Korea Company Setup: A Comprehensive Guide for Foreign Entrepreneurs

Insights for Foreign Entrepreneurs Starting a Business in Korea

South Korea, particularly Seoul, has become a thriving global business hub with significant growth potential. The country’s effective economic management in the wake of the COVID-19 pandemic has further enhanced its appeal to foreign entrepreneurs.

Foreign expatriates often bring innovative ideas and a strong commitment to contributing to Korea’s dynamic market. However, having a solid business plan is only the first step. Navigating the complexities of establishing and operating a business in Korea is essential. This article explores four business structures that foreigners can consider when starting their entrepreneurial journey in South Korea.

Starting a Business in South Korea

For foreigners or entities operating under foreign laws, establishing a local corporation—commonly referred to as a Foreign Direct Investment (FDI) company—is a gateway to expanding into Korea.

Regulated by the Foreign Investment Promotion Act (FIPA), this type of setup aligns foreign businesses with Korea’s corporate standards. Qualifying as an FDI offers numerous benefits, such as tax incentives, financial support, and access to industrial facilities.

To meet FIPA’s criteria, foreign investors must contribute at least KRW 100 million to a company owned and managed by a Korean citizen. Common structures for subsidiaries include partnerships, limited partnerships, limited liability companies, stock companies, and limited companies. Among these, limited liability companies and stock companies are popular for their streamlined processes and ease of incorporation.

Setting Up a Private Enterprise in Korea

This structure involves a business wholly owned and operated by an individual foreign entrepreneur. Similar to subsidiaries, private enterprises must invest over KRW 100 million to qualify as foreign investment under FIPA.

Establishing a Local Branch Office in Korea

Local branch offices are governed by the Foreign Exchange Transaction Act (FETA) rather than FIPA. These branches represent foreign parent companies, conducting profit-making operations within Korea.

Key requirements include appointing a local representative and obtaining company registration from the court. Since branch offices generate revenue, they are treated as permanent establishments under Korean business law and are subject to local taxation.

For more information, explore our guide on Branch Office Formation in South Korea.

Establishing a Liaison Office in Korea

A Liaison Office, also governed by FETA, is an alternative business model. Unlike branch offices, liaison offices are not permitted to engage in profit-generating activities.

These offices are limited to supportive tasks such as market research, R&D, quality control, promotion, and coordination with the headquarters. Due to their non-revenue nature, liaison offices are exempt from taxes and require only a unique business number from the tax office, avoiding court registration.

Business Setup Restrictions

Foreign entrepreneurs should be aware of two main types of restrictions in Korea:

• Prohibited Activities: Includes industries like banking, postal services, securities trading, education, broadcasting, and agriculture (e.g., rice and barley farming).
• Partially Restricted Activities: Limits foreign ownership to under 50% in sectors such as fishing, newspapers, domestic transport, beef cattle farming, telecommunications, and electronic network businesses.

Conclusion

Starting a business in South Korea offers vast opportunities for growth and innovation. As a key global business hub, the country’s post-pandemic economic resilience and strategic location make it an ideal destination for foreign entrepreneurs.

However, entering the Korean market requires more than ambition; it demands an understanding of the regulatory landscape and careful planning. With expertise in navigating Korea’s business ecosystem, Pearson & Partners is here to support foreign investors every step of the way.

To ensure a seamless and successful entry into the Korean market, contact us today and leverage our specialized services tailored for foreign entrepreneurs.