For a long time, South Korea has pioneered one of the world’s fastest internet speeds and smartphone perforation capacities. Its flagship companies such as Hyundai and Samsung have been projected as the center of advertising along with its vast market for games, cosmetic and toiletry products and e-commerce, working as benchmarks to make Seoul the tech hub of Northeast Asia.
Braving the impact of the Korean War, South Korea has positioned itself among the world’s best economies – quite the contrary from its underprivileged status once upon a time. This, notwithstanding the critical economic turmoil that loomed over the country in the latter part of the twentieth century, was mended by an IMF agreement and a governmental commitment to reform in tandem with other efforts.
South Korea has hit it big on the World Bank’s ranking of ease of doing business in different countries, thanks to its progressive governmental reorganization. Undeniably, efficient legislation, market transparency and the South Korean government’s inclination to welcome foreign investment make doing business in South Korea a smart decision.
Now is the best time to do great business in South Korea, since the previously mandatory post-registration procedures for setting up a business have been scrapped. According to the Index of Economic Freedom, South Korea as a free economy and the government has minimal intervention in businesses of all ages.
According to the latest Global Entrepreneurship Index release, South Korea, ranked at 54%, is Asia’s best habitat for doing business.
The country has leapt three notches higher since its last year’s score. The tech titan has forged ahead by bringing new technologies and new products to customers, followed closely by Singapore and Japan with a score of 53% and 52% respectively.
Geography has placed South Korea strategically between China and Japan (two of the world’s outstanding economies). This makes it a splendid global trading center for investors on the lookout for a unique place for their next business in Asia. (Overview of doing business in Korea)
If you are inclined to set up a company in South Korea, the following points really matter:
Culture matters a lot. Korea is among the most stable nations on the Earth, so setting up a business venture in South Korea can be an entirely different experience for most of the business travelers. Just like Japan, recognizing the corporate culture and decorum carries a lot of weight.
• Kind of industry and business category
• Citizenship of the headquarters/person(s) and
• Existing business contracts or liaisons and their occurrence
The language of the nation is Korean and therefore administrative authorities and official paperwork are in Korean. Although international business is often conducted in English, things move faster depending on how well you are acquainted with the local language.
Make certain that you import your goods into South Korea as per the law of the land; fulfilling all legalities of customs and import; with all the required licenses and permits to import and sell products in place, and importation and exportation paperwork is consistent with Korean law.
The Korean government made operational numerous free economic zones that provide added incentives and tax rebates to foreign investors or those setting up a business in South Korea. Usually, a business, or the foreign investor must be situated within the free economic zone so as to receive the benefits.
South Korea’s Foreign Investment Promotion Act defines a local corporation with foreign ownership as a ‘foreign investment’. In agreement with this, the minimum investment of the company must be 100 million South Korean won. In case an investee enterprise is a private business, the company is not permitted to issue a business investment (D-8) visa. Issuance of a trade (D-9) visa can only happen if it invests a minimum of KRW 300 million. Foreign investors and foreign-invested enterprises are of independent units (separate accounts and settlements).
It is not mandatory for shareholders in Korean companies to be Korean residents.
(To learn more about Korea visa for foreign entrepreneurs, click here.)
The following are a few of the many benefits that are waiting for the investors inclined to incorporate their company in South Korea:
• South Korea has absolutely no hindrances in matters of foreign currency accounts or the coming back of capital income, which can be music to the ears for investors.
• One can set up and incorporate a limited liability company (LLC) in South Korea in just a week, provided that the requisite for at least one shareholder and one director of any citizenship is complied with.
• In terms of technological advancement, South Korea’s air, land and waterway transportation system is ahead of time. This functions like an express delivery service for businesses to move cargo and raw materials, especially within the country.
• South Korea has an excellent Foreign Investment Promotion Act that empowers 99.8% of the country’s businesses to avail the inflow of foreign investment and simultaneously provides considerable security to investors.
• Incheon International Airport (the largest airport in South Korea) is at the frontline, as a logistics and transportation hub in Northeast Asia.
Once you start a business in South Korea, a company is said to be a tax resident of South Korea in case it runs its headquarters or head office in the country. Taxes are applied on the international earnings of tax resident entities.
Corporate tax slabs in Korea have been well-constructed. The tax rate is 10% on the first (South Korean Won) KRW 200 million, 20% on chargeable income between KRW 200 million and 20 billion, 22% on chargeable income between KRW 20 billion and 300 billion, and 25% on income exceeding KRW 300 billion. A regional income tax of 1%, 2%, 2.2% and 2.5% is thereby applicable.
Companies are liable to pay a minimum tax imposed at a rate of 10% on income till KRW 10 billion, 12% on income in the midst of KRW 10 billion and 100 billion, and 17% on income more than KRW 100 billion. SMEs are required to pay at least a tax to the tune of 7%, 8% or 9%.
Dividends received attract corporate income tax at normal rates. Eligible companies with ownership of more than 80% (40% if it is a registered subsidiary) in the paying entity and 80% deduction if they possess 80% or lesser shares, can avail 100% deduction.
Ineligible investment firms are likely to avail 100% rebate for owning 100%, 50% for more than 50% (30% in case of a registered subsidiary) shares and owning 30% of 50% or less (30% in case of a registered subsidiary) shares.
Corporate income tax and standard rates apply on interests received. The same stands true in the case of royalties received.
As a generic rule, capital gains are regarded as normal earnings and fall within the scope of the regular rates. An extra capital gains tax of 10% may be levied on capital gains that comes from the disinvestment of non-commercial purpose land or houses.
In case of withholding taxes, dividends, payments of which are made to non-resident entities or individuals, attract an operational 22% withholding tax except if the rate is lowered by a tax treaty. A withholding tax of 22% is applicable on the payment of interests made to non-residents on regular loans and royalties. Interest on bonds attracts a tax of 15.4%.
A tax treaty might cause a slash in rates. Interest paid to entities situated within the judicial limits or tax havens may be affected by local withholding tax rates. Paid services to non-residents attract 22% withholding tax.
The value of inventory may be calculated at a lower cost, market selling price, or replacement price. Last in First Out (LIFO) does not apply in the case of taxation. Losses may be deferred for 10 years. Losses cannot be carried back. Losses might be compensated by 70%, with the exemption of SMEs.
Overseas-source earnings are by and large liable for corporate income tax except if a tax treaty has different provisions attached to it. A foreign tax paid may qualify for a foreign tax credit or deduction. Income from foreign-subsidiaries may be excluded from the taxable income of a Korean holding company as far as the dividends are distributed except if the foreign subsidiary lies within the jurisdiction of a Controlled Foreign Company (CFC).
Transactions between associated entities must be carried out keeping a safe distance and disclosure of select information is mandatory at the time of filing tax returns. Subsidiaries of foreign companies with a yearly sale exceeding KRW 100 billion and more than KRW 50 billion worth transactions with foreign companies must submit additional transfer pricing documentation.
If a company having foreign ownership borrows from the foreign shareholder, the interest amount spent on the debt in excess of 200% of the borrower’s equity gets a waiver.
According to the CFC regulation, earnings of a foreign subsidiary that have not been dispensed and are conditioned with an average tax rate of 15% or lower for the 3 most recent years may fall within the ambit of the Korean tax bracket.
CFC rules may be inapplicable in case the foreign subsidiary is a trading company and has immovable installations and its control and management happen from outside Korea.
Korea has quite a few social security funds and insurances, such as; national pension, national health insurance, and employment insurance. Employers, as well as employees, are required to contribute approximately 8.5% of employees’ salaries. There is also a worker’s accident compensation insurance between 0.85% and 28.25%.
Companies with foreign investments that are into specific eligible high-tech operations are likely to qualify for a 100% corporate income tax rebate for 5 years.
Eligible individual SMEs can apply for special tax deductions between 5% and 30%, to a maximum of KRW 100 million.
A variety of tax credits lie in the offering for companies investing in safety and high productivity facilities, making the new-growth engine and core technologies go commercial, employment generation, payroll expansion and re-appointment of retired female employees.
Companies with investments in R&D, nature conservation and energy-efficient facilities also can avail tax credits.
South Korea has a real property tax in place, chargeable from 0.07% to 5%. The transfer of securities attracts a tax of 0.5% for unregistered shares or interest and 0.3% for registered shares. An acquisition tax is applicable on the cost of property, vehicles, building material, boats, etc., between 2% and 7%. Additionally, there is a registration tax between 0.02% and 5% in case titles or rights are registered.
South Korea continues to be comparatively unexplored to foreign businesses and what it has in store is probably downplayed. This country gives the impression of having a closed economy, supplemented by the language and hurdles of culture. Yet, the new window of opportunities that this market offers to a bold entrant, keen on exploring new avenues and accessing the bigger Northeast Asian markets, is commendable.
Success is inevitable when decisions are efficient and quality-driven, backed by intelligent hiring, marketing and brand building (usually via unofficial channels). Once you are in, the reward lies in being among one of the most potent economies around the globe, benefiting from a well-qualified, hardworking and aspiring workforce, and joining forces with some of the most prominent and rapidly expanding global enterprises.
This article gives you a general idea of matters to be evaluated at the time of starting a business in South Korea. Professional consultation is inevitable in the case of specific issues.
For anyone inclined to set up a business in South Korea, a professional services company can make it all as easy as it gets, for you. You will be provided with action-oriented guidance on affairs related to business, answers to all your queries resolved by the most experienced business advisers.
In the aftermath of the Asian financial crisis in 1997, South Korea committed to liberalizing its economy and promoted foreign direct investment (FDI) to open its market to foreign investors. FDI allows foreign investors to acquire and own stocks or shares of Korean companies. According to UNCTAD's 2020 World Investment Report, South Korea’s FDI stocks increased from US$ 135 billion in 2010 to US$ 238.5 billion in 2019. Other forms of FDI include a contribution to Non-Profit Organizations (NPO) and offering long-term loans to domestic companies. Acquisition of stocks or shares of a domestic company guarantees your participation in technology transfer and the management of the company you invested in. As a foreign investor, your investment in South Korea will be facilitated and legally supported by the Foreign Investment Promotion Act. You can also rely on the Rules on Foreign Investment to guide your business operations or Consolidated Public Notice to protect your investment. The South Korean government has cultivated a conducive environment for doing business, with robust measures and policies to help you make the most out of your investment and business capabilities. These measures have enticed investors from across the world and increased inbound investment steadily in the past 15 years. Now is the perfect time to invest in South Korea. Why Invest in South Korea? South Korea is appealing for foreign direct investment for many reasons. The Korean Government has been reducing tax incentives and increasing cash grants. In January 2019, the government increased cash incentives for foreign companies to around $46 million (50 billion KRW) to entice investors. Cash grants now drive the government’s comprehensive incentive program for foreign investors, which include industrial site support, financial support for staff training, and many more. Companies that invest in the IT sector and related industries qualify for generous cash grants provided by the central and local governments of Korea on a matching fund basis. From January 2020, the number of eligible technologies was expanded to 2,990 in 33 fields, which now includes high-tech products like IoT emotional diagnosis and biometric authentication payment. But South Korea has more to offer foreign investors than FDI cash incentives. Investors are also attracted by the country’s rapid economic development, specialization in ICT, and strong industrial base, high-potential emerging sectors, and expanding market. Factors to Consider Before You Invest in South Korea In 2009, financial, insurance, and other services made up 64% of inbound investments, compared with 35% invested in manufacturing. Investment opportunities have diversified over the years to include trade, hospitality, real estate, ICT, transportation, and many more. Industries like semi-conductors, auto manufacture, logistics, displays, and environmental products and services are attracting more investors. Under the Foreign Investment Promotion Act, foreign investors can set up a company, foreign branch, or liaison office. Even you'll need to invest in opening a branch in South Korea; it will not fall under FDI since it is not locally incorporated. A liaison office conducts functions like market research and R&D but cannot undertake profit-generating business in South Korea. To set up a local corporation, you’ll need to invest a minimum of around US$ 100,000 (100 million KRW) and does not have a maximum limit. On the other hand, establishing a domestic branch of a foreign company in Korea does not have any limits. Before setting up a business in South Korea, you have to consider how the implications of identification. The act recognizes foreign investors and foreign-invested companies as separate entities and requires independent accounting and settlement. The Foreign Exchange Transactions Act identifies a branch and headquarters as a single entity, which requires consolidated accounting and settlement. The foreign-invested company pays taxes based on domestic and overseas income, while taxes for the branch and liaison office considers income from domestic sources only. How to Establish a Company in South Korea Since the early 2000s, the government has focused on simplifying the FDI process and established a one-stop services platform to help foreign investors and multinationals invest in South Korea. The FDI procedure starts with foreign investment notification, which is conducted by your foreign exchange bank or accredited agencies like Pearson & Partners. Then, you remit your investment via customs or exchange bank before proceeding to the registration of incorporation at the court registry office. You will be notified once your business registration and incorporation process is completed. Then, you transfer your paid-in capital to a corporate account and wait for a notification confirming the establishment of your foreign-invested company. How to Set Up a Stock Company in South Korea The Commercial Act of South Korea recognizes five forms of companies, and three types of business forms are available to foreign companies, including the stock company. Each of these business forms has distinct registration requirements, minimum investment limit, and differ in terms of scope. The procedure for establishing a company may differ slightly depending on the degree of commitment or how much you invest in South Korea. There are two ways of setting up a stock company in South Korea. You can use either promotion or subscriptive incorporation, but both procedures involve registration of incorporation that takes about two weeks to complete. Registration tax is charged for both promotion and subscriptive incorporation, which costs around 0.4% of the capital you’ll be investing. You will also have to pay 20% of the registration tax for local education tax. If you invest in stock companies established in overconcentration control areas, the total costs accrued from both taxes can increase by up three times more. Other charges include registration application fee to get revenue stamp of the Supreme Court and notarization fee. The most important step in this procedure is filing your business registration, which should be completed within 20 days from the day your stock company opens its doors for business. To avoid issues down the line, hire an expert in South Korea’s FDI like Pearson & Partners to help you establish a company. South Korea is ranked 5th globally in the Doing Business 2020 ranking by the World Bank. It has laid a solid foundation across all sectors that will guarantee its position as a global business hub for many years to come. You can rely on Pearson & Partners to help you become part of South Korea’s inspiring journey and join the long list of the success stories of the FDI. Contact us today to start your journey.read more
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