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Investment

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There are four common ways for foreign investors
to enter the Korean market

The procedures for establishing a local corporation by foreign investors are quite similar to those for establishing a domestic corporation.

The difference between a local corporation and a domestic corporation is that foreign investment injection needs to be notified in advance and its incorporation registered.

Guide for Foreign Companies in Korea

Osung assists foreign companies to set up branches in Korea.

■ Local Corporation vs. Branch vs. Liaison Office

Type of Entity Governing Law Classification

Local Corporation Foreign Investment Promotion Act Recognized as a foreign-invested company

Branch Foreign Exchange Transactions Act Categorized as a domestic branch of a foreign company

Liaison Office Foreign Exchange Transactions Act Categorized as a domestic branch of a foreign company

■ Local Corporation under Foreign Investment Promotion Act

Establishing a local corporation by a foreign company in Korea is regulated by Foreign Investment Promotion Act (FIPA) and the Commercial Act. The FIPA stipulates that capital injection of KRW 100 million or more is required for an entity to be recognized as a local corporation.

Foreigners who establish private businesses with capital investment of KRW 100 million or more are also recognized as foreign investment under FIPA. However, D-8 (business investment) Visa is issued only to local corporations and not to private companies. Meanwhile, private companies that inject capital of KRW 300 million or more can apply for D-9 (trade) Visa.

■ Domestic Branch of a Foreign Company under Foreign Exchange Transactions Act

While a ‘branch’ operates business and generates profit in Korea, it is not recognized as foreign direct investment.

A ‘liaison office’ does not engage in business and undertakes only non-sales fuctions such as market research and R&D. The difference between ‘branch’ and ‘liaison office’ is that while a branch is issued a business registration number, a liaison office is issued an indentification number from the tax office.

■ Foreign-Invested Company vs. Domestic Branch of a Foreign Company

Category Foreign-invested company Domestic branch of a foreign company

Form of entry Local corporation Branch and liaison office

Governing law Foreign Investment Promotion Act Foreign Exchange Transaction Act

Type of corporation Domestic corporation Foreign corporation

Indentity The foreign investor and foreign-invested company are separate entities (independent accounting & settlement) The headquarter and branch are a single entity (consolidated accounting & settlement)

Delegated agency to process notification and grant permission Designated foreign exchange bank Designated foreign exchange bank Ministry of Strategy and Finance (securities, insurance, etc)

Minimum (maximum) investment amount KRW 100 million or more per case no upper limit No limit on the investment amount

Scope of tax obligation Tax obligations for all domestic and overseas income Tax obligations for income from domestic sources only

Establishment of a Local Corporation

The Procedure for Establishing a Local Corporation

Osung provides expert consulting service
even at the early stage when foreign investors are considering entering the Korean market.

The procedure for the establishment of a local corporation by a foreign investor is almost identical to that pertaining of the establishment of a domestic corporation but requires the additional steps of pre-notification of foreign investment and foreign-invested company registration.

■ The Procedure for Establishing a Local Corporation

The procedure for establishing a local corporation consists of foreign investment notification, registration of incorporation, registration of business and foreign-invested company registration. The following provides the details of the important steps of the incorporation registration procedure and business registration procedure.

Foregin investment notification (KOTRA or a foreign exchange bank)
Remittance of investment funds (foreign exchange bank, carried through customs
Registration of incorporation (court registry office)
Notification of incorporation and business registration (tax office or KOTRA)
Transfer of paid-in capital to corporate account (foreign exchange bank)
Foregin-invested company registration (delegated agency where foreign investment notification was filed)

■ The Procedure for Establishing a Stock Company

The Commercial Act recognizes five forms of companies - partnership company, limited partnership company, limited liability company, limited company, and stock company. Most companies fall into the category of “stock company”.

Ways of establishing a stock company Registration of incorporation of a stock company Cost of establishing a stock company Business registration

Promotion of incorporation Within two weeks from the date on which the investigation of the process of establishment is completed - Registration tax (0.4% of the capital, three times when a stock company is established in an overconcentration control area)
- Local education tax(20% of the registration tax)
- Revenue stamp of the supreme court (Fee for registration application)
- Notarization fee (articles of association,etc.,partially exempted in case of incorporation by promotion with capital of 1 billion won or less) Filed at a tax office (Registration should be completed within 20 days from the date of business commencement)

Subscriptive incorporation Within twp weeks from the date on which the inaugural general meeting is closed - Registration tax (0.4% of the capital, three times when a stock company is established in an overconcentration control area)
- Local education tax (20% of the registration tax)
- Revenue stamp of the supreme court (Fee for registration application)
- Notarization fee (articles of association,etc.,partially exempted in case of incorporation by promotion with capital of 1 billion won or less) Filed at a tax office (Registration should be completed within 20 days from the date of business commencement)

Establishment of Domestic Branch

Branch Types and Establishment Procedures

Osung provides expert service
for a successful foreign-invested business.

The establishment and private registration of a local corporation are
recognized as foreign investment under the Foreign Investment Promotion Act.
However, the establishment of a domestic branch is not recognized as foreign investment,
and is regulated by the Foreign Exchange Transactions Act.

■ Types of Domestic Branches for Foreign Companies

There are two types of domestic branches: a branch and a liaison office.
A branch undertakes sales activities in Korea to generate profit, whereas a liaison office does not conduct sales activities to create profit but instead carries out non-sales functions such as business contacts, market research ,and R&D.
Liaison offices can carry out quality control, market surveys, advertising, and other incidental and supportive roles.
However, they are limited in the scope of their activities since they are not permitted to sell products directly or to stock inventory for sale on behalf of the headquarters.

■ Procedure for Establishing a Foreign Company’s Domestic Branch

Foregin investment notification
(KOTRA or a foreign exchange bank)
Remittance of investment funds
(foreign exchange bank, carried through customs
Registration of incorporation
(court registry office)