This article provides essential insights for those looking to start a business in South Korea. As Seoul becomes a prominent global business hub with significant growth opportunities, it is increasingly attracting foreign entrepreneurs eager to enter its market with innovative ideas. However, simply having a strong business plan is not enough to navigate the complexities of establishing a company in Korea. Foreign investors must be well-versed in the detailed procedures involved in setting up and managing a business in the country. The following sections explore four types of companies that foreigners might consider when launching operations in South Korea.
Setting up a subsidiary in South Korea, also known as a local corporation or Foreign Direct Investment (FDI) company, is ideal for entities governed by foreign laws or those engaged in cooperative economic initiatives with foreign governments. This type of company formation enables businesses to expand their operations and explore new opportunities within South Korea.
Governed by the Foreign Investment Promotion Act (FIPA), a foreign subsidiary must adhere to the same corporate and legal standards as domestic companies. Recognized as an FDI under FIPA, these subsidiaries benefit from incentives such as tax breaks, financial subsidies, and support for industrial facilities.
To qualify for these foreign investment benefits, a foreign entity must invest more than KRW 100 million in a company that is owned and managed by a Korean citizen. Common structures for South Korean subsidiaries include partnerships, limited partnerships, limited liability companies, stock companies, and limited companies. Limited liability companies and stock companies are particularly popular among foreigners due to their simpler regulatory requirements and easier incorporation process.
Evaluating various options for forming a company in Korea reveals multiple strategic paths for foreign entrepreneurs. Whether establishing a private business, a branch office, or a liaison office, each option has specific regulatory requirements and unique advantages in navigating South Korea’s dynamic market.
Setting Up a Private Business in Korea
For foreign entrepreneurs, establishing a private business in Korea involves a significant investment of over 100 million KRW, meeting the criteria set by the Foreign Investment Promotion Act (FIPA).
Setting Up a Branch Office in Korea
Alternatively, a branch office can be established under the Foreign Exchange Transaction Act (FETA), allowing the office to conduct profit-generating activities on behalf of the main company. This entity operates as a permanent establishment and is subject to South Korea’s tax laws and regulations.
For more details on establishing a Branch Office, visit here.
Liaison Office
Operating under FETA, a liaison office focuses on non-profit activities like market research and development without generating taxable revenue in Korea. This option requires minimal registration procedures, making it a simpler choice for company formation.
Prohibited & Partially Restricted Practices
It is crucial to understand the regulatory landscape, as certain practices are prohibited or partially restricted. These regulations affect foreign involvement in sectors like banking, media, and agriculture, which in turn influences strategic decisions for business formation in Korea.
Seoul is emerging as a key global business hub, attracting foreign investors with its strategic location and robust economic policies. To successfully establish a business in Korea, entrepreneurs need not only a clear vision but also a deep understanding of the regulatory intricacies.
Pearson & Partners offers expert guidance, covering all aspects of company formation in Korea, ensuring compliance and strategic success. Contact us to begin your journey into South Korea’s vibrant market with confidence.