Investment Guide
Investment Guide
  • Korea IT Times
  • 승인 2010.02.05 14:42
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3. Corporation Establishment

<Types of Foreign Advancement into Korea>

Foreign advancement into Korea for business purposes can largely be divided into 4 types; a foreigner (corporation)'s establishment of a local corporation, a foreigner (corporation)'s establishment of a private business, or a foreign corporation's establishment of a local branch or a local office.

Types of Foreign Advancement

Type

Law

Remarks

1

Local Corporation

Foreign Investment Promotion Act

Recognized as a foreign investment

2

Private Business

3

Branch

Foreign Exchange Trade Act

Categorized as a domestic branch of
the foreign corporation

4

Office

 

Foreign-Invested Companies under the Foreign Investment Promotion Act

The Foreign Investment Promotion Act and Korea's domestic commercial law apply to investments that a foreigner (corporation) makes by establishing a "local corporation" in Korea. To benefit from the protections and benefits of the Foreign Investment Promotion Act, the foreigner shall invest a minimum of 50 million.

The Foreign Investment Promotion Act will also apply to foreign individuals investing 50 million won and more who operate a business as a form of "private business." Such an investment will also be recognized as a foreign investment.

Domestic Branch of a Foreign Company by the Foreign Exchange Trade Act

A foreign-invested business that generates profits is categorized as "branch." As it is a foreign corporation, such a branch is not considered FDI.

An "Office" differs from a branch in that it does not conduct for-profit sales, but instead undertakes a non-sales function such as market research, R&D etc. And unlike branches, offices do not need to register themselves domestically, but are given a unique business code number at the district tax office which is equivalent to business registration.

Comparison of a Foreign-Invested Company and a Domestic Branch

Category

Foreign-Invested Company

Domestic Branch of a Foreign Company

Law

Foreign Investment Promotion Act

Foreign Exchange Trade Act

Corporation Type

Domestic corporation

Foreign corporation

Identity

Foreign investors and foreign-invested companies are of separate entities (independent accounting & settlement)

Headquarters and branches are of a single entity (the same accounting & settlement)

Institution for
Notification
Acceptance
and Permit

Invest KOREA (KOTRA) or headquarters of a foreign exchange bank

Foreign exchange bank branch (notification), MOFE (permission of financial business etc.)

Minimum (Maximum)
Investment Amount

Minimum 50 million won per case,
no upper limit

No monetary limit

Scope of Tax
Obligations

Tax obligations for all domestic and overseas income
(13%, 25% for over 100 million won)

Tax obligations for income from domestic sources (13%, 25% for over 100 million won), Payment of branch taxes for some countries

 

<Local Corporation Establishment>

As stated above, the establishment of a local corporation exactly follows the foreign investment procedures, and includes the foreign investment notification, corporation or private business registration, and foreign-invested company registration. The following includes the details of company establishment and business registration procedures which are significant in establishing a local corporation.

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Types of companies recognized by the commercial law include general partnership company, limited partnership company, incorporated company, and private company. As most companies take the form of "incorporated company," the focus will be on the procedures to establish incorporated company.

Type of Stock Company Establishment

In establishing an incorporated company, there are two ways of incorporation: promotion and subscription. The promotion of a company means that promoters accept all shares issued at the time of company establishment. For a subscription-based incorporation, promoters accept part of the total shares issued at the time of company establishment and collect shareholders for the remaining shares.

Depending on the type of corporation establishment, the procedures differ as follows:

Establishment Procedures of Two Types of Incorporated Companies Incorporated Company Establishment Registration

The registration of incorporated company establishment shall be made within 2 weeks following the completion of the establishment inspection of incorporation by promotion, and 2 weeks following the conclusion of the inaugural meeting of incorporation by subscription.

Pre-registration check shall be done to determine the composition of promoters and whether there are any companies with similar names. An incorporated company needs at least 1 promoter. The promoter shall acquire shares in writing and become a shareholder of the newly created company. Also, in order to conduct business in any area (Seoul Metropolitan City etc.), the company name shall be clearly distinguished from others prior to registration. The company name may be checked in advance on the Supreme Court website (www.scourt.go.kr) for Seoul, and at the relevant registry for other regions.

Required Documents

  • Foreign investment notification certificate
    Letter of attorney

- Registration application by the representative director:
Representative director becomes the appointee of all letters of appointment;
- Registration application by judicial scrivener: The judicial scrivener becomes the appointee;

  • Executive inauguration acceptance certificate;

- Korean citizens: Attach registered seal/certificate and certificate of residence;
- Foreigners: Attach original of signature authentication, copy of passport;

  • Subscription money for stocks deposit certificate
    Corporate registered seal;
    City railroad public bonds;
    Supreme Court income certificate stamp;
    Registration tax payment receipt: Relevant district office where company headquarters is located;
    Personal registered seals of each executive and promoter (including foreigners);
    Articles of association* (notarized);
    Share acceptance certificate*;
    Application for stocks*;
    Report on inauguration matters*;
    Written consent to shorten the inauguration meeting period*;
    Inaugural meeting minutes* (notarized);
    Board of directors' meeting minutes* (notarized);
    Seal impression registration certificate* and corporate registered seal card application form*;
    Shareholder register*;
    Written consent to share issue matters*;

* Items marked with * can be prepared at Invest KOREA

 

* Required Documents

Depending on whether the investor is an individual or a corporation, the documents that the investor has to prepare overseas before coming to Korea differ. Japanese investors are in yet another category. For corporate investors, the representative director shall bring his/her certificate of residence or driver's licence, as well as the seals of all shareholders, executives (including foreigners) whose names are included on documents. Letters of attorney and inauguration acceptance certificates must be verified (not applicable for Japanese investors).

Required Documents for Individual Investors

Letter of Attorney

  • For investors/executive and everyone whose name is entered on documents:

- Korean/Japanese: Attach seal impression certificate after putting seal on the
letter of attorney
- Foreigner: Sign and authenticate letter of attorney

Inauguration
Acceptance Certificate

  • For every individual registered as an executive:

- Korean/Japanese: Attach seal impression certificate and certified copy of
resident registration after putting seal on inauguration acceptance certificate
- Foreigner: Sign and verify acceptance certificate

Seal Impression
Certificate Certified
Copy of Resident
Registration

  • Used for attachment to letter of attorney/inauguration acceptance certificate

Passport Copy

  • All foreigners


Required Documents for Corporate Investors

Letter of Attorney

  • For all investors/executives/individuals whose name is entered on documents:

- Korean/Japanese: Attach seal impression certificate after putting seal on the
letter of attorney
- Foreigner: Sign and verify letter of attorney

Inauguration
Acceptance Certificate

  • For every individual registered as an executive:

- Korean/Japanese: Attach seal impression certificate and certified copy of
resident registration after putting seal on inauguration acceptance certificate
- Foreigner: Sign and authenticate acceptance certificate

Seal Impression
Certificate Certified
Copy of Resident
Registration

  • Used for attachment to letter of attorney/inauguration acceptance certificate

Corporate Letter of
Attorney Certified
Copy of Corporate
Registration Corporate
Seal Impression
Certificate

  • Korean/Japanese corporation: Attach 1 copy each of corporate seal impression
    certificate, certified copy of corporate registration after putting corporate seal on
    letter of attorney
    Foreign corporation: Representative director of foreign investment corporation to
    sign and delegate to the representative director of the corporation establishment
    in Korea, then verify and attach certified copy of corporate registration

Passport Copy

  • All foreigners

 


Incorporated Company Establishment Costs

Registration tax, local education tax, registration application fees etc. are the costs involved in establishing an incorporated company.

* Case of Company Establishment Cost (KRW50 million in capital, Large city)

Item

Details

Costs

Registration Tax

0.4% capital, 3 times when establishing in large cities

KRW600,000

Local Education Tax

20% of registration tax

KRW120,000

Supreme Court Income
Certificate Stamp

Registration application fee

KRW20,000

Notarization Fee

Articles of association, etc.

Approx. 150,000

Total

 

Approx. 890,000

Corporation Establishment Registration and Business Registration

Generally, the corporation establishment notification and business registration application are processed simultaneously. Notification and application may be carried out at the relevant district tax office of the company headquarters, or at Invest KOREA (KOTRA). The corporation establishment notification shall be completed within 2 months from the corporation establishment registration, while business registration shall be done within 20 days from the commencement of business operations.

Required Documents

  • Corporation establishment notification and business registration form
    Articles of association (Attach an itemized account of investment object for investment in-kind)
    Certified copy of corporate registration
    Accounts of shareholders etc.
    Business permit certificate (for businesses requiring permits, approvals, notifications etc.)
    Copy of lease contract (when renting a place of business)
    Other

- Taxpayer registration notification form
(when there are no executives to handle matters related to domestic tax);
- Copy of foreign exchange purchase certificate;
- Copy of foreign currency purchase certificate;
- Alien registration certificate or copy of passport (when the representative is a non-resident).

When a foreign investor makes an investment in-kind to establish a corporation, business registration is required to receive value added tax refund when the investment in-kind objects clear customs. This implies that the business registration has to be completed prior to importing investment objects.

Required Documents to submit for business pre-registration (for investments in-kind)

  • Business registration application form
    Certified copy of resident registration of all of promoters
    Business permit application form (businesses requiring approvals, permits)
    Business plan
    * While a certified copy of corporate registration is not submitted when applying for business registration,
    all other required documents shall be submitted after establishing the company.

 


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