Company set-up in Korea #2 Company types in Korea for foreign investment

Foreign investments will fall into certain type of business in Korea.

Mostly, foreigners can start Korean business by acquiring new or existing stocks, or by establishing a Korean branch or liaison office in Korea. Governing laws are different for the cases.

A FDI (Foreign Direct Invested) company is a domestic corporation established under the Commercial Act. It can be classified as an unlimited partnership company, a limited partnership company, a limited liability company, a limited company, or a stock company. The most common types of corporations established by foreigners are limited liability companies (유한책임회사) and stock companies (주식회사).

Previously we learned a FDI company is established with a foreigner’s investment amount not less than KRW 100 million (approx. USD 75,000.00) and once recognized as a FDI, it is considered as a domestic (tax resident) company in Korea. By the way, a foreigner investing less than KRW 100 million is subject to reporting the notification of stock acquisition as prescribed by the Foreign Exchange Transaction Act. Establishment process is quite similar to a FDI’s, but some benefits not applicable for those company. Main reasons of setting up a FDI is for benefits of getting visas and some incentives which will not applicable for those investment amount less than KRW 100 million. Also, every single investment comes in to Korea is required to be reported to Korean governments. Thus, depending on size of business and the budget, a foreign company sets up initial investment amount to be fit as a FDI.

A branch office or a liaison office of a foreign company is different. it is considered as a foreign company and governing law is the Foreign Exchange Transactions Act. A branch office is a foreign corporation that carries out business activities of the head office (HQ). A liaison office is a foreign corporation that cannot carry out business activities but conduct market surveys, some market activities, etc.

Here, let’s learn differences of a FDI, a branch and a liaison office in Korea.

CategoryForeign-Invested CompanyDomestic BranchLiaison Office
Governing LawForeign Investment Promotion ActForeign Exchange Transaction ActForeign Exchange Transaction Act
Type of CorporationDomesticForeignForeign
Recognized as FDIYesNoNo
Company NameNo restrictionsIdentical to that of headquartersIdentical to that of headquarters
Scope of Business ActivitiesNo restrictions, within the permitted scopeSame activities as headquarters; within the permitted scopeProfit-making activities not permitted; purpose of establishing business contacts only
Minimum Investment AmountKRW 100 million1)N/AN/A
Legal LiabilityLimited to domestic corporationsExtend to headquartersExtend to headquarters
IndependenceLegally independentSubordinated to headquartersSubordinated to headquarters
Domestic LoansPossible depending on credit rating of the domestic corporationAlmost impossibleImpossible
Establishment Procedures1. Notify FDI
2. Remit investment funds
3. Register corporation
4. Register business license
5. Register foreign-invested company
1. Notify domestic branch establishment
2. Register corporation
3. Register business license
1. Notify domestic branch establishment
2. Register identification number
Accounting and TaxationMust record and maintain bookkeeping according to Korean Accepted Accounting Principles; obligated to receive external audits on certain conditionsMust record and maintain bookkeeping according to Korean Accepted Accounting Principles; not obligated to receive external auditsNot obligated to record bookkeeping
Corporate Tax RateLiable to taxationLiable to taxationN/A
Taxable IncomeAll profit made by a domestic corporationAll profit including domestic source income made by a domestic corporation; branch tax applicable to some countriesN/A
Tax BenefitsTax benefits for foreign-invested companies and SMEs according to the Restriction of Special Taxation ActN/AN/A

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