Ranked as fifth worldwide in the World Bank’s Ease of Doing Business 2020, South Korea provides an ideal business ground for foreigners to set up a business. Apart from being recognized as one of Asia’s most developed economies (Four Asian Tigers), South Korea is also strategically located between two of the largest economies, China and Japan. South Korea proves to be a popular jurisdiction among business owners to set up a business, which can be attributed to the ease of company registration in South Korea. Regardless whether you are an aspiring entrepreneur or experienced business owner, we will explore what are some of the requirements and procedures to register a company in South Korea.
1.Choosing the optimum business structure
South Korea offers different types of business entities for you to choose from, where each business entity caters to different types of business activities. Foreign companies that wish to operate business in South Korea can choose between these 5 business entities. This includes Joint Stock Company (Chusik Hoesa), Limited Liability Company (Yuhan Hoesa), Partnerships, Branch Office and Representative Office.
Prior to South Korea company registration, it is crucial to fully understand your business model before choosing the most suitable business entity. Some considerations you should take into account include the type of business activity, tax obligations as well as potential personal liability.
Limited Liability Company (Yuhan Hoesa)
Limited Liability Company (Yuhan Hosea) is the most preferred type of business in South Korea. It is a closely-held company that allows up to 50 shareholders who are not liable for any debts or obligations incurred by the company and liability is limited to share capital. The requirements to open a Limited Liability Company in South Korea is minimal. This includes at least one director and one shareholder of any nationality, no minimum paid up capital for a South Korean LLC and a legal registered office address. Under the Foreign Investment Promotion Law (FIPL), a foreign owned local corporation is recognised as a foreign investor and is required to invest at least 100 million won.
Joint Stock Company (Chusik Hoesa)
Joint Stock Company (Chusik Hoesa) is the most common business entity used in South Korea and a popular business entity for foreign investors to establish subsidiaries in South Korea. It is a business entity which allows the public issuance of shares. In a Joint Stock Company, the stockholders have limited liabilities in the company whereby it is based on their capital investment amount. Additionally, stocks can also be freely transferable, with approval from the board of directors. Therefore, it is mandatory to hold at least one general shareholder meeting annually.
Partnerships
Partnership is a business structure that consists of two or more business partners working together and distributing profits and losses amongst themselves. There are three types of partnership, namely General (Hapmyeong Hoesa), Limited (Hapja Hoesa) and Limited Liability (Hapja Johap) in Korea.
In General Partnership, all partners hold unlimited liability, which means that they are personally liable for the debts the business may accrue. The transfer of ownership requires the unanimous consent of all members.
For both Limited Liability Partnership and Limited Partnership, at least one partner has unlimited liability and at least one partner has limited liability. Limited Liability Partnership combines the characteristics of a conventional partnership and a limited liability company (LLC). As Limited Liability Partnership is a separate legal entity from its members, it suggests that the members are subjected to limited liability. In this form of partnership, the partners have unlimited liability for their own acts, but not for the debts of the partnership nor for the liabilities of the other partners. Whereas for Limited Partnership, it is not considered as a separate legal entity.
Branch Office
If you are looking to penetrate the South Korean markets, foreign business owners can open a branch of a foreign company in South Korea. A branch office is an extension of the parent company and can only conduct business activities in Malaysia similar to that of the parent company. Therefore, the parent company is fully accountable for all liabilities incurred by the South Korea branch office. Moreover, there is no limit in the amount of investments or ownerships.
Representative Office
Numerous foreign business owners begin with representative offices, also known as liaison offices due to its straightforward registration formalities. Representative offices are meant for foreign investors who do not intend to carry out business in South Korea. Representative offices are not allowed to conduct commercial activities or generate revenue in South Korea, such as selling goods or services. They can conduct non-commercial activities such as market research and R&D.
2.Company registration
After deciding on the company’s business entity, you can proceed with the registration of your South Korea company. You can apply for company registration 20 days after you start your business. If there are more than one business to register, each business has to be registered individually.
With the introduction of Start-Biz Online, business owners can not only complete company registration on the portal, the portal is a one-stop source which connects various bodies from registration to tax. Some procedures which can be done on Start-Biz Online includes:
- Check trade name availability and obtain certificate of name availability
- File application package for incorporation
- Obtain corporate registration tax bill
- Obtain certificate of seal impression of corporation
- Tax registration to obtain a Tax Identification number (TIN)
- Submit rules of employment
A business registration certificate will be issued 3 days after consultation and verification of the paperwork in the civil service area.
3.Tax registration
Corporate tax is progressive where businesses in South Korea are liable to pay a corporate income tax rate of 10% for the first KRW 200 million of income. The corporate tax rate increases to 20% for incomes between KRW 200 million and KRW 20 billion, 22% for incomes between KRW 20 billion and KRW 300 billion and 25% for incomes exceeding KRW 300 billion.
In South Korea, the standard VAT rate is 10% on goods and services. It is mandatory for all South Korean businesses to register for Value Added Tax (VAT) at the National Tax Service within 20 days before the start of business. Moreover, businesses have to submit VAT invoicing in an electronic format, otherwise they will be penalised.
4.Corporate bank account opening
Before you start a business in South Korea, it is essential to open a corporate bank account. A corporate bank account is crucial for your business transactions, asset protection, accounting and tax filing. Your company can open a corporate bank account with reputable banks in South Korea including Woori Bank, Korea Development Bank and KEB Hana Bank. It is recommended to open a foreign currency or multi-currency bank account if your company is a trading company or has large overseas transactions. In most instances, it is not a requirement to travel to South Korea for bank meetings.
