Korea Company Formation: A Step-by-Step Guide for Foreign Investors

Starting a business or forming a company in South Korea is accessible to almost anyone, including individuals and foreign entities. The type of business entity you establish will depend on the nature of your operations and compliance with local laws and regulations. Our services, backed by certified Korean legal experts, ensure a seamless process for company initiation, registration, and incorporation.

Key Steps for Foreign Investors Considering Company Formation in South Korea:

1. Choosing the Right Business Structure

Select between a Limited Liability Company (LLC) or a Joint Stock Company (JSC), depending on the size and nature of your enterprise.

• Local Corporation:
  • Typically Korean-owned, this is the most common business structure in South Korea.
  • No minimum capital is required (unlike the Foreign Direct Investment Company).
  • Two business types can be established: Joint Stock Company and Limited Liability Company.
  • Joint Stock Company: Allows for publicly issued shares with limited shareholder liability.
  • Limited Liability Company: Suitable for smaller businesses, with a maximum of 50 shareholders whose liability is limited to their share capital.
• Foreign Direct Investment (FDI) Company:
  • Foreign individuals or entities can set up a local corporation with a minimum capital of 100 million KRW.
  • These companies may enjoy legal advantages based on the nature of their activities.
• Branch Office:
  • Considered part of the foreign corporation, with the Korean branch legally linked to the headquarters.
  • Subject to the same tax laws as domestic Korean companies.
• Liaison Office:
  • A foreign corporation that does not engage in commercial activities, typically used for market research or marketing.
  • Must register with the appropriate tax office but is limited to non-commercial activities.

2. Naming the Company

Choose a unique company name, written in Korean characters, that complies with Korean naming regulations.

3. Business Registration Number

Submit a business registration application to the Korean Trade Register or KIPO.

4. Corporate Seal

Obtain a corporate seal from a registered seal maker in South Korea. This seal is essential for signing contracts and legal documents.

5. Tax Registration

Register for taxes with the National Tax Service (NTS), including obtaining a tax identification number, and register for VAT and corporate income tax.

Once registered with the Korean government, foreign investors can officially begin their business operations in South Korea.

Labor Laws and Investment Climate in South Korea

Compliance with labor laws and fostering a favorable investment environment are crucial for foreign investors. The legal framework is governed by the Labor Standards Act and the Employment Permit System, which guide employment practices.

Key Considerations:

1. Employment Contracts: Ensure comprehensive contracts covering job roles, compensation, working hours, and termination conditions.
2. Working Hours: Comply with the statutory 52-hour workweek, with at least one day off per week.
3. Minimum Wage: Follow the minimum wage set at KRW 9,160 per hour as of 2023.
4. Employment Visas: Secure employment visas for foreign workers.
5. Labor Unions: Recognize employee rights to unionize, as labor unions are prevalent in South Korea.

Tax Regulations and Investment Opportunities in South Korea

South Korea provides various tax incentives and investment opportunities to attract foreign investment, supported by the Foreign Investment Promotion Act (FIPA) and Free Trade Agreements (FTAs).

Key Benefits:

1. Tax Incentives: Enjoy corporate tax reductions, income tax exemptions, and R&D tax credits.
2. Investment Incentives: Access financial aid, land subsidies, and loan guarantees for investment projects.
3. Free Trade Agreements: Benefit from tariff reductions and relaxed trade barriers under South Korea's FTAs.
4. FIPA: Streamlined administrative processes and easier government support access for foreign investors.
5. Special Economic Zones (SEZs): Take advantage of tax breaks and regulatory simplification in SEZs across South Korea.

Navigating Korean Business Culture

Understanding Korean business culture, which emphasizes hierarchy and collectivism, is critical for foreign investors.

Effective Strategies:

1. Building Personal Relationships: Foster trust and strong personal connections with Korean business partners.
2. Respecting Hierarchy: Show deference to seniority through appropriate language and behavior.
3. Patience and Persistence: Trust builds over time, so patience is key.
4. Thorough Negotiations: Prepare well and understand the risks and benefits before negotiating.
5. Language Skills: Basic Korean proficiency can help build rapport and show respect for Korean culture.

Conclusion

Pearson & Partners Korea specializes in assisting foreign enterprises with company formation and incorporation in South Korea. We offer comprehensive support, including choosing the optimal business structure, preparing necessary documentation, assisting with bank account setup, VAT registration, and visa applications for foreign executives.