Korea Business Setup: A Strategic Guide for Non-Natives

For non-native individuals aspiriKorea Business Setup: A Strategic Guide for Non-Nativesng to establish a business in Korea, this article provides essential insights. Korea, particularly Seoul, stands out as a highly appealing global business hub with promising growth opportunities. Fueled by these prospects, international individuals bring innovative business ideas and a dedication to contributing value to the Korean market. However, possessing a robust business plan is not enough to kickstart a company in Korea. Foreigners must familiarize themselves with the complexities of company formation and business operations in the country. The following sections of the article explore four types of companies that non-natives may contemplate when venturing into business in South Korea.

Setting Up a Foreign Subsidiary in South Korea

This method of company establishment is suitable for non-native individuals or entities operating under foreign regulations, including those involved in cooperative economic development for foreign governments. Establishing a subsidiary in South Korea, known as a local corporation or an FDI (Foreign Direct Investment) company, offers entities the chance to expand their business and discover new opportunities in the country.

Regulated by the Foreign Invest Promotion Act (FIPA), a foreign subsidiary must meet the same corporate and legal eligibility criteria as domestic companies. This legal standing makes applying for recognition as an FDI under the FIPA highly beneficial, providing foreigners with access to tax incentives, cash subsidies, and assistance related to industrial facilities.

To qualify as foreign investment under the FIPA, a foreigner must invest an amount exceeding KRW 100 million in a company owned and managed by a Korean citizen. Common business structures for South Korean subsidiaries include partnerships, limited partnerships, limited liability companies, stock companies, and limited companies. Among these, foreigners often favor limited liability and stock company types due to their reduced regulatory complexity and the relatively straightforward process of incorporating a company in Korea.

Establishing a Sole Proprietorship in Korea

This specific mode of business setup in Korea involves the creation of a personal business managed by an individual foreign entrepreneur. Similar to the process for establishing a subsidiary, gaining recognition as foreign investment under the FIPA requires the foreign individual to make or acquire a foreigner-sponsored investment exceeding 100 million KRW.

Establishing a Branch Office in Korea

In contrast to the methods mentioned earlier, there are two additional business types not categorized as foreign investments but governed by the Foreign Exchange Transaction Act (FETA) rather than the Foreign Investment Promotion Act (FIPA). One of these approaches involves setting up a local branch office to conduct general profit-making business operations on behalf of the main office.

When establishing a branch office, it is essential for the company to appoint a representative in the local branch. Additionally, adherence to the setup procedures outlined in FETA is necessary, and obtaining Korea company registration from the court is part of this process.

As a branch office generates a stable income in Korea, it is recognized as a permanent enterprise under the jurisdiction of business law. Consequently, it is subject to the conditions of Korea's tax laws and rates, similar to any other domestic enterprise.

Establishing a Liaison Office

The establishment of a Liaison Office offers an alternative approach to business setup in Korea, operating under the regulations of the FETA. Unlike a Branch Office, a Liaison Office is restricted from engaging in profit-making transactions.

Permitted activities for a liaison office are confined to preparatory and subsidiary tasks, including coordinating with the head office, conducting market surveys, research and development, quality assurance, promotion, gathering information, and similar functions.

Moreover, as liaison offices in Korea do not generate revenue, they are not subject to tax liabilities in the country. Among the three other methods of Korea company formation discussed earlier, the registration process for a liaison office is the simplest. This simplicity arises from the fact that a liaison office only requires a unique business number as an owner, registered through the tax authority office, without the need for court registration.

Restricted Practices: Forbidden and Partially Restricted Activities

Exploring crucial aspects of business restrictions, particularly relevant for foreigners entering Korea for business formation, we encounter two primary categories. Prohibited Activities encompass sectors like banking, postal services, security trading, general education, radio and TV, as well as the agricultural industry, specifically rice and barley cultivation.

Moving on to Partially Prohibited Activities, this category restricts foreigners from holding more than 50 percent shares in selected sectors. These activities include fishing, newspapers and magazines, domestic transport, beef cattle husbandry and distribution, telecommunications, electronic network business, and power plants (excluding nuclear power).

Conclusion

The prospect of establishing companies in Korea beckons foreign entrepreneurs with strategic advantages and enticing opportunities, particularly in the thriving global business hub of Seoul. Post-pandemic, South Korea's effective economic management enhances its allure for eager foreign investors. However, success in Korea goes beyond entrepreneurial zeal; it requires a profound understanding of intricate processes and regulatory frameworks governing business establishment.

Pearson & Partners is poised to offer invaluable support. This article has delved into the complexities of establishing diverse business entities—subsidiaries, private businesses, branch offices, and liaison offices—each governed by distinct acts like FIPA and FETA, presenting specific advantages and challenges. To navigate these intricacies seamlessly and make informed decisions, foreign investors are encouraged to leverage the expertise of Pearson & Partners. Contact us for specialized services, ensuring a smooth and successful entry into the dynamic realm of Korean business.