Business Guide for South Korea
Starting a business in South Korea
Business structureWhich business structure can I use?
There are three ways you can set up your company in South Korea:
- Foreign-invested corporation A foreign-invested corporation is regulated by the Foreign Investment Promotion Act. Here, the term "foreigner" means that you are an individual with a foreign nationality, a corporation established in accordance with a foreign law, or an international economic cooperative organisation. The most common type of foreign-invested corporation is a stock company. A foreign-invested corporation may be required to pre-notify the foreign direct investment to the Korea Trade-Investment Promotion Agency (KOTRA) or a foreign exchange bank. To register, you must do it at the Korea Trade-Investment Promotion Agency (KOTRA) or at the foreign exchange bank where the notification was made. This can be wholly-owned subsidiaries or a joint venture.
- Branch office A branch office is regulated by the Foreign Exchange Transactions Act. If you intend to carry out business activities in South Korea with a branch office, you should appoint a representative, undergo the branch establishment procedure stipulated by the Foreign Exchange Transactions Act, and receive court registration. Under the Taxation Act, the branch office will be recognised as a permanent establishment. This means that even if your business is foreign in origin, it will be taxed as if it were a domestic company. The head office and its branches are considered a single entity.
- Liaison office A liaison office is regulated by the Foreign Exchange Transactions Act. While a branch office undertakes sales activities in South Korea to generate profit, a liaison office only carries out non-sales functions such as business contacts and market research, etc. on behalf of the head company. Unlike branches, liaison offices do not need court registration, and are given a unique business code number which is equivalent to business registration at a jurisdictional tax office in South Korea.
How long does it take to register my business in South Korea?
It varies, depending on your business structure:
- Foreign-invested corporation: Four to eight weeks
- Private Business: Three days to one week
- Liaison office: less than two weeks
- Branch office: less than two weeks
To quicken the process, make sure that you have completed the required documents that are mandated by South Korea’s regulating agencies. You can file an application for your business’ registration for each place of business with the head of the tax office having jurisdiction over each business in their district, within 20 days from the commencement date of business. Trade-related businesses may need to file separate applications with the Korea International Trade Association (KITA) for a trade business code.
Directors and shareholdersThe following pointers below will focus on how stock companies, the most common type of foreign-invested corporation, will need to assign directors and shareholders.
Stock companyIt is easy to transfer stocks and is possible to issue bonds and list stocks. For these reasons, most domestic corporations fall under the category of a stock company.
Shareholders of a stock company have limited liability of their investment amount.
How many directors do I need?
Under the Commercial Act of South Korea, there must be a minimum of three directors for your company. There is no limit to the number of directors you can have. However, if your company’s in-paid capital is less than ₩1 billion, you may elect only one or two directors.
Do I need a minimum number of resident directors?
There is no minimum number of resident directors.
Are there any restrictions on who I can appoint as a director?
There are no special restrictions on how you appoint a director.
Can I appoint only foreigners as directors of my board?
There are also no nationality or residency restrictions on directors, under the Commercial Act of South Korea.
Can a company in South Korea be wholly owned by foreigners? Do I need a minimum percentage of local shareholders?
Yes, a company in South Korea can be wholly owned by foreigners. There are no nationality or residency restrictions on shareholders.
How many shareholders do I need to set up a company?
There must be a minimum of one shareholder, and there is no maximum number, under the Commercial Act of South Korea.
Business activitiesDo I need approval from the local authorities before my company operates?
If necessary, you will need authorisation and permission from these authorities:
- District Office
- Health Centre
- Ministry of Food and Drug Safety, etc.
Are there business activities which foreign companies cannot do?
Your company is restricted from investing in South Korea if your investments:
- Threaten national security and public order
- Have harmful effects on public health and sanitation or environmental preservation or acts against Korean morals and customs
- Violates any act or statute of South Korea
Your company may engage in various business activities in South Korea without restraint, except otherwise prescribed by the Acts of South Korea, which are as follows:
- Categories of Business that Exclude Foreign Investment (e.g., postal service, central banking, individual mutual aid, pension fund, and financial market administration, etc.)
- Categories of Business that Prohibit or Restrict Foreign Investment (e.g., nuclear power generation, radio broadcasting, terrestrial broadcasting, etc.)
LicensesDo I need a licence for incorporation?
You do not need a licence for incorporation. However, certain businesses activities might require you to register and apply for a specific licence.
Share capital and capital contribution
What is the minimum share capital or investment capital I need to set up a company?
A foreign direct investment is defined as an investment with a threshold contributed by foreigners of at least ₩100 million and being 10% or more of the total foreign direct investment.
Do I need approval from the local authorities to increase my share capital or investment capital? How long does approval take?
Yes. The registry division of the court accepts the application for the registration of capital increase. It takes about two to three days to complete.
What is the typical share capital requirement for an investment holding and trading company?
In practice, foreign investors often invest more than ₩100 million of share capital when establishing a company in South Korea.
What is the common unit issue price per share?
The minimum unit issue price per share for company formation must be at least ₩100 under the Commercial Act of South Korea.
Can I issue shares in a currency other than Korean Won?
No. The remitted foreign investment capital in foreign currency will be converted into Korean Won and will be transferred to an account for payment of stocks.
Are there any restrictions on bringing capital out of South Korea?
Yes. Each foreign investor needs to maintain an investment of at least ₩100 million to qualify for benefits under the Foreign Investment Promotion Act.
Do I need a separate bank account to receive capital?
How long does it take to set up a corporate bank account?
You may open a corporate bank account at a foreign exchange bank immediately. However, you need to consider your choice of bank carefully because you will have to wait at least 20 business days before you can open additional accounts.
Do I need to keep a minimum amount as capital in my bank account at all times? Or can my company use the entire amount for business activities?
The funds deposited in a bank for incorporation purposes cannot be withdrawn before incorporation registration.
As a rule, the remitted investment funds should undergo the procedure for the depositing of funds for the payment of shares. Then, you need to submit a certificate indicating that you have made your deposit for the payment of shares to the court. However, if your company is valued at less than ₩1 billion, you can submit a certificate of balance after opening an account in the name of an investor. In this case, the funds can be freely withdrawn for business purposes on the following day.
TaxesWhat is the current corporate tax rate?
The following table summarises the current tax rates:
Tax Base Tax Rate ₩200 million or less 10% of the tax base More than ₩200 million but not exceeding ₩20 billion ₩20 million + (Amount over ₩200 million x 20%) More than ₩20 billion but not exceeding ₩300 billion ₩3.98 billion + (Amount over ₩20 billion x 22%) Exceeding ₩300 billion ₩65.58 billion + (Amount over ₩300 billion x 25%)
When paying corporate tax, local income tax (10% of the corporate tax) is additionally imposed.
Are there any tax incentives I can use?
Yes. You can use tax incentives in the form of tax reduction and exemption for Foreign-invested corporations:
- Reduction/exemption of acquisition tax and property tax on acquired or held real estate
- Exemption from customs duty, individual consumption tax, and value-added tax by bringing in capital goods
Any special grants for foreign companies or for specific industries which the local government encourages?
The state and local governments of South Korea provide cash grants for these business activities:
- new growth engine technology
- high technology and high-tech products, materials and components
- large-scale employment
- establishing research and development centres or regional headquarters
These promote foreign direct investment, which contributes significantly to the national economy. If your company receives foreign direct investments through the acquisition of new shares, your company will be eligible for cash grants. The Foreign Investment ratio should be 30% or higher. Investments from long-term loans are ineligible.
When and how do I pay corporate tax?
You need to pay an annual corporate income tax return to the tax office having jurisdiction over your company within three months from the end of its fiscal year. Requests to extend the due date for tax return filing is not permitted. A tax return for local income taxes should be filed within one month after the filing due date of the annual corporate income tax return. You are also required to pay an interim corporate income tax return to the district tax office within two months from 30 June, if your company’s business year ends on 31 December.
Do I need to pay tax when I send dividends back to Singapore?
Under the tax treaty between Singapore and South Korea:
- Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.
- However, dividends paid by a company which is a resident of a Contracting State may also be taxed in that State according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:
- 10% of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25% of the capital of the company paying the dividends;
- 15% of the gross amount of the dividends in all other cases.
What are the withholding tax rates on interest, dividends, and royalties?
Under the tax treaty between Singapore and South Korea, for interest, dividends, and royalties, the withholding tax rates are limited as follows:
Contracting State Withholding Tax Rate Interest Dividend Royalty Singapore 10% Company owning 25% stake or more: 10% 5% Others: 15%
Are there any value-added tax or goods & services taxes in South Korea?
The value-added tax (VAT) is a tax that is reported and paid for the added value acquired in the process of providing goods and services and importing goods. It is currently at 10%. The company should file the value added tax returns for the taxable business activities with the district tax office on a quarterly basis, together with other related schedules.
The filing deadlines for the quarterly returns in every calendar year for the company will be as follows:
Taxable Period Filing Due Date 1 January to 31 March 25 April 1 April to 30 June 25 July 1 July to 30 September 25 October 1 October to 31 December 25 January Tax Base Tax Rate Domestic sales 10% Export of goods, overseas provision of services, etc. 0%
Useful website: The tax treaty between Singapore and South Korea
Are there any tax treaties between South Korea and Singapore?
South Korea and Singapore have enacted tax treaties on 31 December 2019.
- Reduction/exemption of acquisition tax and property tax on acquired or held real estate
What basic employment benefits must I give to my employees?
You must provide basic employment benefits for employees in South Korea. They are as follows:
- Social Security(National Pension, National Health Insurance, Employment Insurance, Worker’s Accident Compensation)
- Retirement benefits system
- Statutory Annual Paid Leave
- Childcare Leave
- Maternity Leave Before and After Childbirth, etc.
Do I need to pay taxes or social security contributions for employees?
Yes. Both employers and employees must contribute to Social Security Contributions. They are as follows:
- National Pension
Under the National Pension Act, a company with at least one employee will be required to join the National Pension Plan. The contribution of 9% of payroll will be shared equally (4.5% by the employer and 4.5% by the employee).
- National Health Insurance
Under the National Health Insurance Act, a company with at least one employee is required to join the National Health Insurance Plan. The contribution of 6.99% of payroll will be shared equally (3.495% by the employer and 3.495% by the employee).
- Employment Insurance
A company with at least one employee is required to make contributions to the Employment Insurance Plan. The employee contribution rate for Employment Insurance is 0.9%, but the employer contribution rate for Employment Insurance varies depending on the number of employees and type of industry.
- Worker’s Accident Compensation
Under the Industrial Accident Compensation Insurance Act, a company with at least one employee is required to join the Worker’s Accident Compensation Plan and pay premiums on an annual basis. The premium rate of an employee’s salary depends on the type of industry. These contributions to Worker’s Accident Compensation are compulsory only for employers.
If I send a Singaporean employee to work in South Korea for less than a year, does the employee need a work pass?
Yes, your employee must have a work permit. This includes Singaporean employees who have been working in South Korea for less than a year.
There are several types of working visas, such as E-1, E-2, E-3, E-4, E-5,E-6,E-7, etc., in South Korea that allows long-term stay/work. A foreign direct investment-recognised company may also apply for a business investment (D-8) visa which will allow long-term stay/work. OASIS, a program operated by Global Startup Immigration Centre designated by Ministry of Justice and Ministry of SMEs and Startups, provides both start-up support and start-up visas (D-8-4) to foreigners who want to do business based on innovation and technology in South Korea.
Must I have a physical office in South Korea? Can I use another business' address or a virtual office address?
Yes, you must have a physical office. Your company is required to report their business address. It can only be in commercial areas and formal office buildings, and an actual physical presence is necessary for business registration.
A virtual office address is not sufficient for business registration.