South Korea offers a vibrant economy and a business-friendly environment, making it an attractive destination for foreign investors. With strong infrastructure, skilled labor, and government incentives for businesses, South Korea is ideal for companies looking to expand in Asia. This guide
provides an overview of the steps involved in setting up a company in South Korea.
1. Choosing the Right Business Structure
South Korea offers several business structures, each tailored to different needs. The most common structures for foreign businesses are:
- Corporation (Chusik Hoesa): A commonly used structure that allows for shareholder investment and liability limited to share capital. Ideal for larger companies looking to scale.
- Limited Liability Company (Yuhan Hoesa): Suitable for smaller operations or closely held companies, with limited liability for members and fewer corporate formalities.
- Branch Office: A branch of a foreign company that operates in South Korea, allowing the foreign company to conduct business directly within the country. Profits are subject to Korean tax laws.
- Liaison Office: A representative office for market research or liaison activities that does not engage in revenue-generating activities.
Each structure has unique registration and compliance requirements, so selecting the right one depends on the business’s goals and operational needs.
2. Registering the Company
The registration process involves several steps and can take between one to three months to complete. Key steps include:
- Registering with the District Tax Office: Before incorporation, companies must register with the local district tax office.
- Filing with the Court Registry: Submit required documentation to the district court to officially incorporate the business. Required documents include the Articles of Incorporation, shareholder agreements, and directors' details.
- Obtaining a Business Registration Certificate: After incorporation, companies must obtain a Business Registration Certificate from the National Tax Service within 20 days of starting business operations.
Once registration is complete, the company can open a corporate bank account and begin conducting business.
3. Capital Requirements
South Korea does not impose a minimum capital requirement for most business types, but companies are advised to have a reasonable starting capital for operating expenses and to maintain a stable financial standing. However, certain industries, like finance or insurance, may have
specific capital requirements.
4. Appointing Directors, Shareholders, and Auditors
Under South Korean law, a corporation must appoint at least one director, with no residency requirements. Other requirements include:
- Shareholders: A minimum of one shareholder is required, and foreign investors can hold
100% ownership. - Auditor: Companies with large operations or certain corporations must appoint an external auditor to ensure compliance with local regulations.
5. Tax and Accounting Compliance
South Korea has a corporate tax rate that ranges between 10%and 25%, depending on the income level. Newly registered businesses must understand the following tax obligations:
- Value-Added Tax (VAT): Companies must register for VAT, which is charged at 10% on goods and services.
- Corporate Income Tax: Calculated on worldwide income, with rates depending on income brackets.
- Withholding Tax: Foreign payments may be subject to withholding taxes, which vary based on tax treaties with the investor's home country.
All companies must maintain proper accounting records and submit audited financial statements to the National Tax Service annually.
6. Hiring Employees and Social Security Requirements
When hiring in South Korea, employers must register with the National Health Insurance Service (NHIS) and the National PensionService (NPS). Employers contribute to:
- National Pension: A retirement benefit plan.
- Health Insurance: Covers medical and healthcare expenses.
- Employment Insurance: Provides benefits for workers who lose employment.
- Workers’ Compensation Insurance: Protects employees in case of work-related accidents.
7. Obtaining Licenses and Permits
Certain businesses, such as manufacturing, financial services, or food-related industries, may require additional permits or licenses from local authorities. Businesses should verify specific requirements based on industry regulations.
8. Government Incentives and Grants
South Korea offers various incentives to attract foreign investment, including:
- Foreign Direct Investment (FDI) Incentives: Tax reductions and exemptions for companies in high-tech or strategic industries.
- Free Economic Zones (FEZs): Offer favorable tax and regulatory conditions for businesses in designated areas.
- Research and Development Grants: Financial support for businesses involved in R&D activities, especially in tech and innovation fields.
9. Conclusion
Setting up a company in South Korea is a streamlined process, supported by the government’s pro-business policies and robust infrastructure. With the right approach, foreign investors can benefit
from South Korea’s economic stability, skilled workforce, and strategic location in Asia. By choosing the appropriate business structure, complying with tax and labor laws, and leveraging government incentives, companies can establish a strong presence in South Korea.