If you are wondering how to register a Sole Proprietorship in South Korea, this guide is helpful for you. Starting a business as a sole owner can be an exciting and rewarding venture in South Korea.
As a sole proprietor, the applicant has the freedom to run their own business, make independent decisions, and retain full control over their operations. South Korea provides a favorable environment for entrepreneurs, with a robust economy and a well-developed infrastructure.
Seeking to establish a presence in this vibrant market by registering a sole proprietorship is a straightforward process.
If you wish to know about the other company structures available in South Korea, refer to the South Korea Company Registration page.
PROCESS OF REGISTERING A SOLE PROPRIETORSHIP IN SOUTH KOREA
Gather Required Documents – Collect the necessary documents, including the Alien Registration Card (for foreign nationals), Office Lease Agreement, Passport, and any other industry-specific documents required.
Complete the Business Registration Form – Fill out the business registration form, providing accurate and up-to-date information about the business.
Visit the Tax Office – Take the completed business registration form and required documents to the local tax office. All companies in South Korea must register with the Korean Tax Authority. The applicant must ensure that they have made an appointment in advance, if necessary.
Submit the Application – During the visit to the tax office, submit the business registration form and supporting documents to the government official. They will review the application and provide the applicant with a receipt as confirmation of receipt.
Wait for Notification – Await notification from the tax office regarding the status of the application. Once approved, the applicant will be notified to collect the company registration document or business license.
Visit the Tax Office Again – Visit the tax office as instructed in the notification to receive the company registration document. This step typically involves presenting the receipt and any additional required documentation.
Register at Your Location – If the landlord permits, the applicant can register their sole proprietorship at their residential address. This option may require additional documentation and approval from the landlord.
Tax Considerations – Keep in mind that if the revenue exceeds 50,000 USD or more, the tax rate for a sole proprietorship may be higher. Consult with a tax professional or accountant such as Relin Consultants to ensure compliance with tax regulations and understand the obligations.
Opening a business bank account – The next step is to set up the business bank account after finishing the business registration process. The following paperwork will be required:
- ARC Card
- Office lease agreement
- Office lease agreement
- House agreement
- Applicant’s national tax ID, such as SSN or tax filing number
The applicant will be able to visit the selected bank after gathering all the required paperwork.
The bank will provide a Security code card (a paper or electronic card with one-time password OTP numbers on the bank or a button to produce an OTP) for the company’s bank account.
Refer to South Korea Corporate Bank Account Opening for more information about the bank account opening process.
TAXATION OF A SOLE PROPRIETORSHIP IN SOUTH KOREA
Sole proprietors in South Korea are subject to two main types of taxes: value-added tax (VAT) and income tax. Regardless of whether your business is profitable or not, it is crucial to fulfill your tax obligations.
VAT is applicable to most businesses, but there are some exemptions depending on the nature of your business activities. This includes considerations such as the purpose of your business, which can impact the portion of the income you retain. For example, certain services like translations may be exempt from VAT.
VAT filing for sole proprietors is conducted every six months. The standard VAT rate in South Korea is 10%, which is applied to the taxable value of your goods or services.
Income tax is another tax that sole proprietors must pay. Yearly income tax returns for sole proprietors are due on May 31st. The tax rate for income tax varies based on the amount of income earned. Here is a breakdown of the tax rates based on income brackets:
- Up to KRW 12 million: 6%
- KRW 12 million to 46 million: 15%
- KRW 46 million to 88 million: 24%
- KRW 88 million to 150 million: 35%
- KRW 150 million to 300 million: 38%
- KRW 300 million to 500 million: 40%
- Over KRW 500 million: 42%
BENEFITS OF REGISTERING A SOLE PROPRIETORSHIP IN SOUTH KOREA
- Full Control and Decision-Making – In a sole proprietorship, the owner have full control over and discretion over the company. They don’t need the approval of partners or shareholders to take independent actions or execute any idea.
- Lower Costs – Compared to other business structures, creating and maintaining a single proprietorship in South Korea is typically less expensive. The owner won’t be required to pay additional fees for incorporating or fulfilling certain compliance requirements.
- Direct Profits – The owner gets to retain every profit the company makes as its single owner. There is no requirement to distribute profits to partners or shareholders, allowing them to enjoy the financial benefits entirely.
- Privacy – Another benefit of sole proprietorships is privacy. They are subject to fewer disclosure requirements than corporations. This implies that their financial and commercial interests can be private.
- Easy Dissolution – The process of closing or dissolving a sole proprietorship is typically less complicated and time-consuming than winding up a corporation. If wanted, they have the liberty to quickly end activities and start new businesses.
CHALLENGES OF REGISTERING A SOLE PROPRIETORSHIP IN SOUTH KOREA
- Unlimited Liability – As a sole proprietor, all of the company’s debts and responsibilities are their own to bear. This implies that personal assets are in danger if the firm experiences financial setbacks or legal problems. It is essential to thoroughly evaluate and manage any potential risks connected to business operations.
- Limited Access to Capital – Compared to other business structures, sole proprietorships may have trouble obtaining funds. Since the company only uses the owner’s personal funds or borrowing capacity, obtaining financing or luring investors can be more difficult. The potential for growth and expansion of the company may be hampered by this restriction.
- Lack of Continuity – In a solo proprietorship, the owner is the heart of the business. The company may run into difficulties if the proprietor falls ill, becomes incapable of working, or dies. There is no independent legal entity, unlike companies, that can run the business on its own. The long-term survival of a single proprietorship depends on planning for business succession and enabling an easy transition.
- Limited Specialisation – The owner might experience restrictions as a solo proprietor in terms of specific knowledge and expertise. Many different skill sets are generally needed to run a business, and as sole owners, they could have to manage multiple aspects of the company themselves. This can be challenging.
Reach out to us at Relin Consultants for further assistance with your South Korea Sole Proprietorship registration.
Who can register a sole proprietorship in South Korea?
In South Korea, a sole proprietorship can be registered by anyone, whether they are a South Korean citizen or a foreigner.
Can I register a sole proprietorship at my residential address?
If your landlord permits it, you may register your sole proprietorship at your home address. However, you might have to offer additional documentation and get your landlord’s permission.
Can I register more than one person in a sole proprietorship?
No, in South Korea you cannot register more than one individual as a sole owner.
Are there any ongoing reporting or compliance requirements for sole proprietors?
You must typically file annual income tax returns by May 31st if you are a sole proprietor and submit VAT filings every six months. It’s crucial to keep accurate financial records and to follow any other legal requirements that are relevant for your company, such as getting business licenses or permits.
What are the tax implications for sole proprietors in South Korea?
Value-added tax (VAT) and income tax are frequently applied to sole proprietors. Income tax rates vary depending on income levels, and the VAT rate is 10%.
Can I later change my single proprietorship to a different business structure?
Yes, it is possible to convert a sole proprietorship into a different business structure, such as a corporation or partnership, if your business needs evolve. However, the conversion process will involve fulfilling the requirements and procedures outlined by the relevant authorities.