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 |
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 |
Invest KOREA (KOTRA) or headquarters of a foreign exchange bank |
Foreign exchange bank branch (notification), MOFE (permission of financial business etc.) |
Minimum (Maximum) |
Minimum 50 million won per case, |
No monetary limit |
Scope of Tax |
Tax obligations for all domestic and overseas income |
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.
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
- Registration application by the representative director:
- Korean citizens: Attach registered seal/certificate and certificate of residence;
* 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
|
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 |
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
- Taxpayer registration notification form |
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)
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