How to Set Up a Foreign-Owned Company in South Korea: A Comprehensive Guide

South Korea offers a dynamic and promising environment for foreign investors seeking to explore business opportunities. While the government actively supports company registration, understanding the regulatory landscape is crucial for a successful setup. Here's a comprehensive guide to help foreign investors navigate the process of establishing a company in South Korea.

Can Foreigners Set Up a Company in Korea?

Absolutely! Foreign investors are allowed to register companies in South Korea and can even establish wholly foreign-owned businesses, ensuring complete control. Common company structures, like Limited Liability Companies (LLCs), have straightforward requirements:

• One director of any nationality
• One shareholder of any nationality
• A legally registered office address

Although there’s no minimum capital requirement, investors seeking a D-8 visa must invest at least KRW 100 million (approximately USD $90,000) under the Foreign Investment Promotion Law (FIPL).

Types of Business Entities for Foreign Investors

Choosing the right type of entity is key and depends on your business objectives, liability concerns, and tax implications. Common options include:

Liaison Office and Branch Office

• Liaison Office: Conducts non-taxable activities such as market research or promotional activities. It cannot engage in direct sales, and liabilities fall directly on the overseas headquarters.
• Branch Office: Unlike a liaison office, it can conduct taxable activities but does not offer liability protection. The branch is subject to corporate income tax and VAT.

Subsidiary

A subsidiary is an independent legal entity that actively engages in sales and offers liability protection. It is subject to corporate income tax, with a 22% withholding tax on dividends unless reduced by a tax treaty.

Three Common Subsidiary Types:

1. Joint Stock Company ("Jusik Hoesa") Ideal for raising equity capital through share issuance. Requires a board of directors and statutory auditor for companies with capital exceeding KRW 1 billion.
2. Limited Company ("Yuhan Hoesa") Offers limited liability for members, with restrictions on transferring equity interests. No need for a board of directors or statutory auditor.
3. Limited Liability Company ("Yuhan Chaegim Hoesa") Provides managerial flexibility but prohibits equity securitization. Relatively new, with evolving legal principles.

Advantages of Starting a Business in South Korea

1. Robust Economy: Ranked among the top 10 globally by GDP.
2. Highly Skilled Workforce: An educated population with strong English proficiency.
3. Ease of Doing Business: Ranked 5th globally for business ease.
4. Strong Market Demand: A top eCommerce destination.
5. Strategic Location: Proximity to Japan and China.
6. Advanced Infrastructure: World-class transportation and internet connectivity.
7. Free Economic Zones: Investor-friendly policies and incentives.

Challenges to Consider

1. High Labor Costs: One of the highest in Asia, with salaries starting at around USD $3,000.
2. Limited Market Access: Despite extensive trade agreements, not all markets are covered.
3. Intense Competition: Dominated by large domestic and global players.
4. Conglomerate Influence: Key industries are often monopolized by large local companies.

Conclusion

Establishing a company in South Korea opens doors to a thriving market but requires careful navigation of regulatory and business challenges. By choosing the right entity type and preparing strategically, foreign investors can unlock the full potential of South Korea’s vibrant economy.

If you’re ready to take the next step, contact us for expert guidance tailored to your needs.

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