Want to explore options for investment in Korea? Please see the followings.
There are four options for foreigners to start business in Korea: a foreign corporation or a foreign individual could establish a local corporation or enter in the form of an individual business. Foreign corporation could also establish a domestic branch or office.
Among them, the establishment of a local corporation and entry through the form of a individual business are subject to the Foreign Investment Promotion Act, and entry through the establishment of a domestic branch or office is subject to the Foreign Exchange Transaction Act.
- Local corporation (foreign-invested company)
Foreigners’ investment through the establishment of a local corporation in Korea is subject to the provisions of the Foreign Investment Promotion Act and the Commercial Act. ‘Foreigner’ is defined as individual with foreign nationality, corporation established under foreign laws, and organization that act on behalf of foreign governments for its foreign economic cooperation.
In order for foreigner to establish a corporation and register as a foreign-invested company, the investment amount – initial capital injection – must be 100 million won or more (Article 2 of the Enforcement Decree of the Foreign Investment Promotion Act).
- Individual business
When a foreigner invests more than 100 million won in Korea and operates a business in the form of a individual business, it is recognized as a foreign investment, and is subject to the Foreign Investment Promotion Act, just like a local corporation. In the case of operating individual business, compared to local corporation, it has the advantage that it is easy to open, cease or close business, but it has the disadvantage that it is difficult to raise funds and secure good human resources due to low credit compared to corporation.
- Branch of a foreign corporation
In order for a foreign company to conduct normal business activities in Korea, a representative of the domestic branch must be appointed and the branch establishment procedure according to the Foreign Exchange Transaction Act must be followed, and registration by the court is required.
Branches are recognized as permanent establishments under the treaty because they operate business activities that generate profits in Korea, and the same corporate tax rate as general domestic corporations is applied to income generated from businesses operated in Korea.
- Office
Unlike branch, office cannot conduct business activities and only conduct non-business activities for head office. Therefore, the competent tax office issues a “unique number” equivalent to business registration number and court registration is not required for office.
What an office – usually called a liaison office – can perform are preliminary activities of business, such as business contact with the head office, market research, research and development activities and quality control, advertisement, PR, and information collection. Its activities are limited to preliminary and auxiliary activities excluding direct sales or inventory holding for sales, so domestic source income is not generated. Therefore no corporate income tax is imposed on its operation in Korea.
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