Complete Guide to Korea Company Setup: Business Structures, Bank Accounts, and Tax Compliance

South Korea is poised to introduce major reforms in its foreign exchange market, marking the most significant changes since the 1998 financial crisis. These adjustments will extend trading hours until 2 AM, coinciding with the London market's close, with plans for potential 24-hour operations in the future. Critically, approved overseas financial institutions will gain direct access to Seoul’s forex market, diminishing the dependency on non-deliverable forward (NDF) markets. Major banks like KB Kookmin, Shinhan, Hana, and Woori are actively scaling their teams to meet these changes, aiming to register their overseas branches as foreign financial institutions (RFIs). This strategic move will enhance their presence in Seoul while supporting global operations in South Korean won.

Furthermore, the rollout of competitive corporate forex electronic trading platforms, such as Hana Bank’s Hana FX Trading System, is expected to bring greater market stability by expanding supply channels and reducing exchange rate volatility. These reforms open new avenues for foreign investors, allowing them to enhance market presence, refine trading strategies, and pursue emerging business opportunities within South Korea’s evolving forex environment.

1. Choosing a Business Structure

South Korea offers various organizational structures, each carrying specific legal and operational considerations that impact business activities, ownership, and taxation. Here’s an overview of the primary business forms commonly chosen in South Korea:

Establishing a Subsidiary

Setting up a subsidiary results in a separate legal entity, which may be partially or fully owned by a parent company. This setup allows subsidiaries greater autonomy and limited liability, making them ideal for foreign businesses entering the South Korean market. This structure enables independent management and financial oversight while benefiting from support provided by the parent organization.

Private Company (Yuhan Hoesa)

Also known as a Limited Liability Company (LLC), a private company offers shareholders limited liability protection and is relatively straightforward to establish. This structure provides flexibility in both management and taxation. When foreign direct investment (FDI) reaches 100 million KRW or more, private companies are recognized as foreign-invested entities under the Foreign Investment Promotion Act. Despite foreign ownership, these companies operate as domestic corporations under South Korean commercial law.

Setting Up Branch and Liaison Offices

A branch office enables foreign firms to expand into South Korea, functioning as an extension of the parent company without separate legal status and adhering to specific reporting requirements.

Alternatively, a liaison office limits its activities to non-commercial tasks, such as market research and promotional activities, and operates under regulations outlined in the Foreign Exchange Transactions Act.

Choosing the Right Business Structure

Selecting the correct business structure is essential, as it aligns with your company’s objectives, scale, and industry. Each option comes with unique benefits and limitations in terms of taxation, liability, and administrative demands. Consulting with legal and financial professionals in South Korea is crucial to navigating these complexities and making informed decisions that align with your business goals.

Naming Your Company

Choosing an appropriate name is a critical step in establishing a business in South Korea. Company names must be in Korean characters, unique among registered entities, and free of prohibited terms. Verify compliance and availability through the Korean Intellectual Property Office (KIPO).

Setting Up an ESCROW Account and Allocating Paid-Up Capital

Notify your bank of intended business activities and set up an ESCROW account, essential for managing financial transactions during company formation. Deposit the necessary paid-up capital into this account to establish a solid financial base for your business.

Preparing and Submitting Internal Documents

Compile required internal documents, such as bylaws and corporate resolutions, to define your company’s structure and operational procedures. These documents are mandatory for registration.

Confirming Corporate Registration Certificate

Upon approval, your corporate registration certificate will be issued, providing legal recognition and confirming your company's formal registration in South Korea, allowing lawful operations to commence.

Receiving Corporate Seal Card

Obtain your corporate seal card, essential for signing official documents and conducting transactions; it plays a key role in corporate operations in South Korea.

Registering with the Tax Office

Register your business with the tax office to ensure compliance with South Korean tax regulations, providing the necessary business information for financial transactions and reporting.

Establishing a Business Bank Account

Open a business bank account to facilitate essential transactions, such as receiving payments and managing business finances. Pearson & Partners offers remote assistance for seamless account setup, eliminating the need for physical presence in South Korea.

Commencing Business Operations

With your company formation complete, begin business activities in South Korea, implementing your strategic plans and engaging with the local market. Keep accurate records to maintain compliance with tax and financial regulations.

Conclusion

Setting up a company in South Korea presents exciting opportunities within a dynamic market. This guide has provided essential steps from company naming to strategic business initiation. Choosing the right business structure and adhering to regulatory requirements are critical to achieving success, including recognition under the Foreign Investment Promotion Act for foreign direct investment (FDI).

For comprehensive support throughout the company formation process, Pearson & Partners offers specialized services in incorporation and tax accounting to ensure a smooth setup in South Korea. Reach out to us for tailored guidance to achieve your business objectives in this vibrant market. Contact us.