To register a company in Korea, one can pick the most suitable setup specific to one’s business suitability, from many different kinds of enterprises and branches of industry. This decision is determined by the line of business and respective rules and regulatory provisions.

This article talks about the requirements and procedure of a Korea company registration, the important things a foreigner must know concerning accountancy and taxation framework and also the advantages and options open to a foreigner.

All the topics have been aligned in an order that is easy to understand, starting with the most attractive part; the advantages.

Quick Facts before registering a company in Korea

Placed between two of the world's economic giants, Japan and China, South Korea has a perfect geographic location. International trade between these economies is hassle-free. This makes it a strategic location to incorporate a company. An industrial installation in South Korea has the following plus points:

1.    If you want to incorporate a limited liability company, you will need at least one director and a shareholder. The person doesn't have to be Korean - any nationality can play a role as a director and a shareholder. For foreigners though, you must have at least KRW 100M (equivalent to USD 90,000) to set up a foreign-invested company and apply for an entrepreneur visa (D-8).

2.    There can be any number of foreign currency accounts and at the same time, there are no limitations on the returns of capital gains.

3.    In 1998, the Foreign Investment Promotion Act was framed by the Korean government, to draw Foreign Direct Investment (FDI) in South Korea foreign company. The Act brought 99.8% of Korea's industries within the reach of foreign investment and served as a strong security cover for investors' interests. The Act also provides foreign investors with incentives such as tax relief, cash benefits and inexpensive land.

4.    South Korea prospers in an environment of technologically advanced air, land and sea transport system, making it quicker to move goods and raw materials within the country.

5.    South Korea is made up of very qualified manpower having a literacy level higher than 97% and a technologically advanced rate of 60%. According to employment surveys, 80% of adults between the age group of 25 to 64 are university educated.

6.    Incheon International Airport is a major supply and transport hub in Northeast Asia, having the latest and advanced features. This is likely to enable entrepreneurs to clear their customs 50% faster.

7.    South Korea’s national IQ is evaluated as the world's best. It tops the ranks in science, mathematics and resolution of issues, as declared by the OECD.

Main Choices

Foreign businesses or persons who are not the residents of South Korea have three main choices in terms of putting together and registering a business or company in South Korea:

1. Local Corporation / FDI Company 

This is the registration that defines a local company. However, by investing at least KRW 100M (equivalent to USD 90,000), it will fall into the category of a Foreign Capital Invested Company, or a Foreign Direct Investment Company (FDI). Korean law is beneficial to FDI firms in several ways, as against normal local companies.

An FDI company can be set up as one of the following kinds of business:

·         Private Limited Company (‘Yuhan Hoesa’ in Korean) – this company has a configuration that comprises a maximum of 50 shareholders and it is not open to the public. This type of company often known as an LLC.

·         Joint Stock Company (‘Chusik Hoesa’ in Korean) – this is a very popularly used corporate structure in Korea, even for FDI companies. Often, the names of companies registered on the lines of this pattern had Corp. / Ltd / Co., Ltd., at the end.

·         General Partnership Company – (‘Hapmyung Hoesa’ in Korean) – this is a company structure that requires two or more partners who keep up unlimited liability.

·         Limited Liability Company (‘Yuhan Chaekim Hoesa’ in Korean) – this configuration of a company is like a limited liability company (LLC) in the US.

·         Limited Liability Partnership – (‘Hapja Johap’ in Korean) – This kind of a business structure resembles a Limited Partnership Company. Its legal entity is bound with its members. This resembles an LLP in the US.

·         Limited Partnership Company – (‘Hapja Hoesa’ in Korean) – Different from a General Partnership Company, in this type of company, a few partners may have limited liability.

2. Branch Office

Although the FDI Company is regarded as a domestic corporation, a branch office is regarded as a foreign corporation. In this registration, the foreign headquarter and the Korean branch are one legal entity. A branch office can get into profit-making operations in Korea and is liable to the tax laws and rates that apply to local Korean firms. However, the benefits in terms of tax incentives and government support will be limited compared to local corporations or FDI companies.

3. Liaison Office 

Similar to the branch office, this structure of a business can be seen as a foreign corporation. However, it differs from a branch office in the way that it can only get involved in non-sales operations like market research, R&D, advertisement, business development, etc., in favor of the foreign company.

Korea Accounting and Tax Regulations You Must Know

Here are the accounting and tax regulations that global investors must know before they step into the South Korean market:

1.    Corporate income on South Korea is taxed at 10% on the first 200 million won, 20% on income between US$180,000 and US$20m and 22% for incomes more than US$20m.

2.    The VAT in South Korea comes down to 10% on sale and transfer of goods and services. It is mandatory to submit VAT invoicing in an electronic format and if it is not done this way, penalties apply.

3.    South Korea non-resident companies that have no Permanent Establishments (PEs) in South Korea have to pay withholding tax on every income item.

4.    Resident foreigners have to pay taxes on their global income, in case they have lived in South Korea for more than 5 years from a 10-year period. For individuals who have lived for shorter periods are required to pay taxes only on their locally earned income and foreign-sourced income.

5.    Foreigners employed in Korea are given a special rebate, while foreign immigrants and workers can apply for a fixed tax rate of 16.5% on their earnings.

6.    Three-monthly VAT filing is essential even if the company is inactive.

7.    Yearly tax returns must be submitted to the National Tax Service of South Korea after putting a business in place in South Korea.

8.    South Korea does not levy export duties.

9.    After a South Korean company is set up, yearly external audits need to be carried out if a company’s total assets exceed US$1 million.

10.    Before importing any product to Korea from abroad its customs duties must be paid. The tax amount is dependent on the type of imported goods and quantity.

11.    The only tax that non-resident individuals must pay on their earnings in South Korea is personal income tax.

12.    For drawing foreign direct investment (FDI), the Korean government offers tax incentives to small and medium-sized enterprises (SME) like;

        i) An SME investing in factory machinery or advanced office supply may avail a 5% tax credit of the invested amount, and

        ii) the tax rebate for improving technology and manpower has been hiked from 10% to 15%.

13.     South Korea has signed 54 DTAs (double taxation treaties), cutting down local withholding tax on payments to non-residents.

14.     A company is required to file a provisional tax return with the Korean Government, including i) balance sheet ii) profit and loss statement and iii) a trial balance.

In the next 5 years, South Korea will call for tenders from foreign building firms to assist the building of infrastructure with an expenditure of US$300bn on airports, roads and railways by the end of 2020. Hence, a high inflow of global investors is expected in the times to come.

Business Registration Requirements and Procedures

A. Procedure for Business Registration (Article 5 of the Value-added Tax Act)

1) All business establishments must be registered.

2) In case you register multiple businesses, each business requires to be registered individually.

3) Registration can be applied for in 20 days from the start date of your business, with the necessary papers, in the civil service area of the national tax service, with jurisdiction in the area of your business address. The process of business registration can start before the start of business, but you must apply personally.

4) When applying through agents, both your and your agent’s ID cards are required. The business registration application must have all personal information and it should be personally applied for.

5) In a joint business, the registration should be in the name of one of the joint operatives of that business.

B. Per-business Unit Taxpayer Scheme

1) If one individual operates two businesses and that an individual is registered as a per-business unit taxpayer with the National Tax Service in the authority where the principal place of business is done, the individual may report and pay the related taxes for each business together.

2) Setting up 2 or more businesses including the main office or the business hub and seeking taxation per business unit, one must register with the head of the National Tax Service with authority on the location of the head office or the business hub in not more than 20 days from the launch of your business. (the business registration form)

3) If the current businessperson seeks per business unit taxation, he/she must register 20 days before the start of the taxation period. (business unit taxpayer registration form)
Online Application: To apply online, connect to the National Tax Service website to apply.
The required documentation (on the webpage) is required in a scanned format. 

Korean citizens living overseas will require the extra documents listed below:

 i. A registration certificate as a Korean national living overseas, a copy of the registration report, or a copy of the Korean national’s passport photo page.

 ii. In case the entrepreneur does not typically live in the business setup or has lived there for less than 6 months, he/she may appoint a tax manager and report it.

C. Basic Taxpayer vs. General Taxpayer

1) Basic taxpayer: Single business with anticipated yearly sales lower than KRW 48,000,000
General taxpayers are taxed at 10% and all the VAT on the purchase tax invoice it gets while purchasing goods.

Put differently, the tax amount of the purchase tax invoice (10% of the purchase amount) is taken away.

If your previous year’s annual sales have been KRW 48 million or more, you are a general taxpayer.

2) General taxpayer: Single taxpayer apart from a basic taxpayer
Businesses qualifying for various tax benefits when VAT is charged. 
In single businesses, whose annual sales are not KRW 48 million, (VAT included), retail stores, restaurants, hair salons operating a business in non-urban regions or outside the capital area and the real estate sales, real estate brokerages, assessment businesses do not qualify for simplified taxing.

Although tax of 0.5-3% is applicable, only 5-30% of purchase tax amount may be charged and no tax invoice may be issued.

Tax amount calculation: sales × value-added rate per business × tax rate (10%)
Although the sales amount of the businesses in the center of the city does not equal KRW 48 million, producers and real estate sales do not qualify for basic taxation.

D. Paperwork while Registering your Business in Korea

1) Individuals

1. One copy of Korea Business Registration form

2. Copy of lease agreement (only for businesses that lease).
Given for sublease agreements, a copy of the sublease agreement was required (consent or authorization from the building owner shall be marked.)

3. Copy of the Permission (registration, report) Certificate, (corresponding businesses) – If registration has happened before the Permission (registration, report), the Copy of the Business Registration Application or such as Permission (registration, report) or the Prospectus

4. Partnership Agreement (for Cooperative Businesses)

5. Korean citizens living overseas, documents showing that they are foreigners: passport copy or copy of the alien registration card. For non-Korean residents: tax manager designation report.

2) For-profit Corporation

1. One copy of the Application for Korea Company Registration Incorporation and the Business Registration Form

2. One copy of the Korea Corporate Registration

If no consent is given to confirm the personnel in charge, the applicant should directly submit the document.

3. (Corporation Name) One copy of lease agreement (only for currently leasing businesses)

4. One copy of Shareholders or Investors List

5. One copy of the Business Approval, Registry, and Report stamped Certificate (only for the respective enterprises) – In case the registration (registration, report), before the permission registration: a copy of the permission (registration) application or business plan

6. One copy of List of in-kind Contributions (limited for in-kind contribution corporations)

3) Non-profit Koreans

1. A single copy of Application for Registration Incorporation and Business Registration form

2. A single copy of the Corporate Register
If there is no consent to the confirmation of the personnel, the applicant must personally submit the document.

3. (Corporation Name) A single copy of the lease agreement (solely for businesses currently leasing)

4. One copy of the Business Permission, Registration, and Report stamped Certificate (only for the corresponding corporations) – If the registration (registration, report), before the permission registration: a copy of the permission (registration) application or business plan.

5. A single copy of Incorporation Permission Certificate from the concerned authority.

4) Koreans

1. A single copy of the Application for Registration Incorporation and Business Registration form

2. A single copy of the Corporate Register
Refusal of consent to the confirmation of the personnel in charge requires the applicant to directly submit the document.

If the registering business is a non-registered corporate branch, the minutes from a board of directors’ meeting can confirm setting up of the branch. (Calling a board of directors’ meeting is tough because of issues like direct sales shop creation, a copy of the document with the CEO’s sanction.)

3. One copy of the lease agreement (only for business leasing at present)

E. Getting the Korea Company Registration Certificate

1) A business registration certificate is issued 3 days after applying for registration.

2) The certificate is issued after consultation and verification of the essential paperwork in the civil service area.

3) Given that, however, from the application content, if there seems to be a doubt of the hidden name or the hidden membership of the credit card, etc., before giving the business registration certificate, the national tax office carries out the site review and issues the certificate after confirmation of normal business.

Conclusion

Since the last few years, South Korea company registration has become as easy as attracting more investment and entrepreneurship. With a well-to-do economy and an inviting stance towards foreign investment, Korea is definitely where your business should be, especially for expansion in the Asian market.

We provide from Korea company incorporation, monthly accounting, payroll, tax and visa services. Most importantly, we put our best efforts to understand your company registration requirements and give you solutions that are not just best for you, but also comply best with the local laws. Get in touch with us to know more.