SOUTH KOREA COMPANY INCORPORATION
Incorporating a company in South Korea involves registering the business with the government and obtaining a business license. The type of company you can set up company in South Korea will depend on the nature of your business and the number of shareholders you have.
In recent years, setting up South Korea companies has become a popular destination for international investors due to their rapid economic growth and stability. The country’s gross domestic product (GDP) ranks in the top 10 globally, and it has been ranked 5th out of 190 economies in terms of ease of doing business by the World Bank in its 2021 annual ratings. South Korea’s advanced education systems and research and development capabilities have also contributed to its strong economy, and the country is a top 10 market for eCommerce.
If you are considering setting up a company in South Korea, it is important to be aware of the complexities and challenges involved in the process. The fast-paced economy and constantly changing regulatory requirements can make navigating the process of incorporating a company challenging.
Fortunately, our team of consultants at Relin Consultants has complete knowledge of how to start a business in South Korea and can help address any concerns you may have. We understand the complexities and challenges of South Korea company formation and can guide you to help ensure a smooth process with the South Korea Companies registry.
Contact us at Relin Consultants for more information and to receive assistance with your South Korea company incorporation. Relin Consultants provide South Korea company incorporation services.
KEY REQUIREMENTS FOR INCORPORATING A SOUTH KOREA COMPANY
TIMELINE OF OPENING COMPANY IN SOUTH KOREA
Shareholder and Shares
It is mandatory to appoint at least one shareholder. 100% foreign ownership is permissible.
The minimum paid-up capital for foreign investors to set up South Company Limited Company (Yuhan Hoesa) is KRW 100 million (US$70,000) to qualify under the FDI Act. A company that does not require to be qualified as FDI company can be registered with a minimum paid-up capital of US$10,000.
No resident director requirements in South Korea. Any individual can act as the sole director and shareholder of the company.
Foreign investors are recommended to appoint a company secretary although acting as the company representative is not mandatory.
Virtual office or Physical office space
The company must have a virtual office or a physical office.
TYPES OF BUSINESS STRUCTURES IN SOUTH KOREA
There are seven types of business structures available for foreign investors who are looking to set up a company in South Korea:
Limited Company (Yuhan Hoesa):
This is the most common business entity for foreign investors in South Korea. It is a for-profit corporation that can have up to 50 shareholders, whose liability is limited to the amount of their share capital.
General Partnership (Hapmyong Hoesa):
In this type of partnership, each partner has unlimited liability and is jointly responsible for the entity’s debts. Transfer of ownership requires unanimous approval of all members.
Limited Liability Partnership (Hapja Hoesa):
Members of this type of partnership can choose between limited and unlimited liability. Limited liability partners are not allowed to make business decisions on behalf of the partnership, while those with unlimited liability manage the day-to-day business duties.
Joint Stock Company (Chusik Hoesa):
In this type of corporation, shareholders’ responsibilities are limited to the amount of their capital investment in the company. Stocks are freely transferable with permission from the board of directors, and shareholder meetings are held at least once a year to discuss financial results and dividends.
This business is fully owned and controlled by a parent company and operates within the boundaries set by the parent firm. It can conduct local business activities such as billing clients and executing sales contracts but is not a separate legal entity.
A representative office is a type of liaison office that is 100% foreign-owned and controlled. It is not allowed to make direct sales in South Korea but can engage in promotion and market research activities.
Foreign investors need to understand the different business structures available in South Korea and how they differ in terms of liability, management, and other factors to choose the best option for their business before registering a company in South Korea.
Comparison of Different Structures
|Limited Company||Domestic Branch||Liaison Office|
|Company Name||No restrictions||Must be the same as the foreign parent's name.||Must be the same as the foreign parent company name.|
|Business activity||No restrictions||Must be the same as a foreign parent company.||Profit-making activities are not permitted.|
|Share Capital||KRW100 million to qualify as an FDI company. Otherwise, US$10,000 is recommended.||No minimum requirement.||No minimum requirement.|
|Legal Liability||Limited Liability||Extend to the Parent Company||Extend to the Parent Company|
|Compliance Requirements||Must prepare accounting and tax records and meet all the quarterly and annual tax filing requirements.||Must prepare accounting and tax records and meet all the quarterly and annual tax filing requirements.||Not necessary|
|Taxation||All profits are made by a domestic corporation.||All profits including domestic source income made by a domestic corporation.||NA|
THINGS TO CONSIDER WHILE REGISTERING A BUSINESS IN SOUTH KOREA
Choose the right business structure
South Korea offers several business structures to choose from, including limited companies, general partnerships, limited liability partnerships, joint stock companies, branch offices, and representative offices. It is important to choose the structure that best fits the needs of your business in terms of liability, management, and other factors.
Choose a company name
You will need to choose a unique company name that is not already in use by another business for your South Korea company registration. It is important to choose a name that is easy to remember and reflects the nature of your business.
Register the company name
Once you have chosen a company name, you will need to register it with the South Korea company registry. This will ensure that your company name is protected and cannot be used by another business.
Prepare the articles of association
The articles of association are a document that outlines the rules and regulations governing the operation of your company. It should include details such as the company’s purpose, the rights and responsibilities of shareholders and directors, and the process for holding meetings and making decisions. The articles of association must be notarized by a public notary before incorporation of South Korea company.
Submit the articles of association and other required documents
Once you have prepared the articles of association, you will need to submit them along with other required documents, such as a South Korea certificate of incorporation, to the South Korea registry. You will also need to pay the incorporation fees at this stage.
Obtain a business license
After the incorporation of a company in South Korea, you will need to obtain a business license from the relevant authorities. This license is required to operate your business in South Korea legally.
Register for tax and social security purposes
You will need to register your company for tax and social security purposes with the National Tax Service and the National Pension Service. This will ensure that your company complies with the relevant legal requirements and can make tax and social security contributions on behalf of its employees.
Comply with ongoing legal and reporting requirements
Once the company’s incorporation is completed and your company is up and running, you will need to comply with ongoing legal and reporting requirements, such as filing annual reports and holding shareholder meetings. It is important to stay up to date with these requirements to ensure that your business remains in compliance.
It is also advisable to seek legal and financial advice when setting up a business in South Korea. This can help you to understand the various requirements and ensure that your company is properly registered and compliant with the relevant laws and regulations.
COMPANY REGISTRATION PROCEDURE OF A KOREAN LIMITED LIABILITY COMPANY (YUHAN HOESA)
A foreigner registering a limited liability company in Korea can refer to the below standard procedures on how to register a company in South Korea.
Step 1: Notify the Foreign Exchange Bank (FEB)
Notify the Foreign Exchange Bank (FEB) of your intention to invest in South Korea. You or your proxy can do this by submitting a notification form and proof of identity to a FEB in the country. The process can be completed on the spot, and a proxy can handle the notification with power of attorney.
Step 2: Transfer of the Share Capital
Bring in your capital for the investment. You can either remit the capital overseas and have it deposited in a temporary account at a FEB, or you can bring it with you in person and deposit it at the bank. A certificate will be issued verifying that the bank has custody of the capital, which is necessary for the next step.
Step 3: Register the Company
Register the incorporation of your company with the Korean court. The requirements for this will depend on the type of company you have established and the amount of capital you have. You will need to provide various documents related to directors, auditors, and shareholders. Once the authorities approve the registration, you will receive a copy of the certificate of incorporation in South Korea.
Step 4: Register with Tax Office
Register your business with the tax office. The specific documents you need to provide will depend on your circumstances.
Step 5: Corporate Bank Account Opening in South Korea
Transfer the investment capital from the temporary account to the company account.
Step 6: Register with FEB as a Foreign Direct Investment Company
Finally, register your company as an FDI company with the FEB. This must be done within 30 days of completing the payment, and you will need to submit an application form, a certificate of exchange/deposit, and a transcript of incorporation registration.
FREE TRADE ZONES IN KOREA
Free Trade Zones (FTZs) are designated areas within a country that offer special economic and regulatory benefits to businesses operating within them. In South Korea, there are currently four FTZs: the Incheon Free Economic Zone (IFEZ), the Busan-Jinhae Free Economic Zone (BJFEZ), the Gwangyang Bay Area Free Economic Zone (GBAFEZ), and the Saemangeum Free Economic Zone (SMFEZ).
The Incheon Free Economic Zone (IFEZ) is located in the city of Incheon and covers an area of over 7,000 acres. It was established in 2003 to become a hub for logistics, international business, and tourism in Northeast Asia. The IFEZ offers a range of incentives to businesses operating within its boundaries, including tax breaks, streamlined regulations, and access to state-of-the-art infrastructure. The IFEZ is home to several major international companies, including Samsung, LG, and Intel.
The Busan-Jinhae Free Economic Zone (BJFEZ) is located in the southeastern part of South Korea and covers an area of over 3,000 acres. It was established in 2003 to become a hub for shipbuilding, logistics, and advanced manufacturing in the region. The BJFEZ offers a range of incentives to businesses operating within its boundaries, including tax breaks, streamlined regulations, and access to state-of-the-art infrastructure. The BJFEZ is home to several major international companies, including Hyundai, Samsung, and LG.
The Gwangyang Bay Area Free Economic Zone (GBAFEZ) is located in the southwestern part of South Korea and covers an area of over 3,000 acres. It was established in 2003 to become a hub for shipbuilding, logistics, and advanced manufacturing in the region. The GBAFEZ offers a range of incentives to businesses operating within its boundaries, including tax breaks, streamlined regulations, and access to state-of-the-art infrastructure. The GBAFEZ is home to several major international companies, including Hyundai, Samsung, and LG.
The Saemangeum Free Economic Zone (SMFEZ) is located in the western part of South Korea and covers an area of over 7,000 acres. It was established in 2011 to become a hub.
Relin Consultants South Korea company formation services include an assessment of the most appropriate Free Zone for your business.
PROS AND CONS OF FORMING A COMPANY IN SOUTH KOREA
Strategically located with great infrastructure
South Korea is located between Japan and China, providing an optimal location for countries seeking to gain a presence or base in Asia. The modern and well-maintained infrastructure with the fastest internet speeds provides additional efficiency for companies.
Multiple free economic zones
The South Korea Free Economic Zones are specifically designated zones established to enhance the business and living environment for foreign-invested enterprises in Korea and aggressively encourage foreign investment in the nation through various deregulation initiatives. These free economic zones make setting up a company in South Korea very profitable for investors.
Well-educated consumers and labor
Korea is one of the countries in Asia with the highest literacy and secondary education rates. Although the Korean language is predominately spoken by the majority, most individuals can understand and speak basic English. Thanks to its advanced education systems and research and development capabilities. This can make it easier for businesses to find qualified employees.
South Korea has a strong and stable economy, with a GDP that ranks in the top 10 globally. This makes it an attractive destination for investors for company incorporation.
Ease of doing business
South Korea ranks 5th out of 190 economies in terms of ease of doing business, according to the World Bank’s 2021 annual ratings. This makes it relatively straightforward for a company registration and operating a business in the country.
South Korea’s well-developed infrastructure includes efficient transportation networks and advanced telecommunications systems. This makes it easier for South Korea incorporated company to operate and connect with customers and suppliers.
Strong market demand
South Korea is a top 10 market for eCommerce, making it an attractive destination for businesses that sell online.
South Korea is a competitive market, with many local and international companies operating in various sectors. This can make it difficult for new businesses to establish themselves and gain a foothold in the market.
Limited market access
South Korea has free trade agreements with some countries, but not all. This can limit the potential market for businesses that are based in South Korea and looking to export their products or services.
High labor cost
Compared to other Asian jurisdictions, South Korea has one of the highest labor costs. Average employee salaries range from US$3,000 and above.
Monopoly by a large conglomerate
Many sectors, such as energy, electronics, manufacturing, and technology, are dominated by large local conglomerates.
Can a foreigner open a business in South Korea?
Yes, foreigners can do business in Korea (including forming businesses) as per the Foreign Investment Promotion Act, foreign investors are also allowed to set up a domestic branch or liaison office in Korea under the Foreign Exchange Transaction Act.
How much does it cost to open a company in South Korea?
The cost to open a company in South Korea depends on the type of business activities and the type of company you are opening. The average cost ranges from US$6,000 to US$10,000.
Can a foreigner be a CEO in South Korea?
Yes, South Korean companies can appoint a foreigner to act as the company’s CEO and executive director managing the company.
How can I verify a company in Korea?
You can also use the DART Korea website to verify the company. Alternatively, to verify a company in South Korea, one can search with the tax authority using the South Korea Company Registration Number.
How do I start a start-up in Korea?
To start a start-up, a business owner must research the industry he is interested in. The business activity and preferred name for the company must be chosen. The steps listed above should be followed to start a Start-up.
What businesses should I start in Korea?
The business that you should start will depend on the capital, capabilities, and interest. It would be a smart choice to take advantage of the growing E-commerce opportunity and potentially start a dropshipping business. In this business, the company will purchase products directly from a third party and sends them to the customers. Another business opportunity is to start a financial consulting firm.
Is it easy to do business in South Korea?
Yes, according to the Ease of Doing Business Index, South Korea has a ranking of 5 out of 190 countries.
Can foreigners buy stocks in South Korea?
Yes, foreigners can buy stocks in South Korea. Those who wish to invest in the market are required to register with the financial supervisory service (FSS) to get the investment registration certificate.
Is setting up foreign companies in Seoul a good idea?
Yes, it is the capital of South Korea. Seoul is the largest trade, business, and finance hub. Many IT companies such as LG and Samsung are established in Seoul.
What is the VAT rate in South Korea?
The standard VAT rate in South Korea is 10%. However, certain goods and services are taxed at a reduced rate of 0% or 3%. For example, food, agricultural products, and some types of medical products are taxed at 0%, while certain types of transportation services are taxed at 3%.
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