Korea Branch Formation: A Strategic Gateway for Global Businesses

Establishing branch offices presents a valuable opportunity for companies to establish a business presence in Korea without the requirement of a local head office. This strategic approach allows companies to assert their rights, ensuring compliance with South Korean jurisdiction and facilitating property development. Importantly, the registration fees for a Korean branch are contingent on the authorized share capital of the parent company, with higher capital resulting in increased registration costs.

A branch actively engages in profit-making activities in Korea, operating autonomously without local incorporation, and is not classified as direct foreign investment. The unity between head offices and their foreign branches forms a consolidated legal entity with shared accounting and settlement processes. In contrast to liaison offices, branches are not merely permitted but encouraged to participate in sales activities, taking on the role of independent legal entities responsible for their debts and liabilities. The branch formation process is straightforward, lacking the formalities associated with local corporations, and incurs lower registration fees. Ideally suited for a more limited scope of operations, foreign companies can smoothly transition from branch formation to establishing a local subsidiary if the need arises.

Establishing a Branch Office: Procedure Overview

A. Definitions within Commercial Act: As per the Commercial Act, business establishments are recognized as branches, necessitating registration when foreign companies engage in activities within Korea.

B. Registration Process:

1. A mandatory requirement is the submission of an application by a company representative residing in Korea.
2. Completion of the registration process is obligatory within a three-week timeframe from the establishment of the business office.
3. Instruments of Registration must include details such as the delegate's name and address in Korea, aligning with the type of businesses and adherence to relevant laws for incorporation.
4. Essential attachments comprise certification of the representative's qualification, meeting minutes, a certificate confirming the existence of the headquarters, and documentation proving the company's category or instruments of incorporation.
5. The application form should include key details such as the company name in the Korean language, particulars about the head office, the business office address in Korea, the purpose of registration, and other pertinent information.
6. Registering the business with a tax office within the jurisdiction in Korea is part of the process.

C. Required Documents for Branch Formation:

• Verification of the head office's business operations (e.g., certificate of incorporation registration)
• Confirmation of qualification as a branch representative in Korea
• Certified articles of incorporation from the relevant government authority
• If applicable, a certificate of approval
• Translation of the aforementioned four documents into Korean
• Proof of tax payment
• Transcript containing the seal impression of the branch representative in Korea (For a foreign national, a notarized sealed signature is mandatory.)
• Written consent for holding the office (from the branch representative)
• Documentation validating the address of foreign nationals
• Branch Establishment Notification Form

Notification of Branch Establishment

The mandatory submission of a branch creation notification is directed towards a foreign exchange bank. However, specific circumstances require notification to the Ministry of Finance and Economy. These circumstances include financial activities extending beyond banking, ventures involving securities and insurance, engagement in business activities not authorized by Korean laws, and those perceived to compromise public morals and order.

When notifying the Foreign Exchange Bank, essential documents to be provided include an officially documented statement, instruments of incorporation from the head office, a certificate designating a local branch manager, a power of attorney, and a copy of the company registration certificate or business license.

Conclusion

In summary, establishing branch offices in Korea provides a strategic entry point for companies aiming to establish a business presence without a local head office. This ensures compliance with South Korean jurisdiction, facilitating property development. The nuanced aspect of registration fees, which varies based on authorized share capital, underscores the importance of financial considerations. Branches, operating independently without local incorporation, contribute to foreign direct investment, forming a cohesive legal entity with shared accounting processes. Unlike liaison offices, branches are encouraged to engage in sales activities, functioning as independent entities accountable for financial activities.

For comprehensive assistance in navigating the complexities of branch formation, encompassing incorporation and tax accounting, Pearson & Partners specializes in facilitating Korea expansion and is prepared to offer support. For expert guidance on legal requirements and strategic decision-making, feel free to reach out to us.