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.
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