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Establishment of corporate bodies

How foreigners can start a business in Korea


There are four ways in which a foreigner can start a business in Korea: a foreign corporation or a foreign individual can a) establish a local corporation; b) can enter the market in the form of a private business; c) establish a local branch; or d) open a local liaison office.
Among those four options, entering the Korean market through local corporations, private businesses are subject to the Foreign Investment Promotion Act. Meanwhile, entry through the establishment of a local branch or liaison office is subject to the Foreign Exchange Transactions Act.
 

Local corporation (foreign investment company)

 
Investments through the establishment of local corporations by foreigners are governed under the provisions of the Foreign Investment Promotion Act and the Commercial Act. Here, a foreigner refers to an individual who holds a foreign nationality, a corporation established under foreign law, and an agency that provides foreign economic cooperation services on behalf of a foreign government.
For foreigners to establish a local corporation registered under the Foreign Investment Promotion Act, investment amount must be at least KRW 100 million (Article 2 of the Enforcement Decree of the Foreign Investment Promotion Act).
 

Private business


Even if a foreigner invests KRW 100 million or more in a domestic company and conducts business in the form of an individual business operator, the Foreign Investment Promotion Act will apply in ways similar to local corporations by established foreigners. Operating a business in the form of a private enterprise is advantageous in that it is easier to open and close the business compared to local corporations. Meanwhile, it’s main disadvantage is that it is difficult to raise funds and secure more competent human resources as the business will have lower credit ratings.
 

Foreign corporate branch


For a foreign company to carry out ordinary business activities in Korea, it must appoint a representative for its branch in Korea, complete the necessary procedures to establish a branch under the Foreign Exchange Transactions Act, and finish its registration at the registry office.
A branch is recognized as a permanent establishment under the treaty because it engages in sales activities that generate profits in Korea. Also, the same corporate tax rate as local corporations applies to income generated from business conducted in Korea.
 

Liaison office


Unlike a branch office, a liaison office cannot engage in sales activities. It can only conduct non-sales activities for the head office. Therefore, it receives a serial number that corresponds to the business registration from the relevant tax office, and the liaison office is not required to register at the registry office. Liaison offices are confined to preliminary or auxiliary tasks for its head office such as business communication, market research, research and development activities, quality control, advertising, public relations, and information collection as well as its provision. No income can be generated from local sources since it cannot engage in direct sales or maintain product inventory for sales purposes.
 

 




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