How Foreigners Can Start Business in Korea
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Foreigners can start business in Korea (including the establishment of corporations) by acquiring new or existing stocks as prescribed by the Foreign Investment Promotion Act, or by establishing a domestic branch or liaison office in Korea as prescribed by the Foreign Exchange Transaction Act.
A foreign-invested company is a domestic corporation established under the Commercial Act. It is classified as either an unlimited partnership company, a limited partnership company, a limited liability company, a limited company, or a stock company. The most common types of corporations established by foreign investors are limited companies and stock companies
- How foreigners can start business in Korea
- Types of Foreign Enterprises(FIE)
- Incorporation Procedure
A local corporation, in which a foreigner has invested not less than KRW 100 million for managerial participation and acquired not less than 10 percent of the company’s newly issued or existing stocks with voting rights, is recognized as a foreign-invested company under the Foreign Investment Promotion Act and thereby constitutes a domestic corporation established under the Korean Commercial Code.
A branch office or a liaison office of a foreign corporation shall be divided depending on whether the office conducts business activities or not, and shall be governed by the Foreign Exchange Transactions Act. A branch office is a foreign corporation that carries out business activities of the head office. On the other hand, a liaison office is a foreign corporation that cannot carry out business activities but instead conduct market surveys, marketing activities, etc.
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Foreign-Invested Companies (Domestic Corporations)
- Stock Companies
- Limited Companies
- Limited Liability Companies
- Limited Partnership Companies
- Unlimited Partnership Companies
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Domestic Branches of Foreign Companies (Foreign Corporations)
- Branches (Sales Offices)
- Liaison Offices
Comparison of Foreign-Invested Companies, Domestic Branches of Foreign Companies, and Liaison Offices
| Category | Foreign-Invested Company | Domestic Branch | Liaison Office |
|---|---|---|---|
| Governing Law | Foreign Investment Promotion Act | Foreign Exchange Transaction Act | Foreign Exchange Transaction Act |
| Type of Corporation | Domestic | Foreign | Foreign |
| Recognized as FDI | Yes | No | No |
| Company Name | No restrictions | Identical to that of headquarters | Identical to that of headquarters |
| Scope of Business Activities | No restrictions, within the permitted scope | Same activities as headquarters; within the permitted scope | Profit-making activities not permitted; purpose of establishing business contacts only |
| Minimum Investment Amount | KRW 100 million1) | N/A | N/A |
| Legal Liability | Limited to domestic corporations | Extend to headquarters | Extend to headquarters |
| Independence | Legally independent | Subordinated to headquarters | Subordinated to headquarters |
| Domestic Loans | Possible depending on credit rating of the domestic corporation | Almost impossible | Impossible |
| Establishment Procedures |
1. Notify FDI 2. Remit investment funds 3. Register corporation 4. Register business license 5. Register foreign-invested company |
1. Notify domestic branch establishment 2. Register corporation 3. Register business license |
1. Notify domestic branch establishment 2. Register identification number |
| Accounting and Taxation | Must record and maintain bookkeeping according to Korean Accepted Accounting Principles; obligated to receive external audits on certain conditions | Must record and maintain bookkeeping according to Korean Accepted Accounting Principles; not obligated to receive external audits | Not obligated to record bookkeeping |
| Corporate Tax Rate | Liable to taxation | Liable to taxation | N/A |
| Taxable Income | All profit made by a domestic corporation | All profit including domestic source income made by a domestic corporation; branch tax applicable to some countries | N/A |
| Tax Benefits | Tax benefits for foreign-invested companies and SMEs according to the Restriction of Special Taxation Act | N/A | N/A |
※ 1) A foreigner may establish a corporation by investing less than KRW 100 million. This case is not recognized as FDI and is subject to the notification of stock acquisition as prescribed by the Foreign Exchange Transaction Act (Attached Form No. 7-6 of the Regulation on the Foreign Exchange Transaction).