South Korea, also famous as the ‘Asian Tiger’, is one of the highly developed global economic powers in the present-day world. Apart from its industry-driven prosperity, the country also has an open-door policy towards foreign investment.
If you want to establish a business or open a new business branch for your existing company, there is no place better than South Korea for you. Although different sectors offer a range of opportunities, it is wise to do a market study so as to identify the most ideal approach, prior to launching a new business venture.
Consistent steps by the South Korean government for the last several years has given a boost to investment and business activities. The country is doing well in numerous sectors, specifically, electronics, processed food, engineering and automobiles.
If an expat wants to register a company and physically relocate to Korea to run your business, a business visa (D-8) would be required. One needs to apply for this at the Korean embassy or consulate of the respective country and acquire a residence permit from the South Korean immigration services. The task of getting to know the best business in Korea takes plenty of exploration and telephone calls.
Registering a company won't require you to be physically present in Korea while processing but you should provide us a number of documents required. (most of them will need to be notarized and apostilled)
Before filing your application with the authorities, you are required to register for all the essential licenses and permits that are specific to the domain of the industry in which your company will operate. Keep aside some spare time to translate the applicable documents into Korean.
The least initial investment capital for international investors that has been fixed by the Foreign Investment Promotion Act in South Korea is 100m Won (90,000 USD or 75,000 Euro). Engaging with Korean local specialists like us can quicken the registration process and get going in the shortest possible time.
1. Hire a manager who is adept at both languages, English and Korean, since all government dealings in Korea are in Korean. This would make it much easier to complete government formalities of setting up a business in the most effective and efficient manner.
2. Entrepreneurs are recommended to be consistent in their usage and signature of service contracts with their vendors and business partners while doing business in Korea.
3. Do not make your business partner or South Korean shareholders your nominee just to fulfill the requirements of doing business in Korea. You should have a partner whose contributions add a lot of value, in terms of helping you form your South Korean company.
4. As Confucianism runs deep in Korean ethics, authority and elders are well honored. Hence for serious consideration, it is a must to have an upper-class official at every crucial meeting with Korean vendors and customers.
5. Staff members in South Korea are hopeful that both, their professional as well as personal welfare is a priority for their employers.
6. Koreans are very serious about situations that make them feel awkward or embarrassed. So it is to be kept in mind to stay clear of anything that can cause such a situation.
7. To make the most of the success of your startup venture business in Korea, it is advised to carry out a thorough feasibility analysis, chalk out an elaborate business plan, and connect with the Korean Inland Revenue Department.
8. Setting up a new business in South Korea calls for a lot of communication with your local South Korean embassy and taking help from a good consultant company that has helped a lot of businesses make it big.
9. A key element for setting up a business in Korea is extensive research of the industry that you intend to invest in. It is best to outline an elaborate business plan, inclusive of an in-depth market study and facts on rivals.
10. Once your business is up and running in South Korea, yearly audited financial statements and tax returns are to be submitted to the South Korean authorities for their perusal. This entire process takes both, time and money and moreover, it is a brilliant idea to hire a consultant that is most effective and efficient in resolving this accountability.
Being a new entrant to the Korean business world, you will be required to get all the information you can lay your hands on with respect to the specific legal forms offered in this country. The best known and regular types of businesses that you can set up in Korea are the FDI Company (Foreign Capital-Invested Company), Branch Office and Liaison Office.
· Legal entity independent of the foreign company (Subsidiary of an offshore enterprise)
· Various allowances according to Korea’s FDI laws and legislation (e.g., free trade zones)
· Minimum investment of KRW 100,000,000 per investor
· Scope of getting a D-8 Investment Visa
· Chances of availing tax support & incentives
· Simpler transfer of funds to the parent company
The types of businesses that fall under the FDI Company, governed by the Korean Commercial Code (KCC) are:
Presently, the only business entity that can legally open its shares to the general public is Chushik Hoesa. Most of the entrepreneurs in Korea prefer the Chushik Hoesa of business type. It is also a widely popular corporate form with foreign enterprises setting up subsidiaries in Korea. For the vast majority, a Yuhan Hoesa more recommended.
In the system of Hapmyeong Hoesa a general business partnership is established between two or more partners. In this case, unlimited liability is to be preserved between the partners. The entity is accountable for corporate taxes and therefore, is not a privileged entity.
In a Hapja Hoesa type of partnership, one or more partners must continue with unlimited liability and one or several partners can practice limited liability. The entity holds the responsibility for payment of Korean corporate taxes and hence, cannot be regarded as a pass-through entity.
Hapja Johap shares similarities with Hapja Hoesa. In a Hapja Johap one or many partners can have unlimited liability and one or several partners may have limited liability. The big distinguishing factor between Hapja Hoesa and Hapja Johab is that Hapja Johap, similar to Johap (partnership) is not an independent legal entity.
The tax treatment issues being unsettled; nevertheless, it is likely to get a double taxation waiver, hence, it is supposed that it will be considered a pass-through entity. Following the resolution of the tax treatment issue, this format may be in majority of the scenarios, a more suitable solution than the Yunhan Hoesa. This is in the case of those who are likely to gain from the pass-through character of the entity.
Yuhan Chaekim Hoesa resembles U.S. LLC in a lot of ways. This is aimed at providing the benefits of both, Yuhan Hoesa and Chushik Hoesa. The liability, in this case, is limited; shares can easily be transferred between members, bonds can be issued, there are no rigid capitalization prerequisites, no rigid director or auditor regulations are enforced and if the entity chooses to exit, the formalities are easy.
Yunhan Hoesa is a tightly-knitted company that is now allowed to have more than 50 shareholders. Lately, some of the international firms (as well as a few international hedge funds) have opted for the Yuhan Hoesa corporate structure.
Several businesses have, in recent times, opted for this type of a corporate configuration, considering the likelihood of U.S. and E.U. tax rebates (pass-through benefits) and easy reporting directives. Moreover, a few provisions are related to directors, publishing balance sheet and accounting. However, securing shares and releasing corporate bonds is illegal.
· Regarded as the same legal entity as an overseas company (Headquarters)
· An out-of-the-country manager is designated as the branch manager
· The characteristics of the branch can be attributed to those of the headquarters
· Might participate in generating revenue in Korea
· Has the option of not engaging in revenue generation in Korea.
· Set up with the purpose of a company to carry out R &D, advertisement, research and look into ways to enter the Korean market.
Foreign companies that have been permanently established in South Korea have to pay taxes on their Korean-derived income. Foreign firms that produce income earned in Korea without having a permanent set up in the country are liable to pay taxes within the range of 2% and 20%.
Chargeable income earned in Korea comprises services to natural individuals, interest on bonds and financials, rent revenue from ships and large equipment. There are also provisions for foreign tax rebates, but fixed at the minimum amount paid overseas or the sum of Korean income taxes times the ratio of foreign-source earnings to global total chargeable income.
Foreign companies that have a permanent set up in Korea are charged the standard corporate income tax on the income that they earn in Korea. Foreign enterprises that are not permanently established in Korea, but earn income in the country from allowable operations are liable to be taxed within the range of 2% to 20%. These qualifying operations comprise personal services, interests on bonds and financial instruments and leasing income from vessels and heavy equipment.
Companies can avail of foreign tax credit, but it is fixed at the lower amount of the tax paid overseas or the Korean tax chargeable multiplied by the ratio of income earned abroad to the total chargeable income.
For inhabitant businesses, capital gains are just another ordinary business income and attract the normal corporate tax rate. For foreign businesses, capital gains earned within Korea attract taxes of either 11% of the sales or 22% of the gains (the lesser of the two). By and large, special taxes are not imposed on gains resulting out of mergers.
Foreign businesses and persons with holdings lower than 25% of the outstanding shares of a registered firm for five years prior to the share transfer get tax relief, irrespective of whether a tax treaty is applicable or not. Contrary to this, the management of capital gains earned by nonresidents is based on the stipulations of the relevant double taxation agreements.
A reform plan to lower the rate from 25% to 5% effective July 2018 has been deferred to be reviewed before 2018 closes. Discussions are on regarding imposing a tax on capital gains earned from cryptocurrency transactions.
A dividends-received deduction (DRD) is applicable to dividends transferred among inhabitant enterprises. A variety of tax incentives are provided on eligible operations that are in line with the Tax Incentive Limitation Law, along with investment in advanced technology businesses or those situated in free trade zones.
The investing company enjoys a 3-year or a 5-year tax holiday, after the year it starts earning income that can be taxed. The company then avails a 50% tax rebate for two years after this beginning period of exemption from taxation.
Launching expenditure, like incorporation spending, founders’ wages, and registration charges and taxes can be deducted if the expenses are logged according to the articles of incorporation and actually attract a payment.
Net operating losses can be postponed for 10 years as far as 70 percent of a financial year's taxable income (lowered from 80% as of 2018, will undergo further reduction to 60% on 1 January 2019) (is applicable to every company, except SMEs). Rescheduling losses are not allowed for large companies; despite that, SMEs can push back their losses to the preceding accounting year.
A capital registration tax of 0.48% (or 1.44% for Seoul Metropolitan Area) is imposed. A property tax of 0.15% to 0.5% (0.24% to 0.6% plus additional education cost) is imposed on business as well as residential property and buildings. A company holding real estate worth more than KRW 600 million, is liable for payment of real estate tax besides property tax. Token stamp duty applies to contracts related to creation, transfer and change of rights.
An acquisition tax of 4.6% (including surcharge) is usually applicable on purchase of real estate, automobiles and heavy equipment (a house purchase may gain from a lower tax rate between the range of 1.1% and 3.5%). A registration tax between 0.02% and 5% is charged on the activity of registry of the creation, modifications, or lapse of property ownership rights or other titles and incorporation with the relevant authorities.
With most of the passports, there is no need for a visa to stay up to 90 days in South Korea. However, it is a must for the traveler to have a passport valid for 6 months outside of the stay, a back and forth ticket and enough money for the duration of the stay. There may be a requirement of a visa in case the travel to South Korea is for reasons apart from basic business meetings.
After registering a company, if you would like to physically stay and do business in Korea, you will need to apply for your visa. D-8 visa will allow foreign investors to stay in Korea while running the business under the foreign-invested company. Application for the visa should be made 30 to 90 days before your travel to South Korea. The validity of the Visa starts from the date of issue. The validity of the issued visa is decided by the Embassy/Consulate and may not be the same as shown in the advertisement.
Korea is one of the top-rated countries in the world, in terms of its power supply, water resources and telecommunications network. Electricity is consistently available, at nominal charges, on the other hand, water to be used for manufacturing purposes is also easily available from local sources in the majority of the cases. The whole country is well-connected with mobile broadband services that can be availed in just a day via wired or wireless service provisioning.
The Government of Korea aggressively safeguards intellectual
property rights with its consistent endeavors in the direction. It has also
made the patent examination process highly efficient, with regular examinations
at much shorter intervals, as compared to those in other developed countries.
This blend of sturdy IPR security and swift patent services is another reason for
Korea’s safe and secure investment environment for foreign investors that makes
it Business in Korea
For more information about doing business in Korea, contact us. We are specialized in Korea company incorporation, tax & accounting, visa, corporate bank accounts, etc.
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