion of formalities for incorporating a company in Korea, it is mandatory to get the lease agreement for office premises reviewed and approved by the Korean Government. A corporate services provider offering an entire range of services at a single window is the best solution you can have.
2. An experienced corporate services provider can provide all the needed assistance and guidance by the company for all corporate and South Korea banking issues.
3. Every fund amount that is deposited into a Korean bank account needs to be approved by the bank.
4. The FIPA (Foreign Investment Promotion Act) is configured in a way to govern investment in South Korea. According to this Act, foreign investors are required to file a report with the government if they intend to invest in Korea by way of a merger or by procuring a company.
5. To start a new business in Korea, you must get it registered by the Government, though this is applicable in select sectors.
6. Every South Korean firm is required to file a VAT report every quarter and a tax return every year to comply with the regulation of the Republic of Korea’s Company Law.
7. Every establishment is required to file an interim tax return with the Korean Government. This is inclusive of, (i) balance sheet (ii) income statement and (iii) a trial balance.
In the case of domestic employment income earners, employers must withhold payroll taxes once in every month, decide upon the employee’s due taxes and release a payroll tax settlement certificate on the closure of the tax period.
Companies do not have to withhold taxes at the time of paying the foreign employment income.
In South Korea, corporations are liable to be legally penalized only in cases where laws clearly have provisions for vicarious liability. The Criminal Code has no say in the matters of vicarious liability. Therefore, an enterprise cannot be brought to book according to the Criminal Code.
At the same time, Article 4 of the FBPA and other specific bylaws that govern certain sectors (for instance, the Medical Devices Act, the Pharmaceutical Affairs Act, the Framework Act on the Construction Industry and the Housing Act) take care of the vicarious liability for corrupt practices.
Despite the fact that vicarious liability is specifically taken care of by the appropriate regulations, corporations cannot be considered accountable for the activities of their workers. This is true only if the enterprise can prove that it did what it was supposed to do to sufficiently monitor those employees.
Hence, on a practical level, a compliance program that works best may be effective to a certain extent in putting up a defense corresponding to liability claims against corporations for the doings of their workforce.
The Criminal Code has no clear provisions for any safety against extortion, pressure or fear of corruption wrongdoings. Hypothetically, in case an economic advantage is offered as a result of a squeeze and not with respect to the recipient’s responsibilities, then there is no proof of bribery.
Practically speaking, it is improbable that the courts will recognize such a plea as a defense to a local bribery misdoing, in line with the Criminal Code.
The FBPA excludes compensations to foreign state authorities that are legal as per the appropriate regulations of the other country and foreign bribery wrongdoing within the FBPA
A Korean Compliance Checklist is meant to offer just a fundamental outline of what is required to comply with the law and keep yourself safe from shareholders’ charges. It is strongly advised that a compliance audit be carried out– if you have not completed a compliance audit of your Korean business in the past or recently.
Accountability is a prerequisite for going global; notification and registration, in terms of compliance requisites, are going to stay here for the times to come and are likely to mushroom as the days go by.
Foreign companies with a good presence in Korea are strongly recommended to maintain a good compliance checklist. With a checklist in hand (that acts like a compliance monitoring system) foreign enterprises are as safe as home in Korea and their businesses will benefit when a universal audit and government inquiries take place.
A successful compliance checklist directly results in reducing noticeable and indefinable losses by avoiding occurrences and insufficiencies by way of early rectification and maximizes the company’s mid-term as well as long-term profits.
Alternatively, in a roundabout way, it enriches the reputation of the organization by lowering the desire in employees to engage in any kind of fraud. At the same time, it helps carry out proactive preventive measures.
Also, it’s extremely important that stakeholders understand this fact of business, formalize this new reality and ensure adherence to all such requisites. The inability to do so can bring global commerce to a dead halt for any company that fails to demonstrate compliance. Contact us for more information on Korea company compliance criteria.
Seoul, the capital city of South Korea, belongs to the league of Asia Pacific’s highly sustainable workplace markets, along with being a cultural hub of the region. Korean cuisine, cinema and pop music have an immense influence all over Asia, transforming the city into a tourist resort of global appeal, while Seoul’s rank as a business hub, depends on the might of its financial services sector and the power of Korean chaebols (corporations) makes it a well-liked investment terminus. Close to 10 million people have their homes in Seoul, but the bigger built-up area houses 25 million, which is close to 50 per cent of the population of South Korea. The city’s key sectors are finance, manufacturing and retail. The internet speed provided within the country is among the worlds fastest and public WiFis can be easily reached. The city proudly carries three primary office districts: the CBDGwanghwamun, the Yeouido Business District (YBD) and the Gangnam Business District (GBD). These CBDs are the country’s heart and soul and longest-serving business districts and also the major shopping areas of Seoul. They take account for a diverse range of businesses. Though research statistics show a CBD vacancy rate of 16.7%, however, it has exhibited a significant rise in rents since the past few months. Gwanghwamun – Rise through the Ranks as Seoul’s Premium Business District Gwanghwamun, in the heart of Seoul, rules the topmost position in the listing of the country’s business districts, on the parameters of annual sales and sales volume per individual. Business districts can be ranked on the basis of the statistical data of geography, population, sales, type of business and consumer’s trends of consumption, as well as information on a map. According to a report, places around Gwanghwamun Station registered the highest sales of 5.8 trillion won ($4.6 billion) in a single year, around approximately eight times hike as against the 2013 review. The area’s separate sales were reported at 3.9 million won. After blending with the sale figures of adjoining areas like City Hall Station and Jonggak Station, the overall sales figure in the area would exceed 12.7 trillion won. The swift upsurge of sales near the Gwanghwamun region can be ascribed to the clustered population who went out in public through the whole-month duration torchlight procession and other end-of-the-year events conducted at Gwanghwamun Square. On the other hand, Apgujeong Station in the swanky Gangnam district was placed at 19th position, a sensational drop from number three, five years ago. Areas near Gangnam Station that registered its best volume of sales in 2013, were positioned at 13th. Apart from key business districts in Seoul; Nam-gu in Ulsan, Jung-gu in Busan, places adjoining Seohyun Station in Seongnam and Beomgye Station in Anyang, Gyeonggi Province showed up in the top 20 list. Yeouido This YBD is present on a tiny island of the Han River, has been in the limelight for its financial residents – the Korea Stock Exchange lives there along with media firms. Lately, it has turned into a hub for foreign-owned businesses, majority of them have shifted to Seoul IFC development; having a combination trio of office high-rises, a hotel and a shopping arcade. Built by AIG, presently it belongs to Brookfield. The office market in the YBD is still getting used to Seoul IFC’s working premises and Q1 vacancy was 24.4%. Yeouido sprawls across 8.4 square kilometers of island sculpted by the Han River in western Seoul. The island gets its fame as the big economic district of Seoul, a registered address for several investment enterprises and banks. Additionally, the island holds the National Assembly where the regulations and political decisions of paramount importance to Korea are conceptualized and framed, the governing agencies of the Korean financial sector just like Financial Supervisory Service, Korea Financial Investment Association and the exemplary buildings like IFC SEOUL and 63. Yeouido has grown up and matured as a financial district from the last 70's when the KRX (Korea Stock Exchange) shifted base to Yeouido from CBD. Because the district identity looks similar to a financial and banking nuclear center of the city that is geographically placed on an island with a park, YBD is usually known as the Wall Street of Korea. Gangnam Gangnam is stationed in Seoul, south of the Han River, which splits through the city. It is among the several bridges of the city that bridges Gangnam with the adjoining areas to the north of the Han and also city centers. GBD (Gangnam Business District) used to be a farming area running in the reverse gear until 40 years ago. Nevertheless, this area has made its footprint as the educational, commercial and focal point in Korea and is armed to the teeth with administrative buildings on Gangnam-daero and Teheran-ro, centered on the Gangnam Station area. Every kid who loves to dance is familiar with ‘Gangnam Style’, - YouTube has more than 3 billion official views of this video. However, a considerably smaller number of people are aware that Gangnam belongs to Seoul in the capacity of a major office district. Gangnam houses several hi-tech and media agencies and another name for it is the Beverly Hills of Seoul. It is a highly robust office market, owing to limited resources and available positions of only 5.1%. GBD is at number two, on the scales of biggest business districts in Seoul, with reference to the entire leasing area of grade A & B office buildings. Conclusion Seoul has numerous universal districts. The evolution in the number of foreign nationals is most likely to hit the roof with schemes for foreign investment sectors throughout the town. When global firms make an entry into the Korean market, one of the initial choices to decide where in Seoul to set up their office. Now we have an overview of the three major business districts that are high-density areas, dotted with office buildings. Seoul’s Metropolis area comprises 400 logistics centers of area 10,000 sqm or more, with 25% of overall retail online sales. With these statistics, exceeding expectations for the sector is an understatement. Contact us for clarity and in-depth knowledge of the best place for your new company to operate.read more
Who can apply for D-7 visa?D-7 visa is issued to “dispatched foreign professional/supervisor/employee of a firm that is engaged in the business activities in Korea.”Eligibility and requirements Foreign professionals at a Korean branch office sent from the foreign company Foreign professionals at the domestic headquarters of a Korean company that has advanced into the overseas market. - Worked at a foreign company/organization and sent to the foreign company’s affiliate/subsidiary company, branch, or other offices in Korea as an “indispensable professional specialist.“ - The applicant is waived for the one-year work experience, 1) If planning to work in key industries or in national projects or, 2) the employer company has inducted $500,000 or more of business operational fund into its Korean office. - Worked at an overseas branch office of a listed Korean corporation or public organization for at least one year and was dispatched to the main office in Korea. - However, if the Korean headquarter has invested less than $500,000 into its overseas branch/local office, one is not eligible to apply for the D-7 visa. How long is it valid?When granted a D-7 visa, the maximum length of stay is 2 years, but it can be extended upon application. Dispatch orders should be issued by the company headquarters, even if the employee is dispatched from a branch. The dispatch order should state the dispatch period.Are you applying for your visa in Korea? Contact our Korea visa expert Team in Pearson & Partners.read more
The four social insurance schemes in Korea, based on the Framework Act on Social Security, are part of socio-economic system created by introducing principles and methods of insurance for the country to carry out social policy. The goal of this socioeconomic system is to prepare for possible social risks (disease, disability, unemployment, death, etc.) to ensure the people's economic life in a stable manner. Social insurance system includes National Pension, National Health Insurance, Employment Insurance and Workers’ Compensation Insurance. Businesses hiring more than one employee in Korea are subject to enrollment in the four social insurances, and employers and workers are obliged to contribute their prescribed portions to the insurance authorities in accordance with the relevant laws (Except for the workers whose working hour is less than 60 hours/month). All workers under legal labor contract are eligible for social insurance coverage regardless of their types of contract (e.g., Intern, non-regular or full-time workers). In this article, we would like to introduce the details of the social insurances which are critical when hiring employees and doing business in Korea. National Pension Authority: National Pension Service The National Pension Service is an insurance scheme in case the national citizen ages in the future or income activities are suspended due to sudden accidents or diseases and is managed by the government when people pay part of their income as insurance premiums. It protects life of the elderly so that one can maintain one’s basic life by returning the insurance money to himself/herself or his bereaved family. The less you earn, the more money you'll receive relative to the amount you paid. All employers should enroll their employees (including a representative director of a company) in the National Pension plan. Those who are defined under the relevant Acts such as employees aged 60 or more, casual workers and temporary employees are exempted from the mandatory enrollment. Employers should register with the National Pension plan for foreign employees who reside in Korea except for a foreign expat from one of countries where there is mutual social security agreement with Korea. Given that the prescribed requirements are met, foreign employees may apply to get a refund for the contributions paid to the National Pension authority when he or she leaves Korea. The amount paid for National Pension is 9% of the employee's income. If you are working at a Korea company, you and your employer will each pay 4.5% of the income, which is half of the premium. Other individuals and freelancers will pay total premium which is equivalent to 9% of their income. From July 2019, the income ceiling for pension contributions per month is set to increase to 4,860,000 won, and total pension contributions per month are capped at 437,400 won. National Health Insurance Authority: National Health Insurance Service National Health Insurance is social security insurance to prevent high medical costs from becoming a household burden and to promote public health by providing insurance services for disease or injury. Like National Pension Service, the government collect insurance premiums paid by the citizens every month and bear part of the medical expenses. Health insurance, which every citizen must subscribe to, is characterized by paying insurance premiums in proportion to their income and benefits being equal. Like National Pension Service, all employers should enroll their employees (including a representative director of a company) in the National Health Insurance plan. Those who are defined under the relevant Acts such as casual workers and temporary employees are exempted from the mandatory enrollment. However, if foreign employees receive medical insurance benefits under global medical insurance cover sponsored by their employers or National Health Insurance plans provided by their resident countries, they may file an application to get an exemption from mandatory enrollment. Insurance premiums consist of "health insurance" and "long-term care insurance". Health insurance contributions are computed as 6.46 % of monthly employment income. Additional contributions for long-term care of old-aged patients, amounting to 8.51% of monthly Health insurance premium, are also charged both to employers and employees. Therefore, an employer and an employee equally bear the cost of insurance contributions. Premiums for local subscribers, those who are not registered under a company in Korea, are calculated based on individual income and property. Employment Insurance Authority: Korea Workers’ Compensation & Welfare Service Employment Insurance is social security insurance that supports job security and reemployment by paying the necessary salary for living when one's income is lost due to job hunting and unemployment. Employment Insurance has become increasingly necessary as the crisis over employment and labor increases, resulting from the foreign exchange/financial crisis, the increase of the unemployed, and the continued expansion of youth unemployment. All employers must enroll all employees (except for a representative director of a company) in the Employment Insurance. However, employees commencing one’s first employment at the age of 65 or older, or casual workers are exempted from the enrollment. Further, foreign employees except for those who having F-2 or F-5 visa are generally not required to be registered with the Employment Insurance (Enrollment of Employment Insurance is optional for employees with F-4 visa). Employees are responsible for paying the insurance contributions at 0.80%(Unemployment benefits) of monthly employment income, whereas employers are required to pay contributions at 1.05%(Unemployment benefits 0.80% + Employment stability ∙ Vocational competency development 0.25%) to 1.65%(Rate of Employment stability ∙ Vocational competency development differs depending on the number of employees) of monthly employment income. For your reference, there is no income ceiling for the Employment Insurance premium. Unemployment benefits can only be received in the event of ‘non-voluntary retirement’ due to employ matters. Workers’ Compensation Insurance Authority: Korea Workers’ Compensation & Welfare Service Workers’ Compensation Insurance is a social security insurance that compensates for various treatment costs and death insurance in the event of occupational accidents. Government collects insurance premium from the employer and compensates the employees who suffer from industrial accidents with the funds. All employers, having at least one permanent employee, must enroll all their employees including foreign employees regardless of the age or visa status in the Workers’ Compensation Insurance. Employers are solely responsible for paying the insurance contributions. The contribution rates are determined by the industry of the employer. For instance, the contribution rates for companies in manufacturing sector are 0.7 to 4.2% and the rate for businesses in wholesale or retail industry is 0.9%, whereas the premium rate for enterprises in financial services and insurance is 0.7%. For your reference, manufacturing companies tend to subject to the higher rates of WCI and there is no income celling for this insurance. Year-end settlement Above-mentioned national social insurances except National Pension will go through year-end settlement process in the following year. Monthly insurance premiums will be charged on the reported chargeable income multiplied by the prescribed rate and in March of the following year, the different amount between the insurance premium calculated based on the total chargeable income incurred in the previous year and insurance premium paid will be further notified or refunded. Conclusion Social insurance scheme is one of requirements for a company to run business in Korea. As almost all employers must register with social insurances for their employees and pay employer’s portion of contributions to the relevant authorities, social insurance contributions should be taken into consider along with salaries and bonuses when hiring employees in Korea. If you have any questions about Korea company incorporation and investment in Korea, please contact us via Contact Us page. We will provide you with a variety of solutions for efficient business operations as well as practical advice on legal requirements.read more