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23 MAR 2019

Why South Korea Business is preferred by Foreign Companies?

TOPIC : Business in Korea Incorporation

The geographic location of South Korea is in Eastern Asia and it sprawls across the southern half of the Korean Peninsula, on the border of the Sea of Japan and the Yellow Sea. Over the course of the past forty years, South Korea has been exemplary of tremendous growth and worldwide integration and is now a cutting-edge industrial economy.

In 2004 South Korea made it to the trillion-dollar club of globalized economies and is presently part of the world’s 20 largest economies. A member of the OECD (Organization for Economic Cooperation and Development), South Korea provides everything that is good for foreign investment. World Bank’s Doing Business 2012 survey rates South Korea as the world’s 8th-easiest place to do business. South Korea has hosted the 2018 Winter Olympic Games, and thus comes across as the most happening country in the years to come.

Why South Korea can be the Best Place for Your Business

Being the world’s 15th-largest economy as far as GDP is concerned — with around 51.5 million residents — The idea of South Korea Business is the best action plan as the country offers the best ever marketplace for investors from around the world. A larger chunk than half of the Global Fortune 500 firms is comfortably placed in the country.

Highlights

• Incentives that Call for Business

Foreign direct investment incentives make up for foreign investments in South Korea for their economic contributions and simultaneously lowering startup costs. The government provides tax benefits to foreign companies with an eye to contribute largely to the Korean economy. Additionally, the government provides these companies with industrial sites, cash grants and other financial assistance.

Government-assigned free trade zones and trade regulations for production and distribution; low rents on land; tax rebates; and one-stop governmental services are like vitamins to businesses. Moreover, simplified customs reporting procedures bear on various logistic operations.

Free trade zones support businesses in an effort to encourage logistics at key international centers, thereby making life pleasant for foreigners.

• Amazingly Minimal Tax

Corporate taxpayers in Korea have to pay minimum taxes. This can be understood as the greater of 10% (to the taxable income till KRW 10 billion, 11% on the surplus as far as KRW 100 billion, 14% on the extra beyond KRW 100 billion) of the accountable income, prior to different deductions and waivers according to the Special Tax Treatment Control Law (STTCL) computed to reach the revised nonexempt income or the final tax following various deductions and exemptions.

In the case of small and medium enterprises (SMEs), the least tax is greater than 7% of the amended taxable income or tangible tax obligation.

• A Geographic Favorite

Anchored strategically between China and Japan, South Korea within easy travel distance of more than 60 cities with more than a million-strong population. The US-Korea Free Trade Agreement has paved the way for South Korean businesses to have better access to the world’s largest consumer market.

Lately, South Korea inked an inclusive Free Trade Agreement (FTA) with the Association of Southeast Asian Nations and a provisional agreement with India.

• Smart Customers

South Korea’s technology-savvy consumers have generously contributed to the country’s domestic market in the last ten years. Korean mobile phones and home appliances manufacturers are globally famous for their high standard products— thanks to their perceptive local clienteles. No wonder tech firms like Microsoft, Motorola and eBay, as well as consumable companies like Procter & Gamble and L’Oréal, use South Korea Business to test the market value of their new products.

• Infrastructural Wonder

South Korea is adequately resourced with respect to ports, airfields and road and rail network. Beginning 2008, Incheon International Airport (the country’s largest, on the outskirts of Seoul) catered to 63 air carriers and 30 million passengers en route to 49 countries. Even amazing, within six years of its launch it became the world’s second-largest airport concerning cargo flow.

Korea Business, Korea Branch Establishment, Korea Company Setup

What Government Policies Drive

• Added Advantage Strategy in Core Businesses

High expertise in core businesses like shipbuilding, automobile and metallurgy is acquired by way of government-backed high technological evolution. Even though these type of industries have grown significantly, restrictions to price competition in the global market are evident.

Hence, companies are focused on churning out high-value products and services comprising hybrid or cell-fuel powered, easy-to-use automobiles, special ships running on core advanced technology and advanced materials.

• Less Carbon, Green Growth

Lately, the ‘green growth’ issue has been prominent throughout industries as the Government pushes tax rebates and finances for green technology. The aim of the Korean government is to drive “Low carbon, Green growth” for developing the nation in the coming several decades.

The government firmly supports foreign involvement and is open to foreign expertise in high tech industries and business services. It provides a range of tax and other investment incentives and is the process of demolishing institutional barriers and bylaws.

Korea, a participant in the UN Framework Convention on Climate Change (UNFCCC) is hard-pressed to reduce its greenhouse gas emission that put it on the 8th rank amongst OECD members (2010). In May 2012, Korea was the first Asian country to introduce the Emissions Trading Scheme (ETS) in 2015.

For preparing industries for the ETS, the Environment Ministry rolled out the voluntary “cap without trade” Target Management System (TMS) in 2012. Since 2015, ETS participation is compulsory for facilities spewing 25,000 tons of carbon dioxide and companies discharging 125,000 tons of carbon dioxide every year with smaller entities maintaining the TMS.

According to this law, financial and fiscal incentives can induce essential and effective reorganizing.

• Selection of new growth engine makers

Pursuing a target market and a higher degree of globalization, the government has picked out 17 new growth engine industries across three segments. With an extended multi-year investment, 17 chosen zones have the potential to drive the futuristic economic growth, flanked by the government’s relentless efforts to spur foreign investment in these domains.

These 17 chosen industries are: IT convergence citywide, green transportation systems, renewable energy, low-carbon energy technologies, LEDs in the green technology sector; broadcasting and communications media, smart robotics, bio-pharmaceutical and medical devices, information technology, food industry and nano-convergence in the high-tech convergence sector; and healthcare, green financing, cultural content and software, education, MICE and tourism-related industries in the value-added service sector.

• Making the Most of Foreign Direct Investment

The Korean government makes it so conducive for foreign direct investment (FDI) that the chain reaction is visible in employment, technology and the economic sectors. Korea consistently directing efforts to be a delight for investors and offering buyer-oriented landscape and incentives (e.g., easygoing and suitable locality, liberalization and simplification of procedures). Foreign investment is made more appealing in the sectors of parts and materials and also core technologies and the service sector. The government also makes it easier to invest in government-run enterprises and projects targeting territorial advancement.

Investment Opportunities

Earlier, the majority of the opportunities for foreigners remained within the margins of setting up labor-based manufacturing or processing activities aimed at the global marketplace. Now, investors get rich returns by channeling trained manpower towards the maximal value and hi-tech domains.

As Korea’s enormous middle-class grow prosperous, it brightens the prospects for consumer products and luxury items. It is thus likely for foreign investment to penetrate the retail sector along with import and wholesale business for the majority of the consumer goods.

Despite the fact that the global financial meltdown of 2008 weakened investment in this sector, deregulated financial business service sectors did open up unique prospects for foreign investors.

Lately, Korea’s free trade agreements with the US and EU, effective March 2012 and July 2011 respectively, have made Korea a perfect location for the regional headquarters of the US or EU-based multinationals in hi-tech enterprises.

Thanks to these free trade agreements, Korea emerges highly lucrative to Asian multinational corporations in parts and materials business, specifically Japan and China-based companies wanting to expand their global markets. Korea is likely to be a driveway to Northeast Asia for trading economies.

The Benefits Package

To the pleasure of expats settling in South Korea, apart from a record high in growth and global consolidation, the country also consistently pushes the high-tech industry-driven economy. Strong business liaisons with directed credit and import restrictions have made South Korea one of the world’s largest economies.

The benefits package in store for investing in South Korea Business includes:

• To the delight of investors, South Korea has zero restrictions on foreign currency accounts or the return of capital gains.

• It just takes a week to set up a South Korea Business in the form of a limited liability company, provided the requirements are met.

• South Korea has ultramodern air, land and sea transport network, facilitating quick movement of goods, especially within the country.

• With South Korea’s Foreign Investment Promotion Act, 99.8% of businesses can avail foreign investment and significant protection for the investors.

• Incheon International Airport is also a prominent logistics and transportation hub of Northeast Asia.

Know this When Incorporating a South Korea Business

Investors should be aware of these regulations when setting up a South Korea Business:

• Corporate incomes are taxable at 10% on the first 200 million WON

• Incomes between US$180,000 and US$20m are taxable at 20%

• 10% VAT amount is applicable to the sale and transfer of goods and services.

• Non-resident companies have to pay withholding tax

• Taxes on resident foreigners are calculated on their global income if they have stayed in South Korea for more than 5 years.

• No export duties are imposed

• It is a must to file Annual tax returns at the National Tax Service of South Korea.

To learn more about things to learn before starting a business in South Korea, you may refer to our other insights article here.

Setting up a South Korea Business – An Off the Wall View

Relocating to South Korea for business? Always remember that however progressive this country seems, Confucianism still runs in the ethics. Patience and negotiation skills are vital when sealing business deals. Applying changes might take a while, as the harmony of the group as well as, respect for authority is esteemed. Your South Korean trade associates would want to ascertain that you can be trusted before actually signing deals with you. (Here is the procedure to follow when starting a business in Korea)

Communication with South Korean business associates may comprise initial teething problems for foreigners, who are used to closing the deal right away. In South Korea, outright refusals are perceived as rude. One should be intently focused, as discords may be subtle. Patience and reading between the lines are valuable virtues. That leaves no room for distress!

What You ‘Need to Know’

Here’s what you need to know while setting up a South Korea Business:

1. Confucianism

Emotion and spiritualism run deep in Koreans. They love music and church as intensely as they play rugby. Their belief in Confucianism is reflected in their family values.

Eldest sons are taught to run the family with the finances. Children are raised to respect their parents and honor their ancestors.

2. How to Meet and Greet

These traditions are reflected in the way business is done in South Korea. Although is no rigidity, the etiquette of greeting a Korean are expected.

A subordinate bows to one who is higher in rank to him. However, the senior-most individual will use a handshake after a bow.

Your business card must have your occupation/designation so that your Korean colleagues/business partners know where you stand in your company’s chain of command. Produce it with respect.

3. Save the Situation

In South Korea resembles other Asian societies when it comes to business and social liaisons. Koreans exhibit ethics and conduct that radiates positive vibes in the surroundings, thereby striking an amicable balance between the frame of mind or inner feelings.

This endorses the fact about the helpful, polite and friendly nature of the Koreans. The catch here is not to prod for ‘yes’ or ‘no’ answers and accept give time for slow agreeable decisions. Proper respect is imperative in the South Korean culture, complemented with the tendency sidestep any circumstances that can cause the situation to go out of hand.

All you need is open contradictions and criticisms to lose business. Add value to conversations with honest compliments that exude or add to self-esteem.

These three shots of facts help you build long-term business and personal liaisons essential to South Korea Business.

Why South Korea Business is preferred by Foreign Companies

Conclusion

In the last half-century, Developing countries have seen South Korea set an example for outstanding economic development, making it the world’s eighth-largest trading dominion.

With groundbreaking economic strategies that cultivate more growth, thereby making the country independent of exports and large enterprises, South Korea is on the way to revitalize and prop up growth.

To incorporate a company in South Korea it is imperative to get to know the Korean business approaches and thereafter design your own strategies, based on the mixed-use of extensive behind-the-scenes knowledge and practical tips and solutions. Pearson & Partners can help you establish your business in Korea with the local corporate expert team. Contact us for enquires.

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Korea FDI: Unveiling South Korea's Fintech Frontier and Driving Innovation

In the ever-evolving realm of global finance, South Korea's fintech sector emerges as a burgeoning center for foreign direct investment (FDI). Recognized for its rapid technological progress and robust economy, South Korea is now leading the way in fintech innovation, driven by inventive approaches and strategic policy frameworks. This article explores the ascent of South Korea's fintech industry and its growing influence on FDI, providing insights into its mechanisms and future trajectory. Government Measures Supporting Fintech Expansion At the heart of South Korea's fintech surge lies the proactive stance of the government. Noteworthy initiatives such as the Fintech Innovation Fund and substantial policy funds aim to foster sector growth and development. These actions, coupled with a regulatory environment that encourages collaboration between traditional financial institutions and emerging fintech players, have not only bolstered the domestic fintech landscape but also heightened its attractiveness to foreign investors. Fintech's Influence on South Korea's FDI Inflows The transformative impact of the fintech sector on South Korea's FDI is evident. With FDI inflows reaching USD 9.041 billion in the first half of 2022, the sector has become a cornerstone of the nation's economic expansion. South Korea's standing on the A.T. Kearney Foreign Direct Investment Confidence Index underscores its growing stature as a global investment hotspot, fueled by fintech advancements and related technologies. Collaborative Efforts and Global Expansion Fueling Fintech Innovation A collaborative ecosystem within South Korea's fintech sector, encompassing startups, established banks, and tech companies, drives growth. This collaborative model has facilitated the integration of innovative fintech solutions into popular platforms like Kakao, enhancing accessibility and functionality for users. Furthermore, strategic government support for fintech firms' international expansion is fostering global partnerships and investment opportunities, further energizing FDI inflows. The Role of Open Banking and Digital Transformation An integral part of South Korea's fintech evolution is the adoption of open banking systems, revolutionizing the financial services landscape. This shift towards digital banking has not only improved customer experiences but also unlocked new avenues for innovation and investment. The digital transformation of the financial sector, alongside the country's high internet and smartphone penetration rates, provides fertile ground for fintech growth and foreign investment. Conclusion: The Outlook for Fintech and FDI in South Korea South Korea's fintech sector is on an upward trajectory, poised to continue attracting significant FDI. With government backing, collaborative initiatives, and robust technological infrastructure, the stage is set for sustained growth and investment. As the sector matures, it is expected to offer diverse opportunities for foreign investors, cementing South Korea's position as a leading fintech hub in Asia. The future of fintech in South Korea not only shapes the nation's economic narrative but also influences global financial trends and investment patterns. Embark on Your Korean Business Journey with Pearson & Partners. Planning to venture into the Korean market? Pearson & Partners specializes in providing comprehensive visa and tax services, streamlining your entry into Korea's dynamic business landscape. Our team's expertise in Korean regulations ensures a seamless and compliant journey, allowing you to focus on business growth. Reach out to us for tailored support aligned with your business goals and regulatory requirements.

Foreign Direct Investment in Korea: A Legal Regime Guide

Although the South Korean economy is sizable and advanced, foreign investors encounter difficulties due to its intricate, opaque, and domestically focused regulatory structure. This article seeks to provide foreign investors with insights into South Korea's legal framework. 1. Transparency of The Regulatory System President Yoon's reform efforts aim to simplify regulations and align them with global standards, resulting in improved transparency. Despite progress, foreign businesses face unique challenges due to regulations targeting larger corporations. Legislative and Regulatory Framework South Korea's legislative and executive branches propose bills, with ministries drafting subordinate statutes. Collaboration among ministries is crucial during the drafting process. Local governments can enact ordinances within federal laws. All legislative procedures adhere to formal regulations. Transparency Measures Since 2011, publicly traded companies must adhere to International Financial Reporting Standards (IFRS). Public feedback is sought before enacting laws or regulations, although sometimes regulations are enforced without adequate consultation. Regulatory Oversight The Regulatory Reform Committee (RRC) reviews laws to minimize government intervention. Annual assessments ensure compliance. Support is provided for cost-benefit analysis by the Korea Development Institute and the Korea Institute of Public Administration. Environmental, Social and Governance (ESG) Initiatives Recent government efforts aim to mandate ESG disclosure for listed companies. Guidelines set by the Financial Supervisory Service align with international standards. The Korea Exchange operates an ESG information platform for listed companies. Enforcement and Penalties The government enforces regulations through fines, corrective actions, and criminal charges. CEOs can face legal repercussions for company actions. Large companies may undergo heightened regulatory scrutiny, including potential designations by the Korea Fair Trade Commission. Financial Transparency South Korea's public finances are generally transparent, except for state-owned enterprise debt. 2. International Regulatory Considerations South Korea has revised local regulations to comply with international treaties and trade agreements, treating them on par with domestic laws. Officials aim to harmonize standards with global norms, drawing inspiration from the U.S. and the EU. Despite efforts to encourage regulatory reform through exchanges with the U.S., U.K., and Australia, unique local regulations remain challenging for foreign companies. South Korea has introduced distinctive digital regulations like the Cloud Security Assurance Program. As a WTO member, South Korea notifies the Committee on Technical Barriers to Trade of draft regulations and is a signatory of the Trade Facilitation Agreement (TFA). Known for modernized transportation and customs clearance, South Korea's Korea Customs Service largely upholds its free trade agreement obligations regarding rules of origin. 3. Legal System and Judicial Independence South Korea's legal system operates under civil law principles. District and high courts oversee commercial activities, property rights, and contracts, issuing judgments typically in the local currency. The judiciary, including specialized patent, family, and administrative courts, remains independent from government influence in cases involving foreign investors. Foreign court rulings, except in specific conditions, lack enforceability in South Korea. Unlike common law systems, South Korea does not follow the principle of stare decisis. The Constitutional Court, composed of nine justices, adjudicates constitutional issues, with three appointed by the National Assembly and three by the Chief Justice of the Supreme Court, all ultimately appointed by the President. 4. Laws and Regulations on FDI South Korea's legal system is transparent with an independent judiciary, governed by the Foreign Investment Promotion Act (FIPA). Information on foreign investment laws is available on the Invest KOREA website. Relevant enactments: - The "Special Measures Act on Strengthening and Protecting the Competitiveness of National High-Tech Strategic Industry" from August 4, 2022. It regulates the dissemination of critical national technologies and imposes additional regulations on companies with National High Technologies. Pending/proposed legislation: - An amended Personal Information Protection Act (PIPA) was passed on February 27, 2023, aiming to grant broader rights to data subjects and replace criminal penalties with fines. - Various bills in the National Assembly aim to mandate global over-the-top (OTT) providers to pay network usage fees to Korean internet service providers. - Revisions to the Labor Standards Act are being considered by the Ministry of Employment and Labor to introduce flexibility to the 52-hour workweek. - Amendments to the Restriction of Special Taxation Act are under review to increase corporate tax incentives for facility investment in strategic sectors like semiconductors. 5. Expropriation and Compensation South Korea follows international legal standards on expropriation, protecting foreign-invested enterprise property from requisition. Private property may be expropriated for public use with due process and fair compensation. Typically, compensation exceeds market value. A U.S. investor's expropriation lawsuit under the KORUS FTA was dismissed in 2019. South Korea allocated USD 2.2 billion in 2023 for land expropriation, a 17% increase from the previous year. 6. Bankruptcy Regulations Bankruptcy proceedings in South Korea, governed by the Debtor Rehabilitation and Bankruptcy Act (DRBA), ensure equality for domestic and foreign entities. Initiated by debtors, creditors, or groups, proceedings start upon court recognition of insolvency. A Custodial Committee manages assets, claims, and contracts, with creditor voting rights. Shareholders and contract holders retain rights based on ownership and contract terms. Debtors can be arrested upon filing, facing criminal penalties for negligence. The Seoul Bankruptcy Court (SBC) handles major cases nationwide, while smaller ones go to local district courts. Companies with debts over KRW 50 billion and/or 300 creditors may file for bankruptcy rehabilitation with the SBC. Conclusion While South Korea boasts a robust economy, foreign investors often grapple with the complexity and domestically oriented nature of its regulatory system. This article has aimed to shed light on South Korea's legal framework, highlighting key aspects such as transparency measures, the legal system's independence and FDI regulations. By providing insights into these areas, we hope to better equip foreign investors with the knowledge necessary to navigate the South Korean market and engage effectively in business activities within the country. Contact us for assistance with expanding your business in Korea, and we'll provide expert support in resolving any legal matters you encounter.

2024 Korea's D9 Trade Visa: A Detailed Overview Including Oasis Program Information

If you're an outstanding foreign trader looking for increased convenience during your stay in Korea, the D9 Trade Visa provides a customized system to suit your requirements. This initiative includes a unique scoring system that assesses trade proficiency, domestic residency experiences, and additional factors. D9 Trade Visa The Trade Visa introduces a groundbreaking approach to improve the comfort of stays for exceptional foreign traders. With varied eligibility criteria, the system enables permits and residency status changes for those scoring 60 points or above out of 160. It actively facilitates residency changes for long-term residents with extensive domestic stay experiences. Nevertheless, extension permits are exclusively awarded based on trade performance. Eligibility and Permit Requirements: - Proficiency in Korean (TOPIC 3+) and achieving a score of 60 points or higher in the Trade Visa scoring system. - Applicants must attain a minimum of 10 points in essential categories and possess a business registration certificate. For joint representatives, the total score is divided, and only the resultant score is considered. The business registration must fall under the 'trade' category, and a lease agreement for a separate business facility in the applicant's name is mandatory. 1. New Issuance (Issuance of Certificate of Visa Issuance and Change of Residence Status) Example with 60 points: * Oasis 4+ Trade Specialized Training (3 days, 10 points) * Korean university graduation (5 points) * Study abroad experience (30 points) * Domestic stay of 3 years or more (15 points) Essential Categories (Maximum 65 points): Trade Performance (Average annual performance in the last 2 years): Up to 30 points * Export Performance: - Over $300,000: 30 points - Over $100,000: 20 points * Trade Performance (Export + Import): - Over $500,000: 15 points - Over $300,000: 10 points Trade Expertise: Up to 35 points * Trade-related work experience (1): 20 points * Major in a trade-related field (2): 15 points * Completion of trade specialized training (3): 10 points (1) Only one of (2) or (3) can be duplicated, applicable to those with 2 or more years of regular work experience in trade. (2) Completion of a trade-related major at a domestic or foreign university. (3) Recognition by the Minister of Justice for the institution and course. Optional Categories (Maximum 95 points): Domestic Stay Period (As of the application date): Up to 20 points * Continuous domestic stay: - Over 5 years: 20 points - Over 3 years: 15 points - Over 1 year: 10 points Stay without foreigner registration for more than 200 days in the last 2 years: 5 points Education: Up to 20 points * Ph.D.: 20 points * Master's degree: 15 points * Bachelor's degree: 10 points * Associate degree: 5 points Additional Points: Up to 55 points * Domestic study experience (1): 30 points * Capital of 100 million won or more (2): 15 points * TOPIC 3 or higher or KIIP completion: 10 points (1) Foreigners who have studied for more than 2 years at a domestic university and obtained a bachelor's degree or higher. (2) Limited to funds owned by the individual related to the operation of the trade business. 2. Extension Permit: Application of scores for each category during an extension permit: Trade Performance (Average annual performance in the last 2 years): * Export Performance: - Over $500,000: 30 points - Over $300,000: 20 points - Over $100,000: 15 points - Over $50,000: 8 points * Trade Performance (Export + Import): - Over $70,000: 5 points Recommendation letter from a specialized educational institution: 5 points (No duplication of scores; only the highest score is considered. The recommendation letter is limited to 4 times for the same individual.) Domestic Employment (As of the application date): * Over 3 employees: 10 points * Over 2 employees: 5 points * Over 1 employee: 2 points Tax Payment Record (Based on the annual income tax payment record): * Over 5 million won: 7 points * $4-5 million: 5 points * $3-4 million: 3 points * $2-3 million: 1 point Advanced Trade Training Course Completion: 3 points For those who completed an approved course within 1 year of the application date. Extension Permit Criteria: For the first extension permit: * Scores 5-10 points (1): 6 months * Scores 11-20 points: 1 year * Scores 21 points or more: 2 years (1) In the case of (1), trade performance must score 5 points or more. For the second extension permit, those with scores of 5 points or less are not allowed an extension. For the second extension permit: * Scores 10 points or less: No extension * Scores 11-30 points: 1 year * Scores 31 points or more: 2 years Reference: Oasisvisa Conclusion In summary, the D9 Trade Visa brings forth a pioneering scoring mechanism, refining eligibility standards for foreign traders and prioritizing a well-rounded approach to residency transitions. This intricate policy underscores a dedication to accommodating esteemed contributors while mitigating potential misuse. Pearson & Partners, a consultancy specializing in Korea, is well-equipped to assist with D9 Visa procedures, providing proficiency in incorporation, tax accounting, and visa assistance. For personalized guidance in navigating Korean business regulations, reach out to us.

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