Korea Company Setup: Opportunities for Global Entrepreneurs
For non-native individuals seeking to launch a business in South Korea, this article offers crucial guidance through the process. South Korea, particularly Seoul, has emerged as a bustling global business hub, offering promising avenues for growth. Motivated by these opportunities, international entrepreneurs bring innovative concepts to Korea, aiming to add value to the local market. However, possessing a robust business plan alone isn't sufficient to commence operations in Korea. Foreigners must acquaint themselves with the nuances of company formation and business practices in the country. The subsequent sections of this article delve into four company types that non-natives can explore when initiating a business venture in South Korea.
Establishing a Subsidiary in South Korea
This option is suitable for foreign individuals or entities governed by foreign regulations, including those engaged in cooperative economic development for foreign governments. Creating a subsidiary in South Korea, referred to as a local corporation or an FDI (Foreign Direct Investment) company, provides avenues for business expansion and exploration of new opportunities in the country.
Regulated by the Foreign Investment Promotion Act (FIPA), a foreign subsidiary must meet the same corporate and legal eligibility criteria as domestic companies. Recognition as an FDI under the FIPA grants foreigners access to tax incentives, cash subsidies, and assistance related to industrial facilities.
To qualify as foreign investment under the FIPA, a foreigner must invest over KRW 100 million in a company owned and managed by a Korean citizen. Common business structures for South Korean subsidiaries include partnerships, limited partnerships, limited liability companies, stock companies, and limited companies. Among these, foreigners often prefer limited liability companies and stock companies due to their simpler regulatory requirements and straightforward incorporation processes.
Establishing a Sole Proprietorship in Korea
This entails forming a personal business overseen by a foreign entrepreneur. Similar to establishing a subsidiary, obtaining acknowledgment as foreign investment under the FIPA necessitates the foreign individual to invest or acquire a foreigner-sponsored investment exceeding KRW 100 million.
Establishing a Branch Office in Korea
In contrast to previous methods, this approach falls under the Foreign Exchange Transaction Act (FETA) instead of the FIPA. Creating a local branch office involves conducting general profit-making operations on behalf of the main office.
When establishing a branch office, it's crucial for the company to appoint a local representative. Compliance with the setup procedures outlined in FETA is necessary, including obtaining Korea company registration from the court.
As a branch office generates income in Korea, it's considered a permanent enterprise under business law and is subject to Korea's tax laws and rates, similar to domestic enterprises.
Establishment of Liaison Offices
The establishment of a Liaison Office offers an alternative approach to business establishment in Korea. Similar to a branch office, it operates under the regulations of the FETA. However, unlike a Branch Office, a Liaison Office is restricted from engaging in profit-making activities.
Permissible tasks for a liaison office are limited to preparatory and ancillary functions. These include activities such as coordinating with the head office, conducting market surveys, research and development, quality assurance, promotional efforts, information gathering, and similar duties.
Moreover, since liaison offices in Korea do not generate revenue, they are exempt from tax liabilities in the country. Among the three other methods of Korea company setup discussed earlier, the registration process for a liaison office is the most straightforward. This simplicity stems from the fact that a liaison office only requires a unique business number as an owner, registered through the tax authority office, without the need for court registration.
Restricted Practices: Prohibited and Partially Restricted Activities
When exploring the crucial aspects of business restrictions, particularly relevant for foreigners entering into Korea business formation, we encounter two primary categories. Prohibited Activities encompass sectors such as banking, postal services, security trading, general education, radio and TV broadcasting, as well as the agricultural industry, specifically rice and barley cultivation.
Moving on to Partially Prohibited Activities, this category limits foreigners from holding more than 50 percent shares in selected sectors. These activities include fishing, newspapers and magazines, domestic transport, beef cattle husbandry and distribution, telecommunications, electronic network business, and power plants (excluding nuclear power).
In Summary
The landscape of company formation in Korea extends a compelling invitation to foreign entrepreneurs, offering strategic advantages and promising opportunities. Seoul, as a global business hub, epitomizes the nation's allure for those seeking growth in the Asian market. Post-pandemic, South Korea's effective economic management enhances its appeal for enthusiastic foreign investors. However, achieving success in Korea demands more than entrepreneurial zeal; it necessitates a comprehensive understanding of the intricate processes and regulatory frameworks governing business establishment.
Pearson & Partners is poised to provide invaluable support. This article has delved into the nuances of establishing various business entities — subsidiaries, sole proprietorships, branch offices, and liaison offices — each governed by distinct acts like FIPA and FETA, presenting specific advantages and challenges. To navigate these complexities seamlessly and make informed decisions, foreign investors are encouraged to leverage the expertise of Pearson & Partners. Contact us for specialized services, ensuring a smooth and successful entry into the dynamic realm of Korean business.
