Every so often, firms keen on making a mark in the Korean market will wonder how it would be to hire locals for their new company in South Korea.
A few other jurisdictions in Asia do disallow the establishment of a direct employment liaison between a non-resident foreign company and a local employee or succeed at making it too inconvenient for both parties that foreign employers will lay down their arms in disappointment.
Korea is poles apart from China. Speaking, for all the challenges of doing business in South Korea, it can be quite an easy expedition in a lot of ways. This is one among the many. Of course, it is easy to hire a Korean employee directly and pay him or her straightaway, via wire transfer from overseas.
The process is very basic; the employee is just required to register with his or her regional district tax office in the capacity of a self-employed individual, or “Class B” taxpayer. The form can be filled in around 10 minutes.
Apart from this, the tax service provides registered Class B taxpayers with a break that takes care of a large part of the employer-side payroll taxes that are to be borne by the self-employed person.
South Korea’s employment law seems to be complicated as well as baffling from an outsider’s point of view, even though there are ways in which resembles the law of other nations. Other elements that add to the complexity of the situation include the variation in rules, based on the configuration of the business structure and the strength of the workforce.
This and several other factors have led to the creation of the guidelines in a broad sense, and specialist legal advice is suggested while hiring in South Korea.
One must be cautious of various core areas within South Korea’s employment legislative regime, typically for firms that intend to set up an entire domestic office and people management department. These threats can be eased by way of using a regionally-seeded payroll provider who knows all the laws and rules of the land concerning both, local employees and also foreign citizens.
For employees in South Korea, it is mandatory to have employment contracts that fulfil all the criteria of the Fair Labor Standards Act.
Based on legal resource site, Korean Labor Law, the Labor Standards Act of Korea has no clear regulations on the duration of probation. Nevertheless, the law has a statement that mentions that there is no requirement for a notice of termination in the case of employees that are within a probation period (of 3 months or lower).
This leads to a deduction that even though a probation period may exceed 3 months, in normal circumstances, the employee will be entitled to the rights of a regular employee, once he or she has crossed a tenure of 3 months.
Employment Insurance comes along with benefits to employees who are jobless because of being sacked from their offices. This insurance also subsidizes the training of employees in accordance with South Korea’s Employment Insurance Act.
Every employee needs to mandatorily pay employment insurance, leaving out the director of a company, employees who have crossed the age of 65 years and casual workers.
Companies and offices having one or multiple permanent employees are required to subscribe to employment insurance. Both, the employee, as well as the employer, equally add 0.65% of the entire wage.
From time to time there is the employer adds an extra contribution, which is known as ‘occupational ability development’. This is between 0.25 – 0.85%, in terms of the size of the company.
The law makes it mandatory for businesses to have a kind of accident reimbursement insurance for all employees. Average monthly wages decide the appropriate insurance premiums. Companies and offices having one or multiple regular workers are required to subscribe to occupational injury compensation insurance.
The employer contribution needs to range between 0.6 – 0.34% of the entire salary, according to the category of business.
The Republic of Korea has a mandatory state pension service. The employer, as well as the employee, add their contributions to it. The National Pension Scheme is governed by the National Pension Service (NPS). All Koreans and foreigners between 18 to 59 years of age, living and working in South Korea are required to make contributions to the national pension scheme.
A company only needs to start contributing when it has 5 or more employees (else, employees need to separately take care of their contributions).
Employer to contribute 2.995% of the regular monthly wage
Employee to contribute 2.995% of the regular monthly wage
Both the employer and the employee pay the following social security contributions that are based on the gross income of employees: national pension, unemployment insurance and medical insurance premiums. They contribute 4.5% of the monthly salary to the national pension fund. The employer and employee also contribute 2.945% and 0.55% of the average monthly wage as a national medical insurance premium and an unemployment insurance premium, respectively. In addition to the unemployment insurance, the employer contributes an insurance premium, which varies from 0.25% to 0.85% of an employee’s average monthly wage based on the number of employees. The long-term care insurance contribution is imposed on the national medical insurance premium at a 6.55% rate.
The maximum amounts of the national medical insurance premium and national pension premium are KRW 4,901,380 and KRW 350,100, correspondingly, combining both, the employee and the employer’s share.
In 2019, the lease legal hourly wage in South Korea was calculated to be 8,350 South Korean won. This is approximately 10.9 percent higher than the previous year. This was the second-largest yearly hike after 2001. A permissible minimum wage was fixed by the South Korean government in 1988, pushed by the flourishing economy during those days.
President Moon Jae-in has committed to increasing the minimum wage up to 10,000 won by 2020; a debatable step that has been supported by intellectuals but caught the disapproval of both, traditional and liberal political analysts throughout the country. According to the latest opinion survey, just 50% of the population is positively inclined in support of the course their country is following.
Small and mid-sized enterprises (SMEs) have also not been in favor of increasing the minimum wage. Majority of the entrepreneurs of this magnitude said that hiking the revenue and preserving cost-effectiveness were the main barriers and these were in essence, connected with the minimum wage that is being paid to their employees.
On the same lines, a large percentage of entrepreneurs were not sure about starting a new enterprise in South Korea. On the other hand, the economic perspective for South Korea is favorable, with the gross domestic product per capita expected to rise consistently.
Irrespective of how you run a company, branch office, it is important to know the intricacies of hiring local inhabitants of Korea in your company as against hiring foreigners.
Contact us to help you hire the best talent in South Korea for the smooth running of your business.
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
South Korea’s innovative governmental reorganization has led to the nation hovering on the top of the World Bank’s ranking of ease of doing business in different countries. Indeed, efficient laws, transparent marketplace and the government’s enthusiasm to welcome international investors have resulted in doing business in South Korea a smart move. If you already run a business elsewhere and are looking to expand it in Asia, there is no place like South Korea and no better time than now to go for it. The reason behind this is that South Korea’s post-registration procedures that were earlier necessary to be complied with at the time of setting up or expanding a business, have now been eliminated. The Index of Economic Freedom and businesses characterizes South Korea as ‘largely free’ and both, old, as well as new companies, encounter minimal red tape interference from the government. As a regular rule, in practice, the Confucian principles and code of conduct drives the South Korean culture and even business practice. Confucian values comprise respecting those who seem decent, a quality that is gained via dedication, labor, abiding by rules, mutually agreeable decisions and time and energy used in establishing links. This is evident in the Korean saying, “Make a friend first and client second”. The broad database and guidance spread across on the World Business Culture website is a great help to whoever intends to do business in South Korea get the know-how about the country’s business and economy. In the meanwhile, this piece articulates the advantages that Korea offers for business expansion in Asia. Appetizing Incentives Foreign Direct Investment (FD) incentives are instrumental in reimbursing foreign investors in South Korea for their financial inputs, at the same time also lowering their launching expenses. The present tax regime provides a tax rebate to international enterprises having the ability to play an important role in the Korean economy. Simultaneously, the government helps these companies set up their industrial establishments (or help them acquire a good site location) and supports them with financial aid. Government-assigned free trade zones drive a lot of expansion, along with minimal bureaucracy in manufacturing, distribution and trade; reduced land and buildings rents; tax credits; and single-window administrative unit. Also, streamlined custom reporting processes are implemented in a variety of value-added planning operations. The government has also built free economic zones to support companies in free trade zones, so as to drive logistics at key global hubs and set up a welcoming residential environment for foreigners. Till date, the government has marked six free economic zones. Geography Placed strategically with China on one side and Japan on the other, South Korea is very close to more than 60 cities having more than a million inhabitants (average 3 hours away by flight). South Korea has extensive free trade agreements (FTA) with the Association of Southeast Asian Nations, a provisional accord with India, an FTA with the European Union and a number of other nations. Smart Customers South Korea’s computer geeky consumers have brought a lot to the growth of the country’s home market in the last ten years. Korean cell phone and home appliance makers— popular for their high-grade products all over the world— have been successful, thanks to their perceptive local customers. This is why for technology companies such as Microsoft, Motorola and eBay, as well as consumer sector firms such as Procter & Gamble and L’Oreal, South Korea is a bench test for their upcoming products. Brilliant Framework South Korea is well-anchored with respect to docks, airports, roads and rails. It is evident that foreigners thinking of investing in Korea would be successful in touching upon statutory limitations, commitments concerning the said investment and likely union matters. The outstanding sources for this information are the American Chamber of Commerce in Korea and the U.S. Embassy Seoul respectively. Prospects and Pain Points On one hand, we got acquainted with the many world-renowned strong points of Korea, there is also an array of domestic challenges. As per the latest economic report, South Korea’s population is dwindling faster than that of any other OECD (Organization for Economic Co-operation and Development) country. Birth rates in Korea have gone down to 1.19 children for every single woman, a rate that going forward in the long-term - would affect to make the population extinct by 2750, as specified by official government forecasting. In the wake of this decline of the population, the Korean Development Institute predicts sluggish GDP growth from the present figures of approximately 4% to 2.75% in 2030. That is indicative of the fact that economic growth will mainly be based upon labor productivity (higher the labor productivity, more will be the economic growth). Korea’s population that is growing old seems to have an unclear tomorrow. There are rare provisions of social welfare schemes. Old-age pension and wealth management are the latest innovations. So far, in Korea, the family has been a financial social cover. However, Korean society is reinventing itself. Sprawling across a period of 40 years, to 2000, Korea’s per capita income has increased from 10% to 60%. With this rise in incomes, an increase has also affected inequality and shrinking family units. Over and above, the wealth that has been collected is more than what can be adjusted in Korea’s local financial markets. Consequently, pension fund managers are inclined to find places outside of Korea to make investments. Korea’s government is sensitive to the challenges that face it. Thus, its latest development plan is aimed at diversification of its industry and home electric appliances - heavy economy, using innovation to drive growth. Seeing the past track record, this comes across as a logical step: The Kia (Hyundai) factory in Slovakia is so ahead of time as far as its robotics is concerned that, it is a picture-perfect location to shoot Terminator 6. The facility that began operations in 2007, has emerged as among the few car factories across the world that can build as many as 8 types of models with a common effect. Innovation can change other unripe zones of the economy like services, agriculture and water resources management, particularly in the event of getting aid in the form of investment and technical support from abroad. Foreign businesses keen on expanding in Asia should collaborate with corresponding Korean firms that have moved much ahead in expansion. Koreans are glad to have something that makes them more capable. In the event of a foreign company that brings in any type of a value-added factor, the potential of starting and developing a fruitful and profitable business liaison is very high. If plans and designs progress well, perhaps those companies’ directors and officers can call it ‘business better than usual’. Conclusion South Korea's extraordinary rankings for ease of doing conducive business are driven by quite a few contributing factors that work in tandem. These include the nation’s topmost digital infrastructure and skilled human resources, appended with decades of investment in an internationally-acclaimed learning system. Reforms initiated and churned out by the government have made it the entry and exit conditions for foreign capital more profitable. Likewise, its capital markets are in the midst of the most developed in the developing global scenario. If you are looking to expand your business and set up an office or a company in Korea, we would be happy to help. Get in touch with us for details.read more
The Republic of Korea offers a range of visas for foreigners looking to settle in the country. However, in this article, we will look at the provisions for the application of D-8 (business investment) visa. If you want to set up a small business in Korea, the D-8 visa is just the right thing for you. Apart from this, the D-8 visa also covers the requirements of foreign employed managers of domestic companies, officers, senior managers or employees with expertise. Business Investment Visa (D-8) 1. Eligibility for a D-8 Visa A business investment (D-8) visa is suitable for key professional experts involved in the management, corporate governance, manufacturing, engineering, or research of a foreign-invested enterprises, according to the Foreign Investment Promotion Act. Foreigners employed within Korea, general managers or engineers and service companies who can be substituted by local manpower resources do not fall in the category of critical professional experts. Key Professional Experts · Specialist A highly professional individual with exclusive expertise and knowledge vital for research, design, and technology and management core to the service provided by the company, is a specialist. · Senior Manager A senior manager is in charge of the operations and business activities of a company, or the objectives and policies of a department. Top leadership (barring specialized service providers) or staff members who directly provide services, are not part of this classification. · Executives An executive is an individual with fundamental control over business administration and major say in decision-making. Being among the topmost members of a company, an executive reports exclusively to the Board of Directors and shareholders. (An executive has no direct participation in the service delivery or the organization’s service-linked business.) 2. Application and Issuance The process to get a business investment (D-8) visa is as follows: · A foreigner is required to present the concerned papers to an overseas diplomatic mission to apply for issue of visa. The chief of a diplomatic mission is authorized to issue a business investment (D-8) visa for a maximum of one year stay. · If the authority that issues visas is not with the head of a diplomatic mission abroad, a foreigner can submit an application for issue of visa once he/she get a certificate of confirmation of issue of visa or a certificate number, from the immigration control office that regulates the inviter’s place of stay. · If a foreigner is in Korea without a visa or with a short-term visa due to compelling reasons, he/she can apply for permission to change the status of sojourn at the immigration office that decides his/her place of sojourn or at KOTRA’s Investment Consulting Center. Essential Paperwork for a Business Investment (D-8-1) Visa Approximate paperwork that may be required for review · Dispatch order in the case of employees sent to Korea · Description of modifications in shareholders (master copy) · Corporation registration certificate released in the last quarter · Foreign-invested company registration certificate copy · Business registration certificate copy · With respect to citizens of countries having a lot of cases of tuberculosis, a certificate of tuberculosis examination is a must (provided by the local community health center) · Application form for issue of visa or application form for confirmation of issue of visa · Passport (copy of passport in the case of application for issue of visa), color photo for passport, service charges · Employment certificate from the company headquarters (for employees sent to Korea) · Certificates of education as a crucial professional expert (any of the following): technical certifications (for engineers), career certificate, company hierarchy, diploma · Statement proof of tax payment (specifying payment of corporate tax, grade A gained income tax, etc.) · Paper confirming the place of sojourn (property rental agreement, etc.) · Paper affirming introduction of investment funds · Cash investments – Document showing permit to deal in foreign currency, from the tax authority or bank (financial institution) of the investor’s country of origin (where appropriate) – Description of introduced investment funds (remittance certificate, certificate of buying foreign exchange, customs entry, etc.) · Material investment – Copy of completion certificate of material investment (from the Commissioner of Korea Customs Service) – Completion Certificate of import declaration · Other papers for submission by each investor, with investment below KRW 300 million · Record certification of capital spending o Receipt for goods bought, office interior decor expenditure, etc. o Withdrawal and deposit logs of a domestic bank account, etc. · Withdrawal and deposit logs of business account · Document endorsing an operational business setup o Office lease contract o Snapshot of building, work facility, signposting, etc. · Certificate verifying business experience in the relevant industry or field (if necessary) Service charges (revenue stamp): Is different in different countries because of reciprocity principles. The exact amount can be found out from a diplomatic mission. * There is no processing fee to apply for the certificate of confirmation of issue of visa Further, there are 4 types of D-8 visas, with different paperwork requirements of each type. D-8-1 Incorporated Enterprise Visa For qualifying candidates posted in a foreign invested company, in line with the Foreign Investment Promotion Act. (Excluding Cuba) The aim must be to invest in a Korean enterprise (including the ones that are being established). The minimum investment must be of 100 million KRW, along with a minimum of 10% of the total capital stocks of the company, besides the voting right or a contract of dispatch and hiring of executives. Essential Paperwork · Valid passport · Visa Application form · Fee · One standard-size photograph · Proof of employment of assignment abroad · Dispatch order (should have the dispatch period) · Photocopy of business registration certificate · Documents showing the movement of capital investment · Foreign investment report form or a copy of investment company registration certificate D-8-2 Business Venture Visa for commercial enterprises adhering to the Special Act on the Growth of Business Ventures (excluding China and Cuba) Essential Paperwork · Business Venture Confirmation or Prospective Business Venture Confirmation · Photocopy of Business Registration Certificate · Fee · One standard size photograph · Photocopy of passport · Visa application form · Paperwork that shows you either have the copyrights or matching expertise. Instances of this paperwork may be Patent right card (Korean Intellectual Property Office), Utility Model Right registration card (Korean Intellectual Property Office) and Korea Technology Finance Corporation or Small and Medium Business Corporation Assessment Test Result. D-8-3 Unincorporated Enterprise Visafor foreigners who have invested in a company run by a Korean national Documents required · Fee · Visa Application Form · One Standard Size Photograph · Passport · A copy of investment company registration certificate or a foreign investment report form · Paperwork validating the use of startup capitals by a Korean local, also the cofounder · Authentic document of Business Partnership Agreement · A photocopy of Business Registration Certificate displaying the name of c-founder · Paperwork showing the transfer of investment capitals. Examples of these are declaration of foreign currency transfer or confirmation of remittance released by the Customs or a bank (financial institution) of the concerned country, photocopy of investment in Kind Completion Confirmation Letter (from the Chief of Korea Customs Service) Extra paperwork for individual investor with investment lower than 300 million KRW Paperwork showing information of the use of the investment funds product purchase receipt, office interior fee, deposit/withdrawal records of a domestic bank account, etc. Conclusion Though it may sound straightforward. The task of applying for a D-8 visa in Korea has its set of complications that we can easily resolve. For all the help to get a D-8 visa in Korea, do get in touch with us.read more