Korea Company Formation: Steps for Foreign Investors

Almost anyone, whether an individual or a foreign entity, can start a business or establish a company in South Korea. The choice of business entity depends on the nature of operations and compliance with relevant laws and regulations. Our services ensure high standards, with certified Korean legal experts overseeing the initiation, registration, and incorporation process.

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

1. Choosing the Business Structure

Select between a Limited Liability Company (LLC) or a Joint Stock Company (JSC). The LLC is ideal for small to medium-sized enterprises, while the JSC is better suited for larger corporations.

• Local Corporation:
  • Includes Korean-owned companies, which are the most common type in South Korea.
  • No minimum capital requirement, unlike the Foreign Direct Investment Company option.
  • Two types of businesses under this category: Joint Stock Company and Limited Liability Company.
  • The Joint Stock Company allows for publicly issued shares and limits shareholder liability.
  • The Limited Liability Company is closely held with up to 50 shareholders, with liability limited to their share capital.
• Foreign Direct Investment Company:
  • Foreign individuals and companies can establish a local corporation with a minimum capital requirement of 100 million KRW.
  • These companies may benefit from certain advantages under Korean law based on their activities.
• Branch Office:
  • Considered a foreign corporation where the foreign headquarters and Korean branch are legally one entity.
  • Subject to the same tax laws and rates as domestic Korean companies.
• Liaison Office:
  • Also regarded as a foreign corporation, mainly serving foreign investors not yet conducting business in South Korea.
  • Activities are limited to non-commercial tasks such as market research and marketing.
  • Mandatory registration with the appropriate tax office is required.

2. Naming the Company

Ensure the chosen name is unique, written in Korean characters, and complies with Korean laws and regulations.

3. Obtaining a Business Registration Number

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

4. Acquiring a Corporate Seal

Obtain a corporate seal from a registered seal maker in South Korea, necessary for signing contracts and legal documents.

5. Registering for Taxes

All companies in South Korea must register for taxes with the National Tax Service (NTS), including obtaining a tax identification number and registering for value-added tax (VAT) and corporate income tax.

Once registration with the Korean government is complete, foreign investors are ready to commence their business operations in South Korea.

Compliance with Labor Laws and Investment Climate in South Korea

Foreign investors must ensure compliance with strict labor regulations and foster a favorable investment environment. The legal framework is primarily governed by the Labor Standards Act and the Employment Permit System, which guide employment practices.

Key considerations for foreign investors include:

1. Employment Contracts: Draft detailed contracts covering job roles, compensation, working hours, and termination clauses.

2. Working Hours: Adhere to the statutory 52-hour workweek, ensuring employees receive at least one day off per week.

3. Minimum Wage: Comply with the minimum wage, set at KRW 9,160 per hour as of 2023.

4. Employment Visas: Obtain employment visas for foreign workers, with employers responsible for visa applications.

5. Labor Unions: Respect employees' rights to unionize, considering the prevalence of labor unions in South Korea.

Tax Regulations and Investment Opportunities in South Korea

South Korea offers various tax incentives and investment opportunities to attract foreign investment, supported by initiatives such as the Foreign Investment Promotion Act (FIPA) and Free Trade Agreements (FTA).

Highlighted benefits include:

1. Tax Incentives: Access reductions in corporate tax rates, income type exemptions, and tax credits for research and development activities.

2. Investment Incentives: Benefit from financial aid, subsidies for land acquisition, and government-backed loan guarantees for investment projects.

3. Free Trade Agreements (FTA): Enjoy tariff reductions and eased trade barriers under South Korea's FTAs.

4. Foreign Investment Promotion Act (FIPA): Simplify administrative processes, enhance access to government support, and streamline approval procedures for foreign investors.

5. Special Economic Zones (SEZs): Take advantage of tax breaks, regulatory simplification, and other incentives available in SEZs across South Korea.

Strategic Engagement with Korean Business Culture

Understanding Korea's unique business culture, which emphasizes hierarchy and collectivism, is crucial for foreign investors.

Effective strategies include:

1. Cultivating Personal Relationships: Build trust and personal connections with Korean counterparts.

2. Honoring Hierarchy: Demonstrate respect for seniority and authority through appropriate language and behavior.

3. Exercising Patience: Develop trust over time with patience and persistence.

4. Preparing for Negotiations: Thoroughly prepare and understand potential risks and benefits before entering negotiations.

5. Language Proficiency: Basic language skills can help build rapport and show respect for Korean culture.

Embracing these cultural insights will enhance foreign investors' effectiveness in navigating the Korean business landscape.

Conclusion

Pearson & Partners Korea specializes in facilitating the establishment and incorporation of foreign enterprises in South Korea. We provide comprehensive support, including selecting the appropriate registration structure, preparing necessary documentation, assisting with bank account setup, VAT registration, and visa applications for foreign managerial personnel.