Guide to Establishing a Company in South Korea

South Korea is set to implement significant reforms in its foreign exchange market, marking the most substantial changes since the 1998 financial crisis. These reforms include extending trading hours until 2 AM, aligning with London's market close, and paving the way for eventual 24-hour operations. Notably, overseas financial institutions approved by Korean authorities will now have direct access to Seoul's forex market, reducing reliance on non-deliverable forward (NDF) markets. Major banks such as KB Kookmin, Shinhan, Hana, and Woori are expanding their teams in preparation for these changes, intending to register their overseas branches as foreign financial institutions (RFIs) to strengthen their presence in Seoul and enhance global operations denominated in South Korean won. Moreover, the introduction of competitive corporate forex electronic trading platforms, such as Hana Bank's 'Hana FX Trading System,' is expected to stabilize the market by increasing supply sources and decreasing exchange rate volatility. Foreign investors can capitalize on these reforms to expand their market presence, optimize trading strategies, and seize new business opportunities in South Korea's evolving forex landscape.

1. Choosing a Business Structure

In South Korea's business environment, enterprises have various options for company structures, each with distinct legal and operational characteristics that significantly impact business operations, ownership, and taxation. Below are the primary business forms commonly chosen in South Korea:

Establishing a Subsidiary

Creating a subsidiary establishes a separate legal entity, partially or fully owned by a parent company. Subsidiaries benefit from autonomy and limited liability, making them a preferred choice for foreign businesses entering South Korea. This structure allows for separate management and financial control while leveraging support from the parent company.

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. Private companies provide flexibility in management and taxation. When foreign direct investment (FDI) from foreign individuals reaches 100 million KRW or more, private companies are classified as foreign-invested companies under the Foreign Investment Promotion Act. Despite foreign investment, they are treated as domestic corporations under South Korean commercial law.

Branch Office Establishment

Establishing a branch office allows foreign companies to extend their operations into South Korea. Operating as an extension of the parent company, a branch office does not have a separate legal identity but must adhere to specific reporting requirements.

Setting Up a Liaison Office

A liaison office of a foreign corporation is limited in its activities, typically focusing on tasks such as market surveys and promotional activities, in compliance with regulations under the Foreign Exchange Transactions Act.

Choosing the right business structure is crucial and should align with your specific objectives, company size, and industry. Each structure offers distinct advantages and disadvantages related to taxation, liability, and administrative obligations. Seeking guidance from legal and financial experts in South Korea is essential to navigate these complexities and make well-informed decisions tailored to your business requirements. Understanding the intricacies of company formation ensures your business is well-prepared for success in South Korea's dynamic market.

2. Selecting a Company Name

Choosing an appropriate company name is a critical initial step in forming a company in South Korea. Corporate names must be written in Korean characters, as English names alone are not permitted. It is important to ensure the name does not resemble or duplicate existing registered entities and avoids prohibited terms. Verification of compliance and availability can be conducted through the Korean Intellectual Property Office (KIPO).

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

Inform the bank about your business activities and establish an Escrow (ESCRO) account, essential for managing financial transactions during company formation and ongoing operations. Deposit the required paid-up capital into the ESCRO account to strengthen your company's financial basis.

4. Preparing and Submitting Internal Documents for Company Formation

Compile internal documents such as bylaws and corporate resolutions, essential for outlining your company's structure and operations. These documents are mandatory for the registration process.

5. Confirming Corporate Registration Certificate

Await the issuance of your corporate registration certificate, confirming the legal recognition and formal registration of your company in South Korea. This document signifies approval for lawful operations.

6. Receiving Corporate Seal Card

Obtain the corporate seal card, necessary for official document signing and business transactions, underscoring its importance in corporate affairs in South Korea.

7. Registering with the Tax Office

Complete business registration with the tax office to comply with South Korean tax laws. This step ensures adherence to tax obligations and involves providing detailed business information such as legal structure, location, and operational specifics. Obtain a tax identification number necessary for financial transactions and reporting to tax authorities.

8. Establishing a Business Bank Account

Opening a business bank account is essential for conducting operations in South Korea. This account serves as the central hub for transactions, including receiving payments, making expense disbursements, and managing finances. Most South Korean banks require identification documents and a business registration certificate to initiate the account setup process. Pearson & Partners offers remote assistance for opening bank accounts, eliminating the need for physical presence in South Korea. This streamlined service simplifies the process, enabling seamless establishment of a business bank account.

9. Commencing Business Operations

With the completion of company formation steps, you are ready to officially launch your business activities in South Korea. This marks the beginning of executing your planned strategies and achieving business objectives. Maintain accurate records of all transactions to ensure compliance with tax and financial regulations, laying a solid foundation for sustainable business growth.

Conclusion

In summary, establishing a company in South Korea presents a promising opportunity in a dynamic and vibrant market. This guide has outlined essential steps, from selecting a company name to strategically initiating operations. It's crucial to select the right business structure and ensure compliance with regulatory requirements, including recognition under the Foreign Investment Promotion Act for foreign direct investment (FDI).

For comprehensive assistance throughout the entire company formation process, Pearson & Partners is prepared to provide support. As a consulting firm specializing in aiding expansion into Korea, we offer incorporation and tax accounting services. Our experienced professionals are dedicated to facilitating the smooth and successful establishment of your company in South Korea. We provide expert guidance on legal requirements, regulatory compliance, and strategic decision-making, all aimed at maximizing your success in this dynamic market.

With extensive experience in assisting businesses expand into Korea, Pearson & Partners offers specialized services in incorporation and tax accounting. With our expertise, you can confidently navigate the intricacies of company formation, laying a robust foundation for a prosperous business venture in South Korea. Contact us for comprehensive support tailored to your specific needs and objectives.