A Guide on How to Start a Business in Korea

More and more foreigners are looking for ways to start a business in South Korea. It has become clear that the country, being one of the most developed in Asia, has plenty of opportunities to take advantage of. There are also many challenges that a foreign company will face in South Korea, especially when navigating the complexities of South Korean government regulations and the work culture in the country. 

This guide aims to give you an idea of what options are available to establish your foreign business in South Korea. It also provides instructions on what business registration requirements you need to fulfill, your tax obligations, and a few tips to make your life easier through this whole process. Read on to learn all about successfully starting your business in South Korea. 

Why You Should Be Doing Business in South Korea

Start a business in South Korea | Joon K Lee

South Korea is the 12th largest economy in the world with a nominal GDP of $1.8 trillion in 2021. According to the World Bank’s Ease of Doing Business rankings, the country is one of the easiest countries to do business in. South Korea has a highly developed modern infrastructure, with one of the busiest cargo terminals in the world and efficient transportation. It also has a great IT infrastructure with state-of-the-art manufacturing facilities that support global tech giants like Samsung and LG. 

The South Korean government has provided plenty of incentives to attract more foreign companies to enter the market. These include tax benefits, financial assistance, a reduction in customs procedures, and the establishment of industrial zones with all the logistical facilities. The government has signed many free trade agreements (FTAs) that provide further benefits, like minimizing tariffs when conducting business overseas. 

When looking at business opportunities, industries like creative design, consumer electronics, and aerospace have been identified as high-growth markets. IT startups are another area that has risen, with developers of mobile applications and video games taking advantage of the advanced infrastructure available. Fashion, financial services, education, and the automotive industry are other sectors to pay attention to. 

South Koreans are highly educated, have a disposable income, and are very tech-savvy. It is no wonder they are drawn toward premium products from recognizable brands. As a result, the South Korean market can be highly competitive. There are also unique aspects of the work culture and business relationships that a foreign company needs to understand before stepping in. Companies that can overcome these challenges will find their investments bearing fruit in South Korea. 

For more reasons why you should consider South Korea to establish your business, read Key Benefits of Doing Business in Korea

Are Foreigners Allowed to Start a Business in South Korea?

In short, yes. A foreigner is allowed to start a business in South Korea in two ways. The first is by purchasing new or existing stocks as allowed by the Foreign Investment Promotion Act. A domestic corporation is first established under the South Korean Commercial Code. A foreigner can invest a minimum of KRW 100 million for managerial participation and acquire 10% of the company’s newly issued or existing stocks with voting rights. Such a company is known as a Foreign-Invested Company. 

The second way to start a business is for a foreign company to open a domestic branch or liaison office under the Foreign Exchange Transactions Act. These entities can operate subordinately to the headquarters in their home country and have limited scope in terms of what activities they can perform in South Korea. For more information, read How foreigners can start a business in Korea

Options for Starting a Foreign Business in South Korea

Options for starting a foreign business in South Korea | Joon K Lee

There are different tax benefits, the scope of permitted business activities, business registration procedures, and legal requirements based on what type of business you decide to establish. Let’s look at what those are. 

Foreign-Invested Company

As mentioned before, the minimum investment is KRW 100 million, which is recognized as a foreign direct investment (FDI). The company must first notify the relevant authorities of this FDI and remit investment funds to get started. Afterward, they have to register the corporation, apply for a business license, and register the foreign-invested company. 

It is not a requirement that shares be held by South Korean residents, although foreign investors need to hold a D8 Foreign Investment Visa. There are no restrictions on the company name or the business activities they can engage in. It is legally independent and is eligible to apply for domestic loans based on its credit rating. 

Accounting must be done as per Korean Accepted Accounting Principles, and the company is obligated to go through external audits. Corporate tax is applicable, although the FDI status will make the company eligible for tax benefits according to the Restriction of Special Taxation Act.

Domestic Branch

This would operate as a branch office of its headquarters in the home country. The company’s name should be identical to that of its parent company, and it can engage in the same type of business activities as its parent company. In legal terms, the branch office and its headquarters are recognized as a single entity. There is no limit on the amount of investment or ownership, although it would not be recognized as an FDI. It also won’t be able to enjoy the tax breaks granted to FDIs. 

The establishment of the domestic branch has to be notified to the relevant authorities as directed by the Foreign Exchange Transactions Act. This is followed by the registration of the company and an application for a business license. The process is easier with fewer fees compared to a foreign-invested company. Obtaining a loan, however, is much more difficult for a domestic branch office.

Accounting must be done according to Korean Accepted Accounting Principles, although the domestic branch is not obligated to be externally audited. It is liable to taxation just like a domestic company but may also have additional branch taxes applicable to some countries. 

Liaison Office

A liaison office is not permitted to carry out sales-related business activities for its head office. Instead, it can perform marketing surveys, marketing activities, as well as research and development work. The office has to use the same company name as the head office it reports to and is legally part of the same entity. 

There is no minimum requirement for investment and very few procedures for a liaison office to be established under the Foreign Exchange Transaction Act. The relevant authorities have to be notified as before, followed by a registration with the tax department where it will receive an identification number which serves similarly to the business registration. The liaison office has to report to a foreign exchange bank. 

The liaison office is not obligated to perform bookkeeping duties, and it is not liable for taxation. It is not eligible to apply for domestic loans either. While these offices are not allowed to perform profit-making activities, they are very simple and cheap to establish. 

How to Start a Business in South Korea For Foreigners

How to start a business in South Korea for foreigners | Joon K Lee

Now that you know what types of companies can be established by a foreigner in South Korea, let’s look at the preparation work you need to do to get started. These will include determining your visa status’s eligibility, deciding on the best business structure for your company, the registration process, and opening a business bank account.

Step 1: Checking Your Eligibility

As a foreigner, you can establish a business in South Korea as long as your visa permits you to do so. Student visas and regular employment visas are not sufficient for this. If you have a visa for long-term residency, permanent residency, or marriage to a South Korean citizen, you will be able to switch to a Foreign Investment Visa (D8) or Trade and Management Visa (D9). 

The investment amounts are different for each visa type, with 300 million KRW required for the D9. Even under the D8, a restaurant business will require 300 million KRW as well, which is more than the usual 100 million KRW for a regular Foreign-Invested Company. The length of stay is also different, with investors getting 5 years on the D-8 Visa and IT startups up to 2 years. For more details on visa requirements, check out the List of South Korean Visas to Consider for Working in Korea

Step 2: Choosing Your Business Structure

Korean companies have similar business structures to those found in western countries. First, there is the sole proprietorship, which is great for small business owners. These are relatively easy to open and manage with many benefits, like accepting credit card payments, issuing cash receipts, and opening bank accounts. The downside is when it comes to obtaining loans and hiring employees due to low external credit.

Large foreign companies have the option of being a Limited Company (LTD). It requires a large amount of paperwork and establishment procedures and can take months to get started, although there is legal protection. It can have an unlimited number of shareholders and even go for an Initial Public Offering (IPO). 

For small companies with up to 50 shareholders, the best option is the Limited Liability Company (LLC). It is less complex to maintain and cannot issue an IPO, although it has much of the same paperwork as an LTD. Both LTDs and LLCs are obligated to be externally audited. 

Step 3: Registering Your Business

After you decide on the business structure, it is time to register it and obtain a business license. If you’re a small business owner, there are a few simple things you need to get registered. This can be done by visiting your local tax office. Get an appointment with a government official for a business registration service. It is best to fill out the business registration form and prepare the required documents prior to meeting with the official. 

You will need the Alien Registration Card (ARC), issued to foreign nationals, the Office Lease Agreement, and a valid passport, along with any business-specific licenses you need to obtain. If you’re registering a restaurant business, for example, you will need a hygiene certificate. Once all the required documents are submitted, you will be given an application submission receipt. 

If everything is in order, you will be notified by text message that you can visit the tax office to collect your business registration certificate (business license) document. For a Limited Liability Company or Limited Company, there are additional documents like Articles of Incorporation, board resolutions, and additional forms for directors to sign. It is highly recommended that you obtain the services of a legal professional to navigate these complexities. 

Step 4: Opening Your Bank Account

Once you have obtained your business license, you can submit it along with other required documents to open a bank account. You will also need the company stamp, company ownership details, ARC, the CEO’s ID, and signature to open a business transaction account. You can visit a branch of a local bank such as Shinhan, Hana Bank, or Kookmin Bank, which provide services in English if you don’t have a Korean-speaking colleague with you to help. 

Keep in mind that if you’re opening a liaison office, you will need to report to a foreign exchange bank. 

Step 5: Basic Tax Obligations

Once you’ve established your business, there are some basic tax obligations you need to be mindful of. Foreign businesses are required to submit their tax returns on time, and due to the complex nature of these processes, it is recommended that you hire a trusted tax accountant to handle this. VAT filing has to be done every quarter for a foreign corporation and every six months for a sole proprietorship. 

Yearly income tax returns for these companies are due on March 31st and May 31st, respectively. Withholding tax returns are due on the 10th of every month. Every company is required to offer national social insurance like health, pension, and unemployment, as well as industry disaster insurance. 

Tips For Starting a Business in South Korea

Tips For Starting a Business in South Korea | Joon K Lee

While the Korean government is very welcoming to FDIs, there are some legal aspects and plenty of paperwork that can be challenging if you’re new to the country. Whether you’re planning a new business, relocating to South Korea, or expanding your operations into the country, here are some tips and advice that might prove helpful to you. 

Find a Local Partner

A South Korean company working in the relevant field will know the situation on the ground better than someone new to the country. There are plenty of opportunities to work with one of these local companies to act as your distributor in South Korea. They will understand the local market better and help you develop your marketing strategy to reach the target audience. 

A local partner could also play a vital role as a human resources specialist, helping you in the hiring process to attract the right talent for your business. You’ll need Koreans that are fluent in English and capable of adapting to the business practices of your head office. 

Choosing the Right Location

You’ll need to choose where to establish your offices, and there are many options available. Areas like Gangnam are expensive, but many foreign companies have office premises located in the district due to the brand recognition of the word ‘Gangnam’. It is a hub for the financial and banking sectors, with many international companies like Google and IBM present there. 

Pangyo Techno Valley is favored by tech startups, with over 1,300 companies located in what is referred to as Korea’s Silicon Valley. Be mindful of industrial zones set up by the South Korean government that might be more appropriate for your chosen business. These zones come with many benefits in terms of logistics and infrastructure. 

Hire a Trusted Tax Accountant and a Legal Professional

As mentioned before, there are many complexities associated with establishing a Limited Company or Limited Liability Company. A legal professional is key to ensuring that you navigate this process quickly without any issues. An experienced accountant is also recommended to ensure you comply with all the relevant tax laws and audits. 

Learn the Work Culture in South Korea

The work culture in South Korea is fast-paced. You’re expected to respond to messages, make payments, and submit reports in a timely manner. Impressing your Korean clients and competing in this environment will be heavily dependent on your ability to deliver on time.

There are also important holidays and cultural practices that you need to be respectful of. Many young Koreans, especially those educated overseas, are more used to western work culture, so it might not be much of an issue depending on who you hire. You do need to familiarize yourself with business etiquette and how people interact.

If you don’t speak fluent Korean, it is recommended that you work with a business interpreter to avoid any confusion during important negotiations and meetings with partners. It might be fruitful to learn the language if you’re planning to stay in the country for a long time. 

Time to Start a Business in South Korea

Starting a business in South Korea can be a complicated process depending on what type of foreign corporation you’re planning to establish. There are visa eligibility checks, a business structure to decide on, and tax obligations to be mindful of. Hiring professional consultants can reduce the hassle of these procedures, and the government has provided many incentives for foreign companies to enter the country. With an educated workforce, modern infrastructure, and a thriving economy, there is no better time to start a business in South Korea. 

Can foreigners open a business in South Korea?

Yes. Korea has continued to open up to foreign investment and foreign business. Foreigners can open a business in South Korea but there are a lot of rules and regulations that must be understood. Read on to find out more.

Is South Korea a good place to start a business?

Yes. The Korean market provides ample opportunities and can be an exceptionally profitable market to enter. Korea is the country with the fastest internet in the world and an internet penetration rate of over 90%,

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