For over a decade, Healy Consultants efficiently and effectively assists our Clients i) determine what type of South Korea company formation to use ii) what class of business license to apply for iii) how a South Korea national sponsor will help iv) South Korea offshore banking and cash flow considerations v) immigration and recruitment strategies and vi) office rental solutions during South Korea company incorporation:
Advantages of South Korea company registration
Doing business in South Korea
- A limited liability company can be incorporated within one week, with a minimum of one shareholder and one director of any nationality. Our Client will not need to travel to complete the engagement for South Korea company registration;
- Compared to western countries, South Korea is a low tax jurisdiction. Corporate tax rate is a flat 22% on net profits and VAT is 10%;
- There are no restrictions on foreign currency accounts or the repatriation of capital and earnings;
- To attract foreign direct investment (FDI) on South Korea offshore company, the Korean government passed the Foreign Investment Promotion Act in 1998. The Act opened up 99.8 percent of Korea’s industries to foreign investment and provided significant protection for investors’ interests. Under the Act, foreign investors also receive incentives including tax breaks, cash grants and affordable land.
Infrastructure and location
- South Korea is ideally located between China and Japan, two of the world’s biggest economies. International trade between these economies is seamless and thus, it is a strategic location to incorporate in South Korea;
- South Korea boasts a technologically advanced air, land and sea transport network, allowing quick delivery of goods and raw materials within the country;
- Incheon International Airport is a leading logistics and transportation hub in Northeast Asia, equipped with state-of- the-art facilities. Entrepreneurs can expect to have their customs clearance time cut by 50%;
- Over the coming 5 years, South Korea will invite tenders from foreign construction companies to help develop infrastructure spending of US$300bn on airports, roads and railways by 2020.
Free Economic Zones
- Foreign enterprises incorporated within Korean economic free zones are exempted from corporate tax for a period of five years. Incheon, Pusan, Jinhae, and Kwangyang-man are designed as the free economic zones;
- Within these free zones, there are no import tariffs for three years for the South Korea free zone company;
- The Free Zone tax exemption only applies to foreign companies with a minimum investment of i) at least USD$10m in manufacturing and tourism business and ii) at least USD$5 million in logistics and medical fields.
- South Korea boasts high skilled labour with a literacy rate of above 97% and a technologically advanced rate of 60%. Labour survey shows that 80% of adults aged 25-64 have a university degree;
- South Korea has the world’s highest estimated national IQ, with leading rankings in mathematics, science, problem solving and reading, as declared by the OECD (Organization for Economic Co-operation and Development).
Disadvantages of South Korea company registration
- South Koreas labour costs are high. The average monthly salary per skilled worker is US$3700 excluding bonus;
- To employ a foreign national, it is necessary to have a minimum paid up share capital of US$100,000;
- Before South Korea company incorporation, a lease agreement for a Korea office is required by foreign investors. Healy Consultants provides shared office space for our Clients at US$950 per month;
- Renting an office in South Korea is expensive. The Average office rental per month in South Korea is around US$ 60 per sq. ft.;
- Renting industrial space in key areas of South Korea is expensive and thus it adds on the cost on South Korea business formation. The Average Industrial rent per month in South Korea amounts to around US$ 55 per sq. ft.
- Only 10% of the South Korean population speaks English fluently, consequently language is a barrier when conducting business;
- All business documents in South Korea are written in Korean, thus it is difficult for foreign investors to efficiently do business there.
- The South Korean government prohibits foreign investment in certain industrial sectors including power generation, certain agriculture industries, news broadcasting, and some farming activities;
- The government tenders favour to i) South Korean nationals ii) companies with South Korean nationals;
- Employee unions are strong and there are frequent strikes impacting public service;
- South Korea borders North Korea, a pariah state which possesses a nuclear arsenal, highly unstable and unpredictable. Consequently there is increased currency volatility and employee sick days.
Different South Korea entities
Limited Liability Company (Yuhan Hoesa)
- This is the most common entity used for starting a business in South Korea. As always, the company is an entity, separate from owners who, consequently, enjoy limited liability;
- A South Korean LLC must appoint i) a minimum of one director and one shareholder and ii) a minimum used share capital of US$10,000 while setting up a company in South Korea. A South Korean LLC can be incorporated within 1 week.
A Branch office is allowed to operate within the boundaries set by the parent company. A South Korean branch is allowed to invoice South Korean customers, sign local sales contracts, and receive income from customers.
Representative Office (RO)
While a South Korean representative office is 100% foreign owned and controlled, it is not permitted to make direct sales with South Korea. Such an office will only engage in activities such as i) promoting business of the parent company and ii) market research.
General Partnership (Hapmyong Hoesa)
In a general partnership, members include partners with unlimited liability. Each partner is jointly liable for debts incurred by the company as well as taxes. Transfer of ownership in this kind of company is limited, as unanimous consent of all members is required before this can be achieved.
Limited Liability Partnership (Hapja Hoesa)
In this partnership, members can have both limited and unlimited liability. The role of limited members in the company is limited to capital investment, while unlimited members bear the rights and responsibilities stemming from the company’s business. Limited members cannot carry out business on behalf of the company nor can they represent it in any way.
Joint Stock Company (Chusik Hoesa)
Stockholders in a joint stock company have liabilities limited to the extent of their capital investment in the company. Stocks are freely transferrable, though this can be subject to approval of the board of directors. These companies are required to hold shareholder meetings at least annually to discuss financial statement and dividends.
11 steps to incorporation in South Korea
South Korea company incorporation takes up to 2 weeks. The following is an overview of the typical engagement procedures relating to South Korea company formation:
- Our Client settles our fees and signs Healy Consultants’ engagement letter for South Korea company formation. Healy Consultants then provides our Client with a detailed engagement plan, outlining a roadmap for South Korea company registration, thus minimizing unwanted surprises and assist our Client on understanding how to set up a company in South Korea;
- Healy Consultants collects the required due diligence from our Client, including passport copies, proof of address, and details of the company’s intended activities for South Korea company incorporation. To avoid physically visiting South Korea, investors are required to sign off the South Korea company incorporation forms in front of a i) notary public where they are originally based in, or ii) consulate of South Korea. Notarization and legalization process will take up to one week and approximately US$300 to complete;
- Prior to South Korea company formation, our Client needs to provide Healy Consultants office lease agreement in Korea or confirmed sharing Healy Consultants office in Seoul. Thereafter Healy Consultants will prepare office agreement for our Client’s signature, stating the term and condition;
- Healy Consultants Incorporation team will check the availability of trade name and obtain a certificate of name availability through the Supreme Court for South Korea company incorporation;
- To proceed with South Korea company formation, Healy Consultants has to apply for foreign investment approval for the project at the Ministry of Strategy and Finance in Seoul. If approved, Healy Consultants will begin company incorporation;
- Prior to South Korea company formation, Healy Consultants prepares incorporation documents (such as memorandum and articles of association, as well as a statement on the amount and form of the proposed initial share capital) for our Client’s signature and return to us;
- Healy Consultants Incorporation Team liaises with the Commercial Registrar’s Office in the Seoul District Court to complete South Korea company registration. South Korea company formation is completed with the corporate structure as approved by our Client;
- Healy Consultants will register the company for tax at the District Tax Office in Seoul and obtain a tax identification number and business registration certificate;
- Following South Korea company formation, Healy Consultants provides our Client with a complete company kit including i) original Certificate of Incorporation ii) a bound copy of the South Korea government approved Articles of Association iii) original share certificates iv) an original South Korea government receipt as evidence of payment of annual South Korea company registration and license fees;
- To support South Korea company incorporation, Healy Consultants’ Banking Team completes corporate bank account opening for our Client. The account includes world-class multi-currency Internet banking facilities and our Client is not required to visit the South Korea to complete this task. Healy Consultants works with internationally recognized banks such as Industrial Bank of Korea, Citibank, Woori bank, and Korea Exchange Bank to provide corporate bank account services;
- To support South Korea company incorporation, Healy Consultants provides our Client with South Korea accountants, South Korea company secretary, and a local business address in South Korea for invoicing purposes, together with telephone, fax and email support.
Accounting and tax considerations
Healy Consultants Compliance Department guides our Client through legal and tax obligations.
- South Korea taxes on Corporate Income are 10% on the first 200 million won of income, 20% for income between US$180,000 and US$20m, and 22% for income in excess of that;
- VAT in South Korea amounts to 10% on sales and transfers of goods and services. Electronic VAT invoicing is compulsory, and failure to report electronically may result in penalties;
- South Korea non-resident companies without permanent establishments (PEs) in South Korea are subject to a withholding tax on each income item;
- Resident foreigners are taxed on their worldwide income if they have stayed in South Korea for more than 5 years out of a 10-year period. Those who have stayed for a shorter period are only taxed on their locally sourced income and foreign-sourced income;
- There is a special concession for foreigners working in South Korea, where foreign expatriates and employees can apply for a flat tax rate of 16.5% on their income employment;
- Quarterly VAT filling is compulsory even though the company is dormant;
- Annual tax returns must be filed to the National Tax Service of South Korea after setting up a business in South Korea;
- There are no export duties in South Korea;
- Following South Korean company formation, annual external audits must be conducted if a company has more than US$1million total assets;
- All goods being imported to Korea from foreign countries must have their customs duties prepaid. The tax amount is dependent on the type of imported goods and quantity;
- Non-resident individuals are only liable to personal income tax on income derived in Korea;
- To attract foreign direct investment (FDI), the Korean government provides tax incentives for small and medium-sized enterprises (SME): i) A SME investing in industrial equipment or advanced office equipment may enjoy a 5% tax credit of the invested amount ii) The tax credit for developing technology and manpower increased from 10% to 15%;
- Korea boasts 54 double taxation treaties, materially reduce local withholding tax on payments to non residents.
The average South Korea company incorporation engagement period is 6 weeks as outlined below:
- Before South Korea company incorporation, a lease agreement for a Korea office is required by foreign investors. Healy Consultants provides shared office space for our Clients at US$950 per month;
- A corporate seal will be issued to the company representative director. This seal authorizes him/her to act on behalf of the company, for all corporate and South Korea banking matters. To avoid the corporate seal of being stolen and misused, It is important for the company to safeguard the seal well during South Korea company formation;
- Bank approval is required for every incoming fund that hits a Korean bank account;
- The Foreign Investment Promotion Act (FIPA) is designed to regulate South Korea investment. The legislation states that foreign investors must file a report with the government if they wish to invest in Korea through merging or acquiring a company;
- Starting a business in certain sectors requires government registration in South Korea;
- Each South Korean company must file a quarterly VAT report and an annual tax return to meet the requirements of the Republic of Korea company law;
- Each South Korean resident company must appoint a resident director;
- A minimum share capital of US$10,000 has to be paid up in order to to complete South Korea company incorporation. However, In order to employ a foreign national, it is necessary to have a minimum paid up share capital of US$ 100,000;
- A corporation must file an interim tax return with the Korean Government, comprising i) balance sheet ii) income statement and iii) a trial balance;
South Korea employment visas
To support the South Korea visa application, Healy Consultants prepares a comprehensive business plan for South Korea company formation detailing our Client’s proposed business activities in South Korea, a market analysis and financial projections, and a convincing outline of reasons for migration to South Korea.
- Foreign Investors who will own, setup, or manage small to medium size industries in South Korea can apply for a corporate investment visa (D-8 Visa). In order to meet the requirements for South Korea company incorporation, applicants must be willing to invest at least US$ 45,000 in South Korea, and have all the required supporting documents on hand;
- Examples of supporting documents required are: i) a passport valid for 6 months ii) incorporation certificates iii) tax certificates iv) a proof of investment v) an office lease vi) bank account statements;
- D-8 Visas can be obtained at any South Korean embassy / consulate, by the inviting body or the applicant himself. The South Korea visa issued will be valid for 6 months, and can be extended if proof of success is provided. Upon successful extension, the D-8 visa can be valid for a period of up to 5 years depending on the applicant’s position and role in the company.
There are several types of employment visas available for foreigners depending on the nature of employment sought. These range from short-term employment visas for artists and performers which grant a stay of 90 days, to Professional Employment passes for those practicing law and medicine.
Long term employment visas
|E-5||Professionals in law, accounting, or medicine|
|E-6||Creative jobs, such as culture and art|
|E-7||Specially designated professions appointed by the minister of Justice|
To obtain an “E” class visa in South Korea, sponsors have to apply for visa issuance certificates for their foreign applicants. Once a visa issuance certificate has been issued, sponsors need to provide applicants with the certificate number. Thereafter applicants will need to present all the supporting documents with the visa issuance number to their nearest Republic of Korea embassy/consulate for processing.
If you are not on the list of South Korea visa exempt countries you will need to apply for a visa to enter South Korea. In order to successfully apply for a visitor visa, you will need a passport with at least 6 months validity. The time required to issue a visitor visa is 5 working days with a fee of US$30 for a single entry permit.
Corporate banking options
Success tips when doing business in South Korea
- In Korea, all government transactions are in Korean. Therefore, Healy Consultants advises our Clients to hire a bilingual manager to settle their government affairs efficiently and effectively during South Korea business setup;
- We encourage our Clients to consistently use and sign contracts of service with their suppliers and counterparties while establishing a company in South Korea;
- Your joint venture partner or South Korean shareholder must not merely be a nominee for the sake of meeting the rules of foreign company incorporation. You should choose a partner that actually brings a lot to the table, including knowledge that would help you out in South Korea company formation;
- Due to Confucian ethics in Korea, there is great respect for authority and seniority. Therefore, in order to be taken seriously, a high ranking representative should be present in all important meetings with South Korean suppliers and Clients;
- South Korean employees expect their employers to take holistic interest in their wellbeing. This includes an interest in their personal life;
- Koreans don’t take loss of face and shame lightly. Avoid being impatient, and putting a Korean in a position where he / she might suffer a loss of face;
- To optimize the success of your new business venture starting a company in South Korea, Healy Consultants recommends your firm i) complete a feasibility study ii) prepare a detailed business plan iii) communicate with the South Korea inland revenue department iv) speak to your local South Korea embassy and v) communicate with Healy Consultants Clients who successfully launched their business in South Korea;
- An essential factor in starting a business in South Korea is to thoroughly research the business sector you are planning to invest in. Healy Consultants recommends our Client prepare a detailed business plan including an extensive market study and evaluation of competitors;
- Following South Korea business incorporation, annual audited financial statements and a tax return must be submitted to the South Korean authorities. To save time and money, it is advisable that you hire Healy Consultants to settle this annual statutory obligation efficiently and effectively.
Did you know about South Korea?
- South Korea is a democratic state that is governed by a president and a prime minister;
- The population of South Korea in 2013 was 50 million. The population is composed of 99.9% Korean and 0.1% Chinese;
- South Korea’s market economy is ranked 14th in the world and an influence in Asia and the world. South Korea relies on international trade and is the sixth largest exporter in the world and the tenth largest global importer;
- South Korea’s economy is high-tech and industrialized. Its main industries include electronics, telecommunications, auto production, steel, shipbuilding, and chemical production. Some of South Korea’s largest companies include Hyundai, LG, and Samsung;
- All males are constitutionally required to serve in the military, typically for a period of two years. South Korea has an extensive military that includes air force, navy, army, and marines;
- Taekwondo is South Korea’s national sport. Many Korean kids learn taekwondo as a routine part of their education;
- South Korea is the only country with complete 100Mb broadband internet connection everywhere;
- South Korea is negatively ranked as the 45th least corrupt country in the 2012 Corruption Perceptions Index, a global measure of corruption amongst public officials and politicians done by Transparency International;
- According to the Doing Business 2012 survey by the World Bank, South Korea is the world’s 8th easiest place to do business. The survey measures factors including business start-up procedures, time, cost, and minimum capital required to start a business;
- The number of foreign-invested companies in Korea has increased exponentially from 2,000 in 1997 to 14,000 in 2010. They now account for 13 percent of Korean GDP, 12 percent of all exports and 6 percent of employment in the manufacturing sector.
- South Korea company incorporation procedures
- Migration to South Korea
- South Korea Client case studies
- Tax Authority
- Ministry of Finance
- Central Bank
- Stock Exchange
- Investment Authority
- Chamber of Commerce
- South Korea airports
- Visiting South Korea
- Doing Business in South Korea
- South Korea – KPMG – Doing Business in South Korea
- South Korea – PwC South Korea flat income tax rate foreign workers
- Invest in Korea
- Korea Free Trade Zone
- Korea country profile
- 2013-14 Worldwide Corporate Tax Guide – South Korea
- PWC – South Korea Tax Summary
- Taxation & Investment in Korea 2013 – Deloitte
- Investment Global Forum – OECD
- Banking Act – Republic of Korea
- Doing Business in Korea