Set-up of an entity in Korea

There are three types foreigner’s investment into Korea.

  • Foreign Invested Corporation (100% wholly-owned subsidiary or joint venture)
  • Branch office
  • Liaison office (or Rep office or Buying office)

Please click here  for detailed information.

Set-up (FIC)

OUTLINE OF PROCEDURES TO BE ACCOMPLISHED

  • Notifying the investment to KOTRA or foreign exchange bank in Korea

(We usually visit KOTRA when the amount of subscribed capital is 100 million KRW or more.  Otherwise, we have to use Foreign Exchange Bank in Korea)

  • Registration with the court
  • Registration with the tax office
  • Registration with KOTRA or foreign exchange bank in Korea

Approximately two(2) to three(3) weeks will be taken for the complete establishment including above four steps after we receive full document package from foreign investor.

Set-up (FIC)

OUTLINE OF PROCEDURES TO BE ACCOMPLISHED

  • Notifying the investment to KOTRA or foreign exchange bank in Korea

(We usually visit KOTRA when the amount of subscribed capital is 100 million KRW or more.  Otherwise, we have to use Foreign Exchange Bank in Korea)

  • Registration with the court
  • Registration with the tax office
  • Registration with KOTRA or foreign exchange bank in Korea

Approximately two(2) to three(3) weeks will be taken for the complete establishment including above four steps after we receive full document package from foreign investor.

Set-up (Branch)

OUTLINE OF PROCEDURES TO BE ACCOMPLISHED

  • Notifying the investment to foreign exchange bank in Korea
  • Registration with the court
  • Registration with the tax office

Approximately two(2) to three(3) weeks will be taken for the complete establishment including above three steps after we receive full document package from foreign investor.

Comparison between FIC and branch

Description FIC (Foreign Invested Corporation)

 

 Branch office
Relevant law ① FIPA (Foreign Investment Promotion Act) : in the case where the capital subscription is 100 million KRW or more

② FETA (Foreign Exchange Transaction Act) : in the case where the capital subscription is less than 100 million KRW

 FETA (Foreign Exchange Transaction Act)
Nature of Entity Domestic corporation whose shareholder is foreigner or foreign company Foreign corporation whose head office locates overseas
Accounting The accounting of FIC is independent from that of its shareholder.  Independent entity in Korea The accounting of a branch is a part of its head office.  Dependent entity in Korea
Declare the establishment to ① KOTRA or Foreign Exchange Bank in Korea (local bank or branch office of foreign bank in Korea) : in the case where the capital subscription is 100 million KRW or more

②: in the case where the capital subscription is less than 100 million KRW

 Foreign Exchange Bank in Korea (local bank or branch office of foreign bank in Korea)
Capital subscription Actually no limitation (theoretically a corporation with only 100 KRW is possible). There will be no capital subscription because this is not an independent entity.
Usage of capital subscription The capital subscription can be utilized in every kinds of business-related expenditure including renting an office space, purchasing office furniture and fixture, paying employee salary and all kinds of G&A expenses like travel, office supplies, IT, communication, entertainment expenses. No capital subscription.  So, the head office should supply the necessary funds to its branch office until it can be self-reliant.
Dividend FIC can remit dividend to its shareholders.  In this case, a certain rate (restricted tax rate based on tax treaty between Korea and shareholder country) will be withheld when remit the dividend. ① No dividend because no shareholder.

Branch can remit profit after tax to its head office. In this case, there is no need to withhold any tax but a certain rate of branch tax can be withheld when remit the profit.

② A branch tax will depend on the tax treaty between Korea and the head office country.

In the case of Australia, 15% of the remittance will be withheld as a branch tax
Business scope Basically no limitation.  So FIC can apply any business scope which require any amount of standard capital subscription (e.g. in the case of construction, 500 million or more of capital subscription is required) Basically the business scope is limitary.  Usually branch office will be applied to commission-based service industry or small-sized wholesale or retail sector.
Bidding Generally, when bid to a certain governmental or public project, only a corporation setup under Korea commercial code can be qualified. Branch office is usually excluded from any bid to a certain governmental or public project.
Recognition FIC with substantial amount of capital subscription is usually deemed as a decent business partner in Korea. Compared to FIC, branch office is considered as some kind of tentative entity.