Navigating South Korea's Forex Reforms and Company Setup

South Korea is set to undergo significant reforms in its foreign exchange market, the most extensive since the 1998 financial crisis. These reforms include extending trading hours until 2 AM, aligning with London's market close, and paving the way for 24-hour operations in the future. Notably, overseas financial institutions approved by Korean authorities will gain direct access to Seoul's forex market, reducing reliance on non-deliverable forward (NDF) markets. Major banks like KB Kookmin, Shinhan, Hana, and Woori are expanding their teams to prepare for these changes, aiming to register their overseas branches as foreign financial institutions (RFIs) to bolster their presence in Seoul and enhance global operations denominated in South Korean won.

Additionally, the introduction of competitive corporate forex electronic trading platforms such as Hana Bank's 'Hana FX Trading System' is expected to stabilize the market by increasing supply sources and reducing exchange rate volatility. Foreign investors can capitalize on these reforms to expand their market presence, optimize trading strategies, and seize new business opportunities in South Korea's evolving forex landscape.

1. Choosing a Business Structure

In the South Korean business environment, companies have various options for organizational structures, each with distinct legal and operational implications that significantly affect business operations, ownership, and tax obligations. Here are the primary business forms commonly chosen in South Korea:

Establishing a Subsidiary

Forming a subsidiary creates a separate legal entity, partially or fully owned by a parent company. Subsidiaries benefit from autonomy and limited liability, making them ideal for foreign businesses entering the South Korean market. This structure allows for independent management and financial control while leveraging support from the parent company.

Private Company (Yuhan Hoesa)

Also known as a Limited Liability Company (LLC), a private company provides shareholders with limited liability protection and is relatively straightforward to establish. Private companies offer flexibility in management and taxation. When foreign direct investment (FDI) from foreign individuals reaches 100 million KRW or more, private companies are categorized as foreign-invested companies under the Foreign Investment Promotion Act. Despite foreign investment, they are treated as domestic corporations under South Korean commercial law.

Setting Up Branch and Liaison Offices

Establishing a branch office allows foreign companies to expand into South Korea, operating as an extension of the parent company without a separate legal identity and adhering to specific reporting requirements.

Forming a liaison office for a foreign corporation limits its activities to tasks like market surveys and promotional activities, following regulations under the Foreign Exchange Transactions Act.

Choosing the Right Business Structure

Selecting the appropriate business structure is crucial, aligning with your objectives, company size, and industry. Each structure offers unique advantages and disadvantages in taxation, liability, and administrative obligations. Consulting with legal and financial experts in South Korea is essential to navigate these complexities and make informed decisions tailored to your business needs.

Naming Your Company

Selecting a suitable company name is a critical initial step in forming a company in South Korea. Names must be in Korean characters and should be distinct from existing registered entities, avoiding prohibited terms. Verify compliance and availability through the Korean Intellectual Property Office (KIPO).

Setting Up ESCROW Account and Allocating Paid-Up Capital

Notify the bank of your business activities and establish an ESCRO account, essential for managing financial transactions during company formation. Deposit the required paid-up capital into the ESCRO account to strengthen your company's financial foundation.

Preparing and Submitting Internal Documents

Compile necessary internal documents such as bylaws and corporate resolutions to outline your company's structure and operations. These documents are mandatory for the registration process.

Confirming Corporate Registration Certificate

Await issuance of your corporate registration certificate, confirming legal recognition and formal registration of your company in South Korea, permitting lawful operations.

Receiving Corporate Seal Card

Obtain the corporate seal card, crucial for official document signing and business transactions, playing a pivotal role in corporate affairs in South Korea.

Registering with the Tax Office

Complete business registration with the tax office to comply with South Korean tax laws, providing detailed business information essential for financial transactions and reporting.

Establishing Business Bank Account

Open a business bank account to facilitate transactions such as receiving payments and managing finances. Pearson & Partners offers remote assistance for seamless account setup, eliminating the need for physical presence in South Korea.

Commencing Business Operations

With company formation completed, commence business activities in South Korea, executing planned strategies and serving the local market. Maintain accurate records to ensure compliance with tax and financial regulations.

Conclusion

Establishing a company in South Korea presents promising opportunities in a dynamic market. This guide has outlined essential steps from naming your company to initiating operations strategically. Selecting the right business structure and complying with regulatory requirements are key to success, including recognition under the Foreign Investment Promotion Act for foreign direct investment (FDI).

For comprehensive assistance throughout the company formation process, Pearson & Partners offers specialized services in incorporation and tax accounting, ensuring a smooth establishment of your business in South Korea. Contact us for tailored support to achieve your business goals effectively in this vibrant market. Contact us.