Essential Steps for Foreign Entrepreneurs to Start a Business in Korea

If you’re a foreign entrepreneur looking to start a business in South Korea, you’re entering a dynamic market with abundant opportunities, especially in Seoul, a rapidly growing global business hub. While having an innovative business idea and the drive to succeed are essential, understanding the specific steps and legal requirements for setting up a company in Korea is crucial. This guide outlines key company formation options available to foreigners, including subsidiaries, personal enterprises, branch offices, and liaison offices.

1. Establishing a Subsidiary in South Korea

For foreign individuals or companies operating under foreign laws, setting up a subsidiary, also known as a local corporation or FDI (Foreign Direct Investment) company, can be an effective route. This allows businesses to explore opportunities and expand within Korea while enjoying the same legal and corporate eligibility as domestic companies under the Foreign Investment Promotion Act (FIPA). Notably, foreign subsidiaries in Korea can access various incentives like tax breaks, cash grants, and support for industrial facilities. To qualify under FIPA, a minimum investment of KRW 100 million is required in a business owned and managed by a Korean citizen. Common business structures for subsidiaries include partnerships, limited liability companies, and stock companies, with the latter two being popular among foreign entrepreneurs due to their straightforward regulatory processes.

2. Setting Up a Personal Enterprise in Korea

Foreign entrepreneurs can also establish personal businesses in Korea. Similar to subsidiaries, this requires recognition under FIPA, which necessitates an investment exceeding KRW 100 million. This structure allows individual foreign entrepreneurs to operate their businesses directly in the Korean market.

3. Setting Up a Branch Office in Korea

Unlike subsidiaries, branch offices do not fall under FIPA but are governed by the Foreign Exchange Transaction Act (FETA). Branch offices represent the main company and conduct profit-generating activities in Korea. Establishing a branch involves appointing a representative and following FETA procedures, including obtaining company registration from the court. Branch offices are subject to Korean tax laws, treating them as permanent establishments.

4. Forming a Liaison Office

A Liaison Office offers another option under FETA, focusing on non-profit activities such as market research, quality control, and coordination with the head office. Liaison Offices are not permitted to engage in profit-making activities and, as such, are not subject to Korean taxes. This type of office is relatively simple to establish, requiring only a unique business number through the tax authority, without the need for court registration.

Restricted Practices for Foreign Entrepreneurs

Foreigners looking to establish businesses in Korea must be aware of certain restrictions. Prohibited activities include sectors like banking, postal services, securities trading, education, broadcasting, and specific agricultural areas like rice and barley farming. There are also partially restricted activities where foreign ownership is limited, including fishing, publishing, domestic transport, cattle farming, telecommunications, and power plants.

Conclusion

South Korea offers a compelling environment for foreign entrepreneurs, with strategic advantages and growth opportunities in a well-regulated market. However, succeeding in Korea requires a thorough understanding of the legal and regulatory landscape. This article has explored various business structures and their respective governing acts, highlighting both opportunities and challenges. For personalized guidance and to ensure a smooth entry into the Korean market, consider leveraging the expertise of Pearson & Partners Korea. We provide specialized services to help foreign investors navigate the complexities of Korean business formation and achieve success in this dynamic environment. Reach out to us to get started on your journey in South Korea’s vibrant business landscape.

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