How to Start a Business in South Korea: Subsidiaries, Branches, and More

This article offers crucial information for those interested in starting a business in South Korea. As Seoul increasingly becomes a key destination for international businesses, drawing foreign entrepreneurs with innovative ideas and a desire to tap into its market, having a solid business plan is just the beginning. Navigating the complexities of setting up a business in South Korea requires a deep understanding of local regulations and procedures. The following sections will discuss four company structures that foreigners can consider when launching operations in South Korea.

Setting Up a Subsidiary in South Korea

Creating a subsidiary in South Korea, also known as a local corporation or Foreign Direct Investment (FDI) company, is ideal for businesses governed by foreign regulations or involved in collaborative economic initiatives with foreign governments. This type of company formation allows entities to expand their operations and explore new opportunities in South Korea.

Regulated by the Foreign Investment Promotion Act (FIPA), foreign subsidiaries must adhere to the same corporate and legal standards as domestic companies. Being recognized as an FDI under the FIPA provides benefits such as tax incentives, financial subsidies, and support for industrial facilities.

To qualify for foreign investment benefits under the FIPA, a foreign entity must invest over 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. Foreign investors often prefer limited liability companies and stock companies due to their simpler regulatory requirements and more straightforward incorporation process.

Exploring Korea Company Formation Options

Several strategic options are available for foreign entrepreneurs interested in Korea company formation. These include establishing a private business, a branch office, or a liaison office, each with its own regulatory framework and benefits for navigating South Korea's market.

Establishing a Private Business in Korea

Starting a private business in Korea, managed by a foreign entrepreneur, requires a significant investment exceeding 100 million KRW, qualifying under the Foreign Investment Promotion Act (FIPA).

Establishing a Branch Office in Korea

Setting up a branch office under the Foreign Exchange Transaction Act (FETA) allows for profit-making activities on behalf of the main office. This entity operates as a permanent establishment and is subject to South Korea's tax regulations.

For more detailed information about establishing a Branch Office, visit here.

Liaison Office

A liaison office, operating under FETA, facilitates non-profit activities such as market research and development, without generating taxable income in Korea. This option involves minimal registration requirements, offering a simpler path for Korea company formation.

Regulated & Restricted Activities

It is essential to understand the regulatory landscape, including practices that are prohibited or partially restricted for foreigners, such as those in banking, media, and agriculture. These regulations will influence strategic decisions in business formation in Korea.

Conclusion

South Korea, especially Seoul, stands out as a major global business hub, attracting foreign investors with its strategic location and favorable economic policies. Successfully navigating Korea company formation requires both entrepreneurial vision and a thorough understanding of local regulations.

Pearson & Partners is here to offer expert guidance throughout the process. Our comprehensive services cover all aspects of Korea company formation, ensuring compliance and strategic success. Contact us to begin your journey into the dynamic Korean market.