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03 JUN 2018

Why Startups are coming to Korea for business?

TOPIC : Business in Korea Incorporation Taxation & Accounting Living in Korea

Why Startups Love to do business in Korea?

Before 2015, there had been an all-time low, in terms of coming up of new enterprises, in South Korea’s startup landscape - the last two $1 billion worth unregistered businesses were honored in 2015. However, a limited number of significant startups have been coming up rapidly as the economic environment gains maturity.

Restaurant delivery startup Baedal Minjok, with yearly revenue growth of 80% in 2017, and financial technology startup, Viva Republica, with a turnover of $1 billion in monthly transactions, are already underway to turn into billion-dollar corporations. The technology-based company, Hyperconnect and fresh-food supply startup, Kurly, might want to transform into a public limited company.

Around the same time, a large number of investments in cyberspace startups, as early as 2016, are finally coming up with results, with just a few VR startups stepping into the market. And in spite of the lack of clarity about cryptocurrency rules, blockchain startups are increasing in number.

Start-ups Driving Economic Growth in South Korea

As South Korea’s economy takes deep breaths, one wonders why the focus is more on the country’s rather few flourishing tech start-ups. The Korean Government is determined on building a start-up ecosystem within and around Seoul that can generate employment and drive development. This is because of conglomerates, such as Samsung and Hyundai that have been leaders of their domain since a long time, are losing the competition to Chinese rivals.

Officials have already put in place policies to boost funds for startups. In 2018, an all-time high figure of venture-capital funds, amounting to 3.4tn WON ($3.04bn), was made available for doing business in Korea. However, for the larger part of the tech community, large scale economic reforms and efforts to liberalize would be required for plans to be successful.

According to President of the Korea Startup Forum, if start-ups are able to expand and flourish, they would be in a position to create numerous employment opportunities. This would benefit the youth and simultaneously upgrade the nation’s economic structure.

Start-up has since long been a keyword for South Korean functionaries, who aspire to make Seoul an Asian Silicon Valley. However, they have a history of being dependent on the large conglomerates, known as chaebol. As the manufacturing sector experiences a tough time, policymakers have no choice but to do something about it.

In September 2018, officials launched the first quota of investment exceeding $9bn-plus, in the form of funds to promote start-ups in the areas of artificial intelligence to aircraft.
One month after this strategy, came a proposal of extensive financial market reforms. This was aimed at easing rules to make finances easily accessible for doing business in Korea. In South Korea, just 2 percent of funds churned out by small businesses makes it to the capital markets.

The average investment is only WON1.7bn ($1.5m) — approximately 11% of the sum, on an average comes from US start-ups and less than 8% of what Chinese companies produce, as per the Financial Services Commission.

The government of Korea is keen to have more private players invest in start-ups. It seeks investments from rich start-ups in other start-ups and conglomerates to invest in start-ups by way of mergers and procurements. The control of conglomerates over the country’s economy has been a bone of contention for new companies.

Extremely prosperous and once supported by the government, the chaebols traditionally set up their own associations cut into the competition and cut out start-ups, rather than procuring cutting-edge technologies. The major challenge that faces the inexperienced start-up scene is in the form of numerous legislations. These cause a nuisance to the functioning of small enterprises.

Korea does have strict rules pertaining to ride-sharing, healthcare, and fintech that make it difficult for big multinationals to invest in the domestic market.

Towards the latter part of 2018, a pack of regulations was launched to facilitate start-ups to apply for a two-year waiver from the rules, so that their products could be tested in the market. To boost the growth of startups, the government is consistently dissolving all hurdles and painful regulations.

Doing business in Korea, Korea Company Incorporation, Korea Startup

The Benefits of having a Startup in Korea

Doing business in Korea has its unique advantages, let us take a look at them:

· Ample government support

· In-depth internet and mobile penetrability (specifically 84 and 83 percent) is one of the best worldwide. Korea’s technology infrastructure is futuristic, as compared to other developed markets.

· Korea’s population density: Seoul stands for 50% of the whole nation’s 50M population. This facilitates the masses to absorb and disseminate modern technologies too fast.

· South Korea has the maximum credit card perforation in the world, with an average of 5 credit cards per individual (this beats the average of 2 in the US)

· Korea emerges as the World’s Mobile Commerce Powerhouse: 28% of Korea’s total online sales are in the form of mobile commerce.

· Young entrepreneurs of today, the majority of who have completed their studies outside Korea, are launching startups that are keen on global expansions.

The Korea Advantage

Korean culture

The popularity of South Korean culture is rising by leaps and bounds every year. Korean cosmetics are in great shape, as a result of booming Korean startups such as Memebox. More than 8,000 K-Beauty brands are doing business in Korea.

Korean K-pop has become larger than life and the credit goes to groups like Big Bang, 2NE1, and EXO. Additionally, the Korean IT infrastructure is among the finest in the world. The nation has excellent internet penetration and the majority of the Koreans use smartphones. Koreans get used to new technologies very quickly and early fashion gurus.

Korean Fintech

Fintech is doing big-time in Korea, as the country is on the way to lead cryptocurrency exchange and services. Korea has all it takes to become a world leader in the global financial centers. It won’t be long before Seoul becomes the FinTech hub of Asia. Among the best Fintech startups in Korea is Viva Republica; it is known for developing the Toss a mobile payment tool that endeavors to enter the international market after being successful in Korea.

Korean consumers

Korea has a splendid consumer market. Most of their customers belong to the middle class. Smartphones and credit cards are commonly used by almost every Korean. Their GDP per capita is at its peak, supported by excellent wireless penetration, superbly designed infrastructure, and quick LTE. A blend of these components combines to form a great domestic market to nourish your startup. This is precisely why Korea has the capacity to help companies and startups in Korea that play only in the domestic market. Fifty million Koreans are proficient in new technologies. This was the primary factor that led Korea to be able to sustain an extensively scalable business. Companies such as Naver, Coupang, and Ticket Monster are perfect instances of exclusively Korean market players.

Government Support for Startups in Korea

The Korean government has rolled out several programmes to support foreign entrepreneurs looking to do business in Korea. From 2012 to 2013, the startup landscape in Korea was consistently steady, despite the enthusiasm displayed by foreign entrepreneurs to make the most of foreign startups.

Korea is fast turning into a center of activity for startups. The same holds true for global businesses, especially taking into consideration the schemes rolled out by the government and its supporting agencies. This is the very reason that a few of these supports are now being designed and directed at foreign startups in Korea.

Creative Economy Campaign

Since 2015, there has been a lot of focus on the catchphrase ‘Creative Economy’ (a step by the Korean government to enhance employment generation, breaking new ground and boost economic growth). With the dawn of the 4th Industrial revolution, Korea has been directing the majority of its investments in technological infrastructure and logistics.

Also, the country is building a favorable ecosystem for startups to prosper. From time to time, a rise has been evident in startup events, startup accelerators, angel investors, co-working spaces, venture capitalism and incubator programmes.

More than anything else, there’s been a tremendous surge of funds that have gone into developing startups. Consequently, the Korean government calls for foreign startups to begin their entrepreneurship expeditions in Korea.

Additionally, Seoul has emerged not just as an attractive tourist getaway place, but also, foreign startup entrepreneurs. Due to this, it is imperative to shape programmes that back foreign startups in Korea and simultaneously guide potential entrepreneurs.

The K-Startup Grand Challenge of 2018

The Korean government has made a lot of investments in startups the world over by way of a yearly competitive accelerator program, organized in Seoul. This programme was named as the K-Startup Grand Challenge. This was a wonderful worldwide platform catering to everything it takes for startups to help them enter the robust Asian market. The following points are persuasive enough for you to consider taking up this challenge:

State-of-the-art R&D Labs within Easy Reach

The challenge brings world-class prototyping, testing conveniences and professional guidance within easy reach. The Pangyo Techno Valley is an innovation hub where SMEs and startups can exchange information between themselves and technology research institutes and large, global companies.

And the Winner gets USD 100,000

A grant of USD 100,000 (110,000,000 KRW) goes to the winner, along with USD 40,000 (44,000,000 KRW), USD 20,000 (22,000,000 KRW) and USD 6,000 (6,600,000 KRW) for the first, second and third runners up respectively. These prizes are in Korean currency.

USD 22,727 Grants for 40 Top-of-the-line Startups

All the finest 40 startups selected, are eligible to receive total funding of $22,727 to settle in Korea, subject to how they perform on the 'Demo Day' and based on the evaluation of their settlement.

A Brand-new, Startup Campus with a Perfect Location

The Global Startup Campus is cleverly designed at a distance of 14 minutes from Gangnam – Seoul’s affluent and swanky trade center.

Specialist Mentoring

An opportunity to get mentored by a few of the world’s best technology firms having expertise in offering a global arena to startups and SMBs.

Business Alliances

Through this challenge, you can reach out to Korea’s top tech companies having technologies right from cellular phones and software to semiconductors.

The Programme Takes Care of Your Running Costs

Each of the 80 startups in the programme has been allocated around $11,130, in equal installments, over 3.5 months, to cover their living expenditure.

Prospects for Extra Investment

Startups can reach out to VCs and investors who might be keen on investing in them. The programme’s accelerators may also invest their capital in startups with considerable potential.

The Working

After the regional audition and document screening are successful, 80 teams will be called upon to work at the Pangyo Startup Campus, equipped with a tough system that supports startups, in addition to mentoring, connecting with regional enterprises and even support for the settlement. Startups and entrepreneurs on the way to do business in Korea qualifies for fast track visas.

The top 40 teams of the K-Startup Grand Challenge were provided with funds for extra 6 months to live in Korea and formally initiate their business there.

The two preceding editions of the programmes saw businesspeople and startups get grants of more than $26 million in all. Also, they succeeded in signing 46 contracts, as well as, above 300 partnerships and MOUs.

Towards a Billion Dollar Future

The Seoul Metropolitan Government has made its plans public, to invest more than $1 billion in blockchain and fintech startups by 2022, as per the formal announcement issued in February 2018.

The South Korean capital’s government has decided to use the “Seoul Innovation Growth Fund” for startups that have encountered a variety of problems related to investments in Series A, funding rounds. The fund that was rolled out last year basically targets startups concerned with the blockchain and fintech domain.

The Seoul Metropolitan Government announcement stresses that the average investment for each company in London and Silicon Valley is around $6-7 million, whereas in Korea, it approximates to just $1.1 million.

Conclusion

In just 60 years, South Korea has achieved a mind-blowing success. From an impoverished country at the time of the Korean War, South Korea has come a long way and is now an economic dynamo.

South Korea has been consistently investing in programs to boost the Korean startup ecosystem. The spirit of startups has repeatedly surfaced as the primary force driving employment generation and economic development. South Korea has leveraged its own extraordinary assets to build and make innovative startups a super success.

As far as they continue with their endeavors to bring in increasing numbers of foreign entrepreneurs into Korea, the higher will be the chances of Korean startups to conquer the international market. The world has acknowledged Korea’s potential, backed by the belief that the Korean startup ecosystem will continue to go great guns.

Doing business in Korea and at the same time, the country’s forte of producing global startups can result in nothing less than producing billion-dollar market value companies.

Are you interested in setting up a company in Korea? Contact us now.

You can also download our latest guide on doing business in Korea.

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Korea FDI: Unveiling South Korea's Fintech Frontier and Driving Innovation

In the ever-evolving realm of global finance, South Korea's fintech sector emerges as a burgeoning center for foreign direct investment (FDI). Recognized for its rapid technological progress and robust economy, South Korea is now leading the way in fintech innovation, driven by inventive approaches and strategic policy frameworks. This article explores the ascent of South Korea's fintech industry and its growing influence on FDI, providing insights into its mechanisms and future trajectory. Government Measures Supporting Fintech Expansion At the heart of South Korea's fintech surge lies the proactive stance of the government. Noteworthy initiatives such as the Fintech Innovation Fund and substantial policy funds aim to foster sector growth and development. These actions, coupled with a regulatory environment that encourages collaboration between traditional financial institutions and emerging fintech players, have not only bolstered the domestic fintech landscape but also heightened its attractiveness to foreign investors. Fintech's Influence on South Korea's FDI Inflows The transformative impact of the fintech sector on South Korea's FDI is evident. With FDI inflows reaching USD 9.041 billion in the first half of 2022, the sector has become a cornerstone of the nation's economic expansion. South Korea's standing on the A.T. Kearney Foreign Direct Investment Confidence Index underscores its growing stature as a global investment hotspot, fueled by fintech advancements and related technologies. Collaborative Efforts and Global Expansion Fueling Fintech Innovation A collaborative ecosystem within South Korea's fintech sector, encompassing startups, established banks, and tech companies, drives growth. This collaborative model has facilitated the integration of innovative fintech solutions into popular platforms like Kakao, enhancing accessibility and functionality for users. Furthermore, strategic government support for fintech firms' international expansion is fostering global partnerships and investment opportunities, further energizing FDI inflows. The Role of Open Banking and Digital Transformation An integral part of South Korea's fintech evolution is the adoption of open banking systems, revolutionizing the financial services landscape. This shift towards digital banking has not only improved customer experiences but also unlocked new avenues for innovation and investment. The digital transformation of the financial sector, alongside the country's high internet and smartphone penetration rates, provides fertile ground for fintech growth and foreign investment. Conclusion: The Outlook for Fintech and FDI in South Korea South Korea's fintech sector is on an upward trajectory, poised to continue attracting significant FDI. With government backing, collaborative initiatives, and robust technological infrastructure, the stage is set for sustained growth and investment. As the sector matures, it is expected to offer diverse opportunities for foreign investors, cementing South Korea's position as a leading fintech hub in Asia. The future of fintech in South Korea not only shapes the nation's economic narrative but also influences global financial trends and investment patterns. Embark on Your Korean Business Journey with Pearson & Partners. Planning to venture into the Korean market? Pearson & Partners specializes in providing comprehensive visa and tax services, streamlining your entry into Korea's dynamic business landscape. Our team's expertise in Korean regulations ensures a seamless and compliant journey, allowing you to focus on business growth. Reach out to us for tailored support aligned with your business goals and regulatory requirements.

Foreign Direct Investment in Korea: A Legal Regime Guide

Although the South Korean economy is sizable and advanced, foreign investors encounter difficulties due to its intricate, opaque, and domestically focused regulatory structure. This article seeks to provide foreign investors with insights into South Korea's legal framework. 1. Transparency of The Regulatory System President Yoon's reform efforts aim to simplify regulations and align them with global standards, resulting in improved transparency. Despite progress, foreign businesses face unique challenges due to regulations targeting larger corporations. Legislative and Regulatory Framework South Korea's legislative and executive branches propose bills, with ministries drafting subordinate statutes. Collaboration among ministries is crucial during the drafting process. Local governments can enact ordinances within federal laws. All legislative procedures adhere to formal regulations. Transparency Measures Since 2011, publicly traded companies must adhere to International Financial Reporting Standards (IFRS). Public feedback is sought before enacting laws or regulations, although sometimes regulations are enforced without adequate consultation. Regulatory Oversight The Regulatory Reform Committee (RRC) reviews laws to minimize government intervention. Annual assessments ensure compliance. Support is provided for cost-benefit analysis by the Korea Development Institute and the Korea Institute of Public Administration. Environmental, Social and Governance (ESG) Initiatives Recent government efforts aim to mandate ESG disclosure for listed companies. Guidelines set by the Financial Supervisory Service align with international standards. The Korea Exchange operates an ESG information platform for listed companies. Enforcement and Penalties The government enforces regulations through fines, corrective actions, and criminal charges. CEOs can face legal repercussions for company actions. Large companies may undergo heightened regulatory scrutiny, including potential designations by the Korea Fair Trade Commission. Financial Transparency South Korea's public finances are generally transparent, except for state-owned enterprise debt. 2. International Regulatory Considerations South Korea has revised local regulations to comply with international treaties and trade agreements, treating them on par with domestic laws. Officials aim to harmonize standards with global norms, drawing inspiration from the U.S. and the EU. Despite efforts to encourage regulatory reform through exchanges with the U.S., U.K., and Australia, unique local regulations remain challenging for foreign companies. South Korea has introduced distinctive digital regulations like the Cloud Security Assurance Program. As a WTO member, South Korea notifies the Committee on Technical Barriers to Trade of draft regulations and is a signatory of the Trade Facilitation Agreement (TFA). Known for modernized transportation and customs clearance, South Korea's Korea Customs Service largely upholds its free trade agreement obligations regarding rules of origin. 3. Legal System and Judicial Independence South Korea's legal system operates under civil law principles. District and high courts oversee commercial activities, property rights, and contracts, issuing judgments typically in the local currency. The judiciary, including specialized patent, family, and administrative courts, remains independent from government influence in cases involving foreign investors. Foreign court rulings, except in specific conditions, lack enforceability in South Korea. Unlike common law systems, South Korea does not follow the principle of stare decisis. The Constitutional Court, composed of nine justices, adjudicates constitutional issues, with three appointed by the National Assembly and three by the Chief Justice of the Supreme Court, all ultimately appointed by the President. 4. Laws and Regulations on FDI South Korea's legal system is transparent with an independent judiciary, governed by the Foreign Investment Promotion Act (FIPA). Information on foreign investment laws is available on the Invest KOREA website. Relevant enactments: - The "Special Measures Act on Strengthening and Protecting the Competitiveness of National High-Tech Strategic Industry" from August 4, 2022. It regulates the dissemination of critical national technologies and imposes additional regulations on companies with National High Technologies. Pending/proposed legislation: - An amended Personal Information Protection Act (PIPA) was passed on February 27, 2023, aiming to grant broader rights to data subjects and replace criminal penalties with fines. - Various bills in the National Assembly aim to mandate global over-the-top (OTT) providers to pay network usage fees to Korean internet service providers. - Revisions to the Labor Standards Act are being considered by the Ministry of Employment and Labor to introduce flexibility to the 52-hour workweek. - Amendments to the Restriction of Special Taxation Act are under review to increase corporate tax incentives for facility investment in strategic sectors like semiconductors. 5. Expropriation and Compensation South Korea follows international legal standards on expropriation, protecting foreign-invested enterprise property from requisition. Private property may be expropriated for public use with due process and fair compensation. Typically, compensation exceeds market value. A U.S. investor's expropriation lawsuit under the KORUS FTA was dismissed in 2019. South Korea allocated USD 2.2 billion in 2023 for land expropriation, a 17% increase from the previous year. 6. Bankruptcy Regulations Bankruptcy proceedings in South Korea, governed by the Debtor Rehabilitation and Bankruptcy Act (DRBA), ensure equality for domestic and foreign entities. Initiated by debtors, creditors, or groups, proceedings start upon court recognition of insolvency. A Custodial Committee manages assets, claims, and contracts, with creditor voting rights. Shareholders and contract holders retain rights based on ownership and contract terms. Debtors can be arrested upon filing, facing criminal penalties for negligence. The Seoul Bankruptcy Court (SBC) handles major cases nationwide, while smaller ones go to local district courts. Companies with debts over KRW 50 billion and/or 300 creditors may file for bankruptcy rehabilitation with the SBC. Conclusion While South Korea boasts a robust economy, foreign investors often grapple with the complexity and domestically oriented nature of its regulatory system. This article has aimed to shed light on South Korea's legal framework, highlighting key aspects such as transparency measures, the legal system's independence and FDI regulations. By providing insights into these areas, we hope to better equip foreign investors with the knowledge necessary to navigate the South Korean market and engage effectively in business activities within the country. Contact us for assistance with expanding your business in Korea, and we'll provide expert support in resolving any legal matters you encounter.

2024 Korea's D9 Trade Visa: A Detailed Overview Including Oasis Program Information

If you're an outstanding foreign trader looking for increased convenience during your stay in Korea, the D9 Trade Visa provides a customized system to suit your requirements. This initiative includes a unique scoring system that assesses trade proficiency, domestic residency experiences, and additional factors. D9 Trade Visa The Trade Visa introduces a groundbreaking approach to improve the comfort of stays for exceptional foreign traders. With varied eligibility criteria, the system enables permits and residency status changes for those scoring 60 points or above out of 160. It actively facilitates residency changes for long-term residents with extensive domestic stay experiences. Nevertheless, extension permits are exclusively awarded based on trade performance. Eligibility and Permit Requirements: - Proficiency in Korean (TOPIC 3+) and achieving a score of 60 points or higher in the Trade Visa scoring system. - Applicants must attain a minimum of 10 points in essential categories and possess a business registration certificate. For joint representatives, the total score is divided, and only the resultant score is considered. The business registration must fall under the 'trade' category, and a lease agreement for a separate business facility in the applicant's name is mandatory. 1. New Issuance (Issuance of Certificate of Visa Issuance and Change of Residence Status) Example with 60 points: * Oasis 4+ Trade Specialized Training (3 days, 10 points) * Korean university graduation (5 points) * Study abroad experience (30 points) * Domestic stay of 3 years or more (15 points) Essential Categories (Maximum 65 points): Trade Performance (Average annual performance in the last 2 years): Up to 30 points * Export Performance: - Over $300,000: 30 points - Over $100,000: 20 points * Trade Performance (Export + Import): - Over $500,000: 15 points - Over $300,000: 10 points Trade Expertise: Up to 35 points * Trade-related work experience (1): 20 points * Major in a trade-related field (2): 15 points * Completion of trade specialized training (3): 10 points (1) Only one of (2) or (3) can be duplicated, applicable to those with 2 or more years of regular work experience in trade. (2) Completion of a trade-related major at a domestic or foreign university. (3) Recognition by the Minister of Justice for the institution and course. Optional Categories (Maximum 95 points): Domestic Stay Period (As of the application date): Up to 20 points * Continuous domestic stay: - Over 5 years: 20 points - Over 3 years: 15 points - Over 1 year: 10 points Stay without foreigner registration for more than 200 days in the last 2 years: 5 points Education: Up to 20 points * Ph.D.: 20 points * Master's degree: 15 points * Bachelor's degree: 10 points * Associate degree: 5 points Additional Points: Up to 55 points * Domestic study experience (1): 30 points * Capital of 100 million won or more (2): 15 points * TOPIC 3 or higher or KIIP completion: 10 points (1) Foreigners who have studied for more than 2 years at a domestic university and obtained a bachelor's degree or higher. (2) Limited to funds owned by the individual related to the operation of the trade business. 2. Extension Permit: Application of scores for each category during an extension permit: Trade Performance (Average annual performance in the last 2 years): * Export Performance: - Over $500,000: 30 points - Over $300,000: 20 points - Over $100,000: 15 points - Over $50,000: 8 points * Trade Performance (Export + Import): - Over $70,000: 5 points Recommendation letter from a specialized educational institution: 5 points (No duplication of scores; only the highest score is considered. The recommendation letter is limited to 4 times for the same individual.) Domestic Employment (As of the application date): * Over 3 employees: 10 points * Over 2 employees: 5 points * Over 1 employee: 2 points Tax Payment Record (Based on the annual income tax payment record): * Over 5 million won: 7 points * $4-5 million: 5 points * $3-4 million: 3 points * $2-3 million: 1 point Advanced Trade Training Course Completion: 3 points For those who completed an approved course within 1 year of the application date. Extension Permit Criteria: For the first extension permit: * Scores 5-10 points (1): 6 months * Scores 11-20 points: 1 year * Scores 21 points or more: 2 years (1) In the case of (1), trade performance must score 5 points or more. For the second extension permit, those with scores of 5 points or less are not allowed an extension. For the second extension permit: * Scores 10 points or less: No extension * Scores 11-30 points: 1 year * Scores 31 points or more: 2 years Reference: Oasisvisa Conclusion In summary, the D9 Trade Visa brings forth a pioneering scoring mechanism, refining eligibility standards for foreign traders and prioritizing a well-rounded approach to residency transitions. This intricate policy underscores a dedication to accommodating esteemed contributors while mitigating potential misuse. Pearson & Partners, a consultancy specializing in Korea, is well-equipped to assist with D9 Visa procedures, providing proficiency in incorporation, tax accounting, and visa assistance. For personalized guidance in navigating Korean business regulations, reach out to us.

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