A Guide to Tax, Employment, and Visa Requirements

TaeHyoeng Kim

As teaching continues to be the main career path for many foreign nationals in Korea, an increasing number of individuals are seizing the business opportunities in the country. From bars and restaurants to dance workshops, the range of businesses owned by foreigners is steadily growing. This growth reflects their efforts to integrate into Korea’s competitive market.

However, starting a business in Korea involves more than just enthusiasm and a great idea. As with any country, Korea has strict regulations that must be followed. This is why consulting with legal and governmental experts is crucial for successful company incorporation.

The good news is that in recent years, the Korean government has taken steps to simplify the process for foreign entrepreneurs. For instance, the introduction of more "start-up visas" demonstrates the government’s commitment to attracting foreign investment.

Starting a business in Korea requires substantial capital, particularly for those applying for a D-series visa. Additionally, it’s often recommended to involve a Korean citizen in your business, whether as a partner, investor, or assistant, to navigate the complex administrative processes.

The incorporation process varies depending on factors like nationality, visa status, and business type. Seeking professional guidance from legal entities is essential for choosing the best visa option. Once the visa is obtained and the business location is finalized, the next step is determining the structure of the business. Common structures include:

Subsidiary Office: This structure allows deeper connections with local business networks and access to corporate tax incentives (Special Tax Treatment Law STTCL), provided certain conditions are met.
Branch Office: While branch offices aren’t eligible for tax incentives, they are exempt from external audits.
Liaison Office: Ideal for those focused on marketing and support, as it’s the simplest business type to establish in Korea.

Key Highlights of Starting a Business in South Korea:

Full foreign ownership of companies is permitted.
At least one shareholder is required for a limited liability company (Yuhan Hoesa), and there are no restrictions on the nationality of owners.
Companies must maintain accounts in Korean and file tax returns with the National Tax Service.

Important Considerations:

Corporate income tax starts at 10% on the first 200 million won.
Value-added tax (VAT) is 10%, and must be filed quarterly.
Non-resident companies are subject to withholding tax.
Foreigners residing in Korea for more than five years are taxed on their global income.

Benefits of Incorporating a Company in South Korea

Investors looking to establish a business in South Korea can take advantage of numerous benefits. These include:

No Restrictions on Foreign Currency Accounts: South Korea allows foreign investors to manage accounts in foreign currencies without limitations. Additionally, repatriation of capital and income is unrestricted, offering flexibility to foreign business owners.
Quick Incorporation Process: As long as there is at least one shareholder and one director, irrespective of nationality, it takes less than a week to set up a limited liability company (LLC) in South Korea.
Advanced Infrastructure: South Korea boasts cutting-edge technology and efficient transportation networks, making it easier for companies to quickly move raw materials and goods across the country.
Government Support for Foreign Investment: The Foreign Investment Promotion Act encourages foreign investments in over 99% of South Korea's industries, offering a secure investment environment.
Incheon International Airport: This major hub acts as a key logistical gateway for businesses operating in North-East Asia, enhancing supply chain efficiency.

How to Incorporate a Company in South Korea

Contrary to common belief, setting up a company in South Korea can be a smooth process when done right. Our incorporation services assist you every step of the way, covering the essential procedures:

Engage the Minimum Number of Shareholders: Ensure you have at least one shareholder.
Create a Company Seal: This is a crucial requirement for official documentation.
Register with Start-Biz: This is the official platform for business registration in South Korea.
Pay Incorporation Fees: Cover the necessary charges to complete the registration.

To attract foreign direct investment (FDI), the South Korean government offers several tax incentives, especially for small and medium-sized enterprises. This effort is further boosted by government initiatives that invite tenders for infrastructure development, creating more opportunities for international investors.

Requirements for Company Incorporation

Incorporating a business in South Korea involves navigating through various legal and regulatory frameworks. Here are the primary requirements:

Legislative Compliance: Investors must comply with specific corporate laws and regulations that vary depending on the type of business structure they choose.
In-depth Research: Understanding South Korea’s corporate laws is crucial, as these regulations may differ significantly from those in other countries.

For businesses with limited resources, this process can seem daunting, but thorough research and proper preparation make it manageable.

Company Incorporation Process in South Korea: Step-by-Step Guide

Incorporating a company in South Korea requires careful adherence to legal requirements and procedures. Here's an in-depth look at the key steps involved in the incorporation process:

1. Selecting a Company Name

The first step is choosing a unique company name. It is essential to ensure that the name you wish to register is not already in use by another company operating in the same field, city, or region. A duplicate name for the same business activity is not allowed.

2. Key Factors for Registration

When registering a company, certain mandatory details must be provided:

i. Required Information:

Head Office Address: The official business address of the company.
Details of Directors and Auditor: Names and resident registration numbers.
Details of Corporation Representatives: Information about the director acting as the company’s representative.
Promoters' Information: Names, resident registration numbers, and addresses.
Incorporation Documents: Instrument of Incorporation.
Share Capital: Total number and types of stocks issued, stock unit cost, and full capital amount.
Business Activity: The nature of the business.
Shareholders' List: Complete inventory of shareholders.

ii. Optional Information:

Stock Transfer Rules: If board approval is needed for stock movement.
Branch Locations: Information about branch offices.
Convertible Bonds: Procedures for issuing these bonds.
Stock Destruction Rules: Guidelines for the destruction of stocks, if applicable.
Multiple Representatives: Rules for companies with more than one representative.
Dissolution Terms: If there is a fixed period for the company’s existence and specific reasons for its dissolution.
Dividend Distribution: Rules concerning dividend payments before day one.
Proxy Information: Name and address of the proxy, if applicable.

3. Drafting and Notarizing the Articles of Incorporation

i. Importance of the Articles of Incorporation

The Articles of Incorporation serve as the foundation of the company's organizational structure, setting the basic standards for its operations. The document can be prepared in Korean or a foreign language (or both).

ii. Required Information for the Articles of Incorporation

A. Essential Data:

Promoters' Details: Full information of the promoters involved.
Business Purpose: The reason for establishing the company.
Headquarters Address: The main office location.
Announcement Methods: Means of public communication.
Company Name: Must include "corporation."
Stock Information: Total number of stocks issued and the minimum stock unit cost (no less than 100 won). The minimum capital requirement is 50 million won.
Number of Stocks Issued: The number of stocks at the time of company formation.

B. Selective Data:

Unusual Expenses: Information regarding expenses that, if not managed, may negatively affect the company’s capital or shareholders.
- The corporation must cover the incorporation costs.
- Details of investment in kind and stocks issued in exchange for it.
- Any transfer of assets post-incorporation.
- Specific allowances granted to promoters.

C. Additional Information:

Issues related to stockholders' meetings, directors, auditors, and liquidators.
Location of branch offices, stockholders' rights, and other corporate policies.

iii. Notarization Process

Once the Articles of Incorporation are finalized, they must be notarized by a certified public notary. This notarization gives the document legal standing. Required documents include three copies of the Articles, a registered seal certificate, and resident registration cards. If a proxy is used, a power of attorney is also necessary.

4. Steps for Incorporation

i. Approval from the Ministry of Finance

Foreign direct investment (FDI) must be approved by the Ministry of Finance.

ii. Registering with the Commercial Registration Office

The following steps are required for registration:

Engagement of Promoters: Promoters are appointed to facilitate the process.
First Promoters' Meeting: Minutes of the meeting are recorded.
Notarization of Incorporation Documents: A public notary endorses the Articles of Incorporation.
Issuance of Stocks: The decision to issue stocks is made, and stocks are underwritten by the organizers.
Subscription of Stocks: Shareholders subscribe to the issued stocks, followed by the distribution.
Investment: Both cash and non-cash investments are completed.
Supervision by Board of Directors and Auditors: This is necessary to ensure compliance unless waived by the Articles of Incorporation.
Examination of Unusual Expenses: Inspectors review and report any unusual expenses during incorporation.
Inaugural Meeting: An initial meeting is organized unless the incorporation is through promotion.
Board Meeting: The first meeting of the board of directors is held.
Incorporation Registration: The company is officially registered.
Report of Corporate Creation: The company is formally established and reported to the relevant authorities.

iii. District Tax Office Registration

The company must register with the district tax office to comply with local tax regulations.

iv. Opening a Bank Account

A corporate bank account is essential for financial operations.

v. Register with Ministry of Finance for FDI Certificate

The final step is obtaining an FDI certificate from the Ministry of Finance, completing the incorporation process.

Conclusion

This guide serves as a valuable resource for foreign entrepreneurs looking to establish a business presence in South Korea. It covers the typical pathways for incorporating a company and provides insight into the necessary steps and benefits of doing business in the country. The article also highlights the key advantages of company incorporation in South Korea, essential documentation, and incorporation procedures, offering useful information for anyone seeking to tap into the vibrant Korean economy. At every step of the process, we are here to support you. With our professional expertise, we ensure your company incorporation experience is smooth and efficient, getting you set up for success in the Korean market in no time. If you're ready to take the next step and launch your business in South Korea, contact us, Pearson & Partners Korea today to begin your incorporation journey!