A Guide to Establishing Your Business in South Korea for Foreign Entrepreneurs

If you're a foreigner intrigued by the prospect of setting up a business in South Korea, this article is crafted just for you. South Korea has emerged as a top destination for global entrepreneurs and businesspeople looking to tap into the dynamic Asian market. Particularly, Seoul shines as a bustling hub for startups focused on cutting-edge technologies. Moreover, South Korea's adept handling of its economy post-COVID has further fueled interest among foreign entrepreneurs.

But diving into the Korean business landscape requires more than just a great business idea; it demands a deep understanding of the intricacies involved in company formation and navigating the local business environment. Let's explore four main pathways available for foreigners looking to establish their presence in South Korea:

1. Subsidiary:

• • This option is ideal for individuals holding citizenship in another country, foreign enterprises, or those engaged in cooperative economic development for foreign governments. Establishing a subsidiary, also known as a local corporation or an FDI (Foreign Direct Investment) company, opens doors to expanding operations and exploring new opportunities in South Korea.
  • Under the Foreign Invest Promotion Act (FIPA), foreign subsidiaries must meet the same corporate and legal standards as domestic companies. This eligibility streamlines the application process for FDI recognition, allowing foreigners to leverage tax incentives, financial subsidies, and industrial facility assistance.
  • To qualify as foreign investment under the FIPA, an investment exceeding 100 million KRW ($89.05) in a company owned and managed by a Korean citizen is required. Common business structures for South Korean subsidiaries include partnerships, limited liability companies, stock companies, and limited companies, with limited liability and stock companies being popular choices due to their simplified incorporation processes and easier corporate governance.

2. Private Business:

• • Another avenue for foreign entrepreneurs is setting up a private enterprise managed by a single individual. Similar to establishing a subsidiary, this option requires a foreign-sponsored investment exceeding 100 million KRW to be recognized under the FIPA.

3. Branch Office:

1. • Unlike foreign investments regulated by the FIPA, establishing a branch office falls under the jurisdiction of the Foreign Exchange Transaction Act (FETA). Branch offices conduct profit-making operations on behalf of the main office and require a local representative and court registration in Korea.
   • As branch offices generate stable revenue in Korea, they are considered permanent establishments under business law and are subject to Korean tax laws and rates.
     
     
   
   

   4. Liaison Office:

   • The Liaison office offers yet another route for business formation in Korea. Similar to branch offices but regulated by FETA, Liaison offices are restricted from engaging in profit-making transactions. Instead, they focus on preparatory and support activities such as market research, development, and information gathering.
   • As Liaison offices do not generate revenue in Korea, they are exempt from paying taxes in the country. Registration for a Liaison office is relatively straightforward, requiring only a unique business number from the tax authority office, without the need for court registration.
     
     

In addition to exploring these avenues, it's crucial for foreign investors to understand the business limitations in South Korea. Prohibited activities encompass sectors such as banking, postal services, security trading, general education, and agricultural cultivation. Partially prohibited activities restrict foreigners from owning more than 50 percent shares in sectors like fishing, telecommunications, and power plants.

To delve deeper into the intricacies of Korea business formation and ensure a smooth process, seeking guidance from experts like Pearson & Partners Korea is highly recommended. These corporate service firms specialize in Korea business registration, visa services, taxation, recruitment, and more, helping foreign investors navigate the complexities of establishing and expanding their business presence in South Korea.