Korea Company Setup: A Guide to Establishing a Foreign Investment Enterprise

Exploring Korea's dynamic business landscape attracts foreign investors with promises of growth and prosperity. Entrepreneurs worldwide are drawn to the opportunity to establish foreign investment enterprises, navigating through regulatory requirements and procedural complexities. This article aims to demystify the process of setting up a foreign investment enterprise in Korea, promoting global collaboration and enriching the vibrant economic environment.

Requirements for Establishing Foreign Investment Enterprises

Setting up a foreign investment enterprise in Korea requires participation from foreign individuals and corporations looking to acquire shares.

1. Investment Threshold: To qualify as a foreign investment, a minimum investment of KRW 100 million is necessary, with foreigners holding at least 10% of the total voting shares issued by the company. If these criteria are not met, a stock acquisition declaration may be required as an alternative.

2. Restrictions on Foreign Investment: Some sectors are excluded from foreign investment under the Foreign Investment Promotion Act. Of the 1,145 industries classified under the Korean Standard Industry Classification, 60 sectors—including public administration, foreign affairs, and defense—are restricted. Among the remaining 1,085 industries eligible for foreign investment, certain sectors impose investment rate limitations.

Process of Establishing Foreign Investment Companies

Establishing a foreign-invested company in Korea involves four primary stages: declaring foreign investment, transferring investment funds, incorporating the company, and finalizing registration for the foreign-invested entity. Compared to establishing a domestic Korean company, creating a foreign-invested firm requires two additional steps: declaring foreign investment and registering the foreign-invested entity.

1. Declaration of Foreign Investment

To initiate foreign investment, the investor or their representative must submit the following documents to either the Korean Foreign Exchange Bank or the Foreign Investment Support Center:

• Foreign Investment Application Form
• Copy of the foreign investor's passport or an official certification from a foreign entrepreneur
• Comprehensive power of attorney (if submitted by a representative such as Pearson & Partners)
• Identification of the representative (if submitted by a representative such as Pearson & Partners)

2. Transfer of Investment Capital

The process of company formation involves transferring investment capital, which can be achieved through bank transfer or physical transportation of funds through customs.

During fund transfers, you will use the temporary number issued by your designated foreign exchange bank. Even without an account number, funds can be successfully transferred using only the recipient's information and their bank details. Throughout this process, you have the option to designate the purpose of the funds as "Funds for the establishment of [Company Name]." Alternatively, if opting for physical transport of funds, a certificate will be issued following foreign exchange declaration. The bank will subsequently provide certificates of cash payment and foreign exchange purchase. Deposited funds can then be transferred to the corporate account established after company formation and business registration, with active involvement from the corporate representative.

The essential documents required for applying for foreign exchange purchase and obtaining a certificate of cash payment include:

• Articles of Incorporation (also known as Memorandum of Articles or Constitution)
• Status Resolution of Stock Issuance
• Stock Transfer Certificate
• Legal entity details intended for use
• Power of attorney and ID card for a proxy if applicable

3. Formation of a Korean Company

(1) Establishment of a Foreign Investment Enterprise

The registration process mirrors that of establishing a typical Korean company but includes additional documentation related to foreign officers.

Required Documents:

• Seals of all officers accompanied by a seal certificate
• Resident Registration (for the Representative and other officers)
• Approval of Inauguration, Address Verification (Apostille Certification)
• Copy of Passport
• Shareholder Seals
• Power of Attorney (Apostille Certification) for all officers/members
• Bank account balance certificate
• The list of required documents may vary depending on specific circumstances.

For foreign individuals holding officer positions, documents such as resident registration and inauguration approval are necessary. Documents issued abroad may not automatically be recognized domestically, so obtaining apostille certification for foreign documents is crucial for domestic recognition.

(2) Registration of Foreign Investment Enterprise Formation

Additional documents are required to proceed with the same process used for domestic business registration in Korea.

Mandatory Documents:

[For Domestic Business Registration]

• Business Registration Form
• Articles of Incorporation
• Company Registration Certificate
• Certificate of Business Permission (if specific government licenses are required)
• Copy of Lease Agreement

[Additional Documents Required for Foreign Investment Company Formation]

• Copy of Foreign Investment Declaration
• Certificate of Purchased Foreign Currency
• Copy of Passport (if the representative of the Korean Company is a foreign national)

4. Finalizing Registration for Establishing a Foreign Investment Company in Korea

The completion of registration for a foreign-invested company must be carried out through a designated foreign exchange bank within 30 days from the company's formation date.

Key documents required for registering a foreign-invested company include:

• Application form for foreign-invested company registration
• Certificate of incorporation
• Foreign Exchange Purchase Deed

Establishing a foreign investment company involves managing various complex tasks such as navigating foreign investment procedures, handling currency exchange, and preparing for apostille certification procedures. Lack of familiarity with these processes can lead to oversights, causing delays or hindering the realization of benefits associated with establishing a foreign investment company.

With extensive experience in establishing numerous foreign-invested enterprises, Pearson & Partners leverages its expertise to facilitate a smooth progression through all four stages of foreign investment company formation.

Conclusion

Establishing a foreign investment company in Korea requires a comprehensive understanding of regulatory protocols and procedural complexities. This collaborative effort between foreign individuals and corporations not only serves their business interests but also enriches Korea's broader economic landscape. Meeting the investment threshold and navigating restrictions on foreign investment are critical considerations that require meticulous attention to ensure compliance with the Foreign Investment Promotion Act.

Pearson & Partners provides comprehensive incorporation and tax accounting services tailored to the specific needs of foreign investors. Drawing on our extensive experience in establishing numerous foreign-invested enterprises, we streamline the process from declaring foreign investment to final registration, minimizing potential obstacles and enhancing overall efficiency in the company formation process. Contact us to embark on a successful journey of establishing your foreign investment company in Korea, benefiting from our expertise and commitment to facilitating international business ventures.