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Australian Ceo potential in South Korea
Background
Our Client Malcolm Davies is the CEO of a Sydney-based robotics technology firm. His Australian company has been carrying out research and development (R&D) of robotic and security systems for Australian firms for more than 20 years, and has an excellent reputation in its field. A strategic review of the company’s operations in late 2006 identified a need for the company to diversify its revenue sources in an increasingly competitive domestic market, and an executive decision was therefore taken to set up an overseas R&D facility.
Engagement Planning
Preliminary research by the company revealed strong potential in South Korea. Recent media reports have highlighted plans to build ‘Robot Land’, a US$530 million industrial city built specifically for the robotics industry, and which will include facilities for R&D and robot production when construction begins in 2009. This long-term commitment to the industry, as well as the availability of grants and incentives to attract foreign investment in specific Free Economic Zones (FEZs), prompted Mr Davies to look for a corporate service provider who could assist his company effectively and transparently in a potentially ‘alien’ market. He contacted Healy Consultants in February 2007, having found our website following a Google search, and was impressed with our capabilities. However, from the outset Healy Consultants warned him of complex and expensive South Korean setup procedures, as well as possible language difficulties in business in general.
However, Healy Consultants’ core strength is to provide workaround solutions to any obstacles during an engagement, and with this in mind Mr Davies agreed to commission Healy Consultants to conduct initial research into the ideal company type and location for any new company in South Korea. Mr Davies agreed to settle a retainer fee of US$2,000 for us to carry out the research. Healy Consultants employ qualified accountants with extensive knowledge of corporate and tax law in South Korea.
The focus of the initial research was on the three FEZs in South Korea, at Busan, Incheon and Gwangyang Bay, with the objective being to establish the advantages and disadvantages of each. Healy Consultants contacted the authorities of each FEZ by telephone to describe the intended business of Mr Davies’ company, and to find out if the company would qualify for tax exemptions and grants under South Korea’s foreign investment regulations. Healy Consultants prepared a comparison table of the three FEZs, which was sent by e-mail to Mr Davies in Australia for his perusal. It was quickly apparent that the Incheon FEZ would be an attractive location for Mr Davies’ company, from both a logistical and economic point of view. Located adjacent to Seoul’s Incheon international airport, it offers excellent communications infrastructure, and the Techno Park at the Songdo Intelligent City (within the Incheon FEZ) is being developed into a fully-fledged R&D community.
Company Incorporation
Having established the location of the company, the next step was to identify the optimum corporate structure. Foreign investment in South Korea is closely monitored by the government, which prefers foreign investment to take the form of a Stock Company (Chusik Hoesa). However, in our client’s case, Healy Consultants recommended a limited liability company (Yuhan Hoesa), which requires a minimum of two shareholders and which, unlike a Chusik Hoesa, requires no board of directors. The Yuhan Hoesa is ideal for a small to medium-sized business such as Mr Davies’ company, because it is a more simple corporate structure. Having presented a proposal for a Yuhan Hoesa to Mr Davies, he signed our Client Engagement Letter and remitted the required funds (minus the US$2,000 retainer fee) to Healy Consultants’ corporate bank account to begin the process of company incorporation.
With this, Healy Consultants began preparations to form the Yuhan Hoesa in the Incheon FEZ. The first step was to apply for foreign investment approval for the project at the Ministry of Finance and Economy in Seoul. In addition to completing an application form, Healy Consultants prepared a detailed business plan (in the intended name of the company), highlighting its intended activities, information on its clients and suppliers, as well as financial projections and information on the shareholders and directors. Healy Consultants also arranged translation of the business plan into Korean, a process which took 10 days. Approval was granted within 10 more days, following which Healy Consultants started preparing the memorandum and articles of association, as well as a statement on the amount and form of the proposed initial share capital. These documents were couriered to Mr Davies in Sydney for his signature and return to us. At the same time, Healy Consultants arranged to lodge the minimum capital of US$53,000 (which our client had included in the engagement fees) at the Korea Exchange Bank, who issued a Certificate of Full Payment, which was immediately e-mailed to Mr Davies.
Meanwhile, Healy Consultants received the signed corporate documents from Australia within one week, and filed them at the Commercial Registrar’s Office in the Seoul District Court, who advised that the Certificate of Incorporation would be issued within one month. In practice, Healy Consultants received an e-mailed copy of the Certificate of Incorporation within two weeks. With company incorporation complete, Healy Consultants visited the Incheon FEZ Authority with a view to locating a suitable site for Mr Davies’ R&D facility. Since this was a critical phase, we had recommended that the client now visit Seoul to meet with the FEZ authority, find a suitable facility and sign a lease/purchase agreement for an R&D centre.
According to a feasibility study commissioned by Mr Davies’ Australian company, as well as in-depth independent market research, it was decided to build a US$5 million R&D facility in the FEZ, and a letter of intent was signed by Mr Davies and the FEZ to this effect. With a suitable site identified, Mr Davies is currently seeking bank finance for the project, with construction slated to begin in early 2008.
Accounting and tax support
The next phase of the engagement was to register the company for tax at the District Tax Office in Seoul and obtain a tax identification number and business registration certificate. To achieve this, an application was submitted by Healy Consultants by mail, along with a copy of the lease agreement from Incheon FEZ. The certificate and tax identification number were received by Healy Consultants after 10 days.
To complete the current phase of the engagement, Healy Consultants provides a full virtual office for Mr Davies’ Korean operation, and will continue to do so until the R&D facility is completed in early 2009. As well as a comfortable working base for Mr Davies when he is in the city, the office fields telephone calls and receives mail, forwarding phone messages to Mr Davies on the same day. When the R&D facility is complete, it is likely Mr Davies will require assistance with obtaining visas for foreign employees.
Contact Us
For more information on our South Korea corporate services, email email@healyconsultants.com or telephone us at (+65) 6735 0120
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