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
most favorable.
For more information about doing business in Korea, contact us. We are specialized in Korea company incorporation, tax & accounting, visa, corporate bank accounts, etc.