Forming New Horizons – Expanding into South Korea
Country Spotlight:
GDP – $1.7 trillion
Population – 51.5billion
Competitiveness Ranking? – 20 out of 64 (IMD)
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The Commercial Brief:
The sectoral distribution of income in South Korea is less than 2% from agriculture, 32% from manufacturing, and 58% from services. South Korea's economy has grown from one of the poorest countries before the 1960s to a developed country with a high income level. South Korea is now the 4th largest country in Asia and the 14th largest economy in the world! Its forecasted GDP growth for 2024 is moderate at 2.6% and slightly less at 2.2% in 2025.?
South Korea has had very modest inflation compared to most other economies (it peaked at 9.33% in 1991) and has largely fallen since then to around 2.5% today and is forecast to fall to 2% within the next couple of years. This is very positive for businesses wishing to expand to South Korea wanting to tightly control costs and have good forward visibility on the macroeconomic environment.??
The Corporate Income Tax (CIT) typically ranges from 9% to 25% which is very competitive, when compared to other developed economies. Personal income tax typically ranges from 6 to 42%? on a sliding scale once minimum thresholds are met (hence it is somewhat competitive compared to countries like the USA, where the top federal tax rate is 37%, or the UK and Germany, which have top rates around 45%).?
South Korea is culturally renowned for its rich heritage intertwined with modern innovations. It is celebrated for traditional arts like calligraphy, pottery, and the performance art of Pansori (musical storytelling), as well as for its vibrant pop culture epitomized by K-pop and Korean drama, which have garnered a global following. South Korean cuisine, featuring dishes like kimchi, bibimbap, and Korean barbecue, is also highly appreciated worldwide. Additionally, the country is known for its technological advances and strong emphasis on education, which play significant roles in its culture and societal values. These aspects, alongside historic sites like Gyeongbokgung Palace and the village of Hahoe, underscore a society that respects tradition while embracing the cutting edge.
South Korea has limited natural resources, which has influenced its focus on technological and industrial development. Key natural resources include coal, historically used for energy production but now declining in use due to a shift towards cleaner energy. Additionally, South Korea possesses significant deposits of tungsten, one of the largest and highest quality in the world, crucial for electronics and manufacturing industries. Graphite is another important resource, leveraged in various industrial applications. These resources play a role in supporting South Korea's advanced manufacturing and technology sectors.
Companies expanding into South Korea will find a robust talent pool in several key industries known for innovation and skill. The technology and electronics sector is particularly notable, with South Korea being a global leader in the production of semiconductors, smartphones, and televisions, showcased by giants like Samsung and LG. This industry offers a deep pool of talent in engineering, software development, and related technical areas. Additionally, the automotive industry, represented by global brands such as Hyundai and Kia, is another significant area, featuring advanced manufacturing techniques and engineering expertise. Biotechnology and pharmaceuticals are also emerging as dynamic sectors with highly skilled professionals, driven by extensive research and development. These industries not only provide access to top-tier talent but also reflect South Korea's strong emphasis on education and training in fields critical to its economic growth.
In summary, South Korea should be high on the list of consideration for companies wanting to expand to Asia due to its modest inflation, population and strides in the technology sector and broad top-tier talent pools to draw from!
Challenges of Expanding into South Korea
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In our experience setting up a permanent overseas entity in South Korea without Global EOR support can take up to 7 months, including the entity incorporation, setting up the bank account and concluding the local registrations. This timeline does not include license applications if needed, import/ export permits and certain industry specific government registrations. Some of the required registrations in South Korea are as follows:?
With regards to payroll and labour law compliance, all companies must implement a handbook that has been previously approved by the Ministry of Employment. For transparency, All employees must be provided with details about the calculation of wages. In addition to the implementation of an employee handbook, South Korea requires mandatory trainings for all employees each year including but not limited to:
1. Improving awareness for employees with disabilities
2. Anti-sexual harassment education?
3. Personal information protection education?
4. Health and safety at the workplace training?
In addition to the policies and training programs, free employment medical checks are also required for all employees at the company. From a corporate standpoint, it is mandatory to have an office space from which employees can work; whilst a local director is not required, it is important to have local representation to manage government and employee discussions - somebody who can understand cultural and language differences.?
It is, therefore, essential for employers to familiarise themselves with the above. To avoid complications and business risk and enter the market quickly and compliantly, utilise a Global EOR in South Korea that has dedicated and extensive in-country personnel, HR, Legal, Payroll, Compliance & Immigration teams that can support you and your organisation directly.?
Pete Dixon & Laura Isaza, Velocity Global
If you're thinking about expanding into South Korea, we can help you plan for this and mitigate compliance risk. We're happy to provide guidance, simply get in touch and we will do our best to help.?
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