South Korea doesn’t prohibit foreign currency accounts or the repatriation of capital earnings, it offers extra tax incentives in its free trade zones and open access to foreign investment, due to this, many investors are taking advantage of these opportunities to do business in South Korea.
South Korea is a prime candidate for international companies that are interested in entering the Asia-Pacific region markets because they are unlikely to encounter many procedural complications the way they could if they were setting up in any other country.
Choose among the types of corporations in South Korea
There is a Korean Commercial Act, the Commercial Code of Korea which provides for three primary types of business organizations: private businesses, companies, and offices, which are usually divided into the following:
Joint stock company (Chushik Hoesa)
A joint stock company in Korea is the only type of corporate entity that can presently publicly issue shares in South Korea. It is one of the most popular corporate forms for foreign companies that affirm subsidiaries in Korea.
With this type of entity, stockholders’ liability is restricted to their capital investment in the company. Stocks may be willingly transferrable, but the board of directors may have to authorize any such transfer. Yearly shareholder meetings are mandated for this type of company.
Limited liability company (Yunhan Hoesa)
A limited liability company is a company with 50 or fewer shareholders. The Shareholders of this company enjoy limited liability. At least one shareholder and one director are needed to establish this type of entity in South Korea. These companies have a minimum used share capital of USD 1, and most companies prefer this entity because of its tax benefits. The Korean Commercial Code restricts limited liability companies from securitizing shares and issuing corporate bonds.
Partnership (Hapmyeong Hoesa)
A partnership in South Korea is established by two or more partners, all of whom retain unlimited liability. Transfer of ownership is limited for this type of structure and employs the unified consent of all remaining partners. This type of business is liable for paying Korean corporate taxes and cannot be treated as a pass-through entity.
Limited partnership (Hapja Hoesa)
The limited partnership needs at least one of the partners to retain unlimited liability and at least one partner to retain limited liability. This type of business is liable for paying Korean corporate taxes and cannot be treated as a pass-through entity.
Limited liability partnership (Hapja Johap)
A limited liability partnership enables one or more partners to have unlimited liability and others to have limited liability. This type of company can be treated as a pass-through entity.
Branch office in South Korea
A branch office is not regarded as a separate legal entity. Instead, it is regarded as the same legal entity as the overseas parent company. An overseas manager is assigned as the branch manager. The activities of the branch are imputed to the parent company.
Profit-making activity can be performed at a branch office. However, the branch office is restricted to the operations detailed by the parent company.
Because branch offices do not need to be formally incorporated, they are easier to set up than an FDI ( Foreign Direct Investment ) company.
The liaison office in South Korea
A liaison office in South Korea is restricted to certain activities, such as research and development, advertising, and exploring entry into the South Korean market. The office cannot engage in profit-making activity and rather can only finalize non-sales functions. Because this alternative does not require incorporating or registering like a foreign company or branch office, the process to set one up is much faster. Regardless, the office must still register at the tax department.
How to register a company in South Korea
- Planning and Strategy: decide the business type, the intended business activities, capital as well as nationalities of directors and shareholders.
- Reserve preferred company name: you have to check for the availability of the preferred company name and reserve it
- Preparing and submitting relevant documents: you have to prepare all the relevant documents including the Certificate of Incorporation, Articles of Association, and more. You will then proceed to submit all the relevant documents, to the appropriate authorities.
- Tax Registration: next step is registering your business and receiving a tax identification number.
- Opening a bank account
- And finally being compliant with the laws
The Korean Free Economic Zones (KFEZ)
Being the center of global business where international capital and information gather, the Korean Free Economic Zones offer an outstanding management environment for international companies. Korean Free Economic Zones are designated areas established to improve the business and living environment for foreign-invested corporations in Korea and to attract foreign investment in the country through a spectrum of deregulation programs.
Since the 2003 induction of a Free Economic Zone in Incheon, the number of FEZs in operation in South Korea has grown to nine:
- Incheon,
- Busan-Jinhae,
- Gwangyang Bay Area,
- Gyeonggi,
- Daegu-Gyeongbuk,
- Chungbuk,
- East Coast,
- Gwangju and
- Ulsan.
Benefits of KFEZ
Under the relevant law, KFEZ may enjoy the following incentives and special treatment:
- National and local tax reductions (up to 50%) or exemptions are granted depending on the types and sizes of businesses.
- Tariffs on foreign goods and certain domestic goods imported into the free trade zones are reserved, and a zero-tax rate of value-added tax is applied.
- KFEZ creators are entitled to immunity from public charges.
- State fiscal grants are provided for the local development of infrastructure and reduction of leases for the advantage of foreign-invested corporations.
- Foreign-invested companies are excluded from the regulation of the maximum quantity of factories in the Great Metropolitan Area.
- Foreigner-operated educational institutions and hospitals may be created to improve the living conditions of foreigners.
The KFEZs have become even more attractive to international investors seeking opportunities in Asia.
Starting a business or registering a company in South Korea is possible for essentially any individual or foreign company. But before you commence opening a business in South Korea, it is vital to understand the business landscape of the jurisdiction. This is to guarantee that your newly founded entity will be able to conduct business safely and lawfully while striving towards your business goals.
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