Starting a Business in South Korea: Steps, Structures, and Compliance

Anyone, whether an individual or a foreign entity, can start a business or form a company in South Korea. The type of business entity depends on the nature of operations and compliance with local 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

Decide between a Limited Liability Company (LLC) or a Joint Stock Company (JSC), with the former suitable for small to medium-sized enterprises and the latter for larger corporations.

• Local Corporation:
  • Includes Korean-owned companies, the most common type in South Korea.
  • No minimum capital requirement, unlike the Foreign Direct Investment Company option.
  • Two types: Joint Stock Company and Limited Liability Company.
    • Joint Stock Company allows publicly issued shares with limited shareholder liability.
    • Limited Liability Company is closely held with a maximum of 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 receive certain advantages under Korean law based on their activities.
• Branch Office:
  • Viewed as a foreign corporation, with the foreign headquarters and Korean branch legally one entity.
  • Subject to the same tax laws and rates as domestic Korean companies.
• Liaison Office:
  • Considered a foreign corporation, primarily serving foreign investors not immediately conducting business in South Korea.
  • Activities are restricted to non-commercial tasks like market research and marketing.
  • Mandatory registration with the appropriate tax office.

2. Naming the Company

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

3. Obtaining a Business Registration Number

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

4. Getting 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

Every company 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 launch their business operations in South Korea.

Compliance with Labor Laws and Investment Climate in South Korea

Ensuring compliance with strict labor regulations and fostering an attractive investment environment are key priorities for foreign investors recruiting a workforce in South Korea. The legal framework primarily revolves around the Labor Standards Act and the Employment Permit System, guiding employment practices.

Key considerations for foreign investors include:

1. Employment Contracts: Craft comprehensive employment 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: Observe the minimum wage set at KRW 9,160 per hour as of 2023.
4. Employment Visas: Secure employment visas for foreign workers, with employers responsible for visa applications.
5. Labor Unions: Recognize and uphold employees' rights to unionize given the prevalence of labor unions in South Korea.

Tax Regulations and Investment Opportunities in South Korea

South Korea offers a range of tax incentives and investment prospects to attract foreign investment, supported by initiatives like the Foreign Investment Promotion Act (FIPA) and Free Trade Agreements (FTA).

Highlighted benefits include:

1. Tax Incentives: Access corporate tax rate reductions, income type exemptions, and tax credits for research and development activities.
2. Investment Incentives: Access financial aid, subsidies for land acquisition, and government-backed loan guarantees to support investment projects.
3. Free Trade Agreements (FTA): Benefit from tariff reductions and eased trade barriers under South Korea's FTAs.
4. Foreign Investment Promotion Act (FIPA): Streamlined administrative processes, enhanced access to government support, and simplified approval procedures for foreign investors.
5. Special Economic Zones (SEZs): Enjoy tax breaks, regulatory simplification, and other incentives in SEZs across South Korea.

Strategic Engagement with Korean Business Culture

In addition to understanding legal and regulatory frameworks, foreign investors must navigate Korea's unique business culture, emphasizing hierarchy and collectivism.

Effective strategies include:

1. Cultivating Personal Bonds: Build trust and personal connections with Korean counterparts.
2. Honoring Hierarchy: Show deference to seniority and authority through language and behavior.
3. Exercising Patience: Develop trust over time through patience and persistence.
4. Preparing for Negotiations: Thoroughly prepare and understand potential risks and benefits before negotiations.
5. Language Proficiency: Basic language skills can facilitate rapport-building and convey respect for Korean culture.

Embracing these cultural insights enhances 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 offer comprehensive support, including selecting the best registration structure, providing necessary documentation, assisting in bank account setup, VAT registration, and visa applications for foreign managerial personnel.