Business in Korea | Company types
Foreign investments are categorized by type for doing 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.
Foreign Direct Invested (FDI) companies are domestic corporations established under South Korea’s 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).
As we noted a previous blog post, an FDI company is established with a foreigner’s investment of no less than KRW 100 million, 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.
| Category | Foreign-Invested Company | Domestic Branch | Liaison Office |
|---|---|---|---|
| Governing Law | Foreign Investment Promotion Act | Foreign Exchange Transaction Act | Foreign Exchange Transaction Act |
| Type of Corporation | Domestic | Foreign | Foreign |
| Recognized as FDI | Yes | No | No |
| Company Name | No restrictions | Identical to that of headquarters | Identical to that of headquarters |
| Scope of Business Activities | No restrictions, within the permitted scope | Same activities as headquarters; within the permitted scope | Profit-making activities not permitted; purpose of establishing business contacts only |
| Minimum Investment Amount | KRW 100 million1) | N/A | N/A |
| Legal Liability | Limited to domestic corporations | Extend to headquarters | Extend to headquarters |
| Independence | Legally independent | Subordinated to headquarters | Subordinated to headquarters |
| Domestic Loans | Possible depending on credit rating of the domestic corporation | Almost impossible | Impossible |
| Establishment Procedures | 1. 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 Taxation | Must record and maintain bookkeeping according to Korean Accepted Accounting Principles; obligated to receive external audits on certain conditions | Must record and maintain bookkeeping according to Korean Accepted Accounting Principles; not obligated to receive external audits | Not obligated to record bookkeeping |
| Corporate Tax Rate | Liable to taxation | Liable to taxation | N/A |
| Taxable Income | All profit made by a domestic corporation | All profit including domestic source income made by a domestic corporation; branch tax applicable to some countries | N/A |
| Tax Benefits | Tax benefits for foreign-invested companies and SMEs according to the Restriction of Special Taxation Act | N/A | N/A |
To learn more about the company establishment, please feel free to contact us!
