Establishing a Business in South Korea: Key Steps and Reforms

South Korea is set to undergo major reforms in its foreign exchange market, marking the most significant updates since the 1998 financial crisis. These changes include extending trading hours to 2 AM to align with London’s market close and setting the stage for 24-hour trading. Additionally, international financial institutions approved by Korean authorities will gain direct access to Seoul’s forex market, reducing dependence on non-deliverable forwards (NDFs). Major banks such as KB Kookmin, Shinhan, Hana, and Woori are bolstering their teams to adapt to these changes and plan to register their overseas branches as foreign financial institutions (RFIs) to enhance their presence in Seoul and global operations involving the South Korean won. Furthermore, the rollout of competitive corporate forex electronic trading platforms, such as Hana Bank’s 'Hana FX Trading System,' is anticipated to stabilize the market by diversifying supply sources and reducing exchange rate volatility. Foreign investors can leverage these reforms to expand their market footprint, refine trading strategies, and explore new business opportunities in South Korea's evolving forex sector.

1. Choosing a Business Structure

In South Korea, businesses have several structural options, each with distinct legal and operational features affecting ownership, taxation, and business operations. Here are the main business forms available:

Subsidiary Establishment

Setting up a subsidiary creates a separate legal entity that is either partially or wholly owned by a parent company. Subsidiaries enjoy autonomy and limited liability, making them a popular choice for foreign firms entering South Korea. This structure allows for independent management and financial control while receiving support from the parent company.

Private Company (Yuhan Hoesa)

Also known as a Limited Liability Company (LLC), a private company offers shareholders protection from personal liability and is relatively easy to set up. Private companies provide flexibility in management and taxation. If foreign direct investment (FDI) from international investors exceeds 100 million KRW, these companies are classified as foreign-invested under the Foreign Investment Promotion Act but are considered domestic corporations under South Korean law.

Branch Office Setup

A branch office allows foreign companies to expand into South Korea as an extension of the parent company, lacking a separate legal identity and subject to specific reporting requirements.

Liaison Office Formation

A liaison office of a foreign corporation is restricted to activities like market research and promotional efforts, complying with regulations under the Foreign Exchange Transactions Act.

Choosing the right business structure should align with your goals, company size, and industry. Each structure has unique advantages and challenges related to taxation, liability, and administrative duties. Consulting with legal and financial experts in South Korea is essential to navigate these complexities and make informed decisions tailored to your business needs.

2. Selecting a Company Name

Choosing a suitable company name is a crucial first step. Corporate names must be in Korean characters, and using only English is not allowed. Ensure the name is unique and does not conflict with existing trademarks. You can check name availability through the Korean Intellectual Property Office (KIPO).

3. Setting Up an ESCRO Account and Allocating Paid-Up Capital

Establish an Escrow (ESCRO) account to manage financial transactions during the company formation process. Deposit the required paid-up capital into this account to solidify your company’s financial standing.

4. Preparing and Submitting Internal Documents

Prepare essential internal documents such as bylaws and corporate resolutions that outline your company’s structure and operations. These documents are required for registration.

5. Obtaining Corporate Registration Certificate

Once registered, you will receive a corporate registration certificate confirming your company’s legal recognition and authorization to operate in South Korea.

6. Receiving Corporate Seal Card

Obtain a corporate seal card, which is crucial for signing official documents and conducting business transactions in South Korea.

7. Registering with the Tax Office

Register your business with the tax office to comply with South Korean tax laws. This involves providing details about your business structure, location, and operations, and obtaining a tax identification number for financial transactions and tax reporting.

8. Opening a Business Bank Account

A business bank account is essential for managing transactions, receiving payments, and handling expenses. South Korean banks typically require identification documents and a business registration certificate to open an account. Pearson & Partners offers remote assistance for bank account setup, allowing you to establish an account without visiting South Korea in person.

9. Launching Business Operations

With company formation complete, you are ready to start business operations in South Korea. Begin implementing your strategies and delivering products or services to the South Korean market. Accurate record-keeping of all business transactions is crucial for tax and financial compliance.

Conclusion

Starting a company in South Korea offers a promising opportunity in a vibrant market. This guide outlines key steps, from choosing a company name to launching operations. Selecting the appropriate business structure and meeting regulatory requirements, including those for foreign direct investment (FDI), is crucial.

For expert assistance with company formation in South Korea, Pearson & Partners provides comprehensive support. Our consulting services specialize in incorporation and tax accounting, offering guidance on legal requirements, compliance, and strategic planning to ensure your success in South Korea’s dynamic market. Contact us for tailored support and expert advice.