Korea
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Country starter pack<br />
Getting started in <strong>Korea</strong><br />
35<br />
2.3 POSSIBLE BUSINESS STRUCTURES<br />
Now that you have decided to set up a business in <strong>Korea</strong>,<br />
there are many elements you need to consider. What<br />
type of business structure will you use? Will you appoint<br />
a local agency, open a branch office, or set up a <strong>Korea</strong>n<br />
subsidiary? And what legal and administrative processes<br />
must you go through to get established? There is no<br />
single business structure that holds the key to unlocking<br />
the <strong>Korea</strong>n market. Cultivating a wide network of local<br />
contacts in Government, while gaining an understanding<br />
of local practices, will help lower your compliance risks<br />
and assist you in choosing the most appropriate business<br />
structure.<br />
There are multiple channels of entry open to foreign<br />
investors; the one you choose must fundamentally<br />
be supported by your company’s business objectives.<br />
Knowing what you’d like to achieve in <strong>Korea</strong> will help<br />
determine the entry vehicles that can help take you<br />
there. There are three primary ways to set up a business<br />
in <strong>Korea</strong>: set up an entity in the form of a subsidiary, as a<br />
joint stock company, or a limited liability company. If you<br />
are not wanting to set up an entity then you can always<br />
engage in other forms of selling your product in <strong>Korea</strong>.<br />
See Chapter 3 for further information on this.<br />
Business structures overview<br />
Subsidiary (JV) Branch Liaison Office<br />
Major governing law Foreign Investment Promotion<br />
Law Commercial Code<br />
Foreign Exchange<br />
Transaction Law<br />
Foreign Exchange<br />
Transaction Law<br />
Minimum capital KRW100 million<br />
• No requirement<br />
• No requirement<br />
requirements at<br />
• May induce operating • May induce operating<br />
establishment<br />
fund from head office<br />
fund from head office<br />
Sales activities Possible Possible Not possible<br />
Loan from overseas<br />
parent/head office<br />
Possible<br />
Not possible<br />
(except <strong>Korea</strong>n branch of<br />
foreign financial institutions)<br />
Not possible<br />
Repatriation of profits<br />
Dividends distributed to<br />
shareholders are subject to<br />
tax withholding in <strong>Korea</strong><br />
No tax withholding on profit<br />
repatriation; however, branch<br />
profits tax may apply)<br />
Taxable income Worldwide income Income attributable to the<br />
branch operation<br />
Head office common<br />
expenses<br />
Tax exemption or<br />
credit<br />
Not included in a subsidiary’s<br />
expenses<br />
Applicable depending on the<br />
type of business and type of<br />
investments<br />
May include in the branch’s<br />
expenses in a certain<br />
guidelines<br />
Not applicable<br />
Not applicable<br />
Not applicable<br />
Not applicable<br />
Not applicable<br />
<strong>Korea</strong>n Joint Stock Company (Chusik Hoesa) or<br />
Limited Liability Company (Yuhan Joesa)<br />
Setting up a subsidiary is a popular choice for foreigners<br />
who want to invest or conduct business in <strong>Korea</strong>. A<br />
subsidiary may be set up as either a joint stock company<br />
(Chusik Hoesa) or a limited liability company (Yuhan<br />
Hoesa). For the purposes of business operation and<br />
<strong>Korea</strong>n tax obligations, there is no material difference<br />
between them, except that limited liability companies<br />
cannot issue bonds. Joint stock and limited liability<br />
companies are covered by the Foreign Investment<br />
Promotion Act (FIPA) and are the common structures<br />
for establishing a joint venture (JV) between a foreign<br />
investor and a South <strong>Korea</strong>n individual or entity. The<br />
minimum investment required to set up a <strong>Korea</strong>n<br />
subsidiary is KRW 100 million (about $115,000).<br />
• A joint stock company is incorporated by one or<br />
more promoters, with each shareholder’s liability<br />
limited to the amount of contributed capital. This is<br />
the most common type of company in <strong>Korea</strong>.<br />
• A limited liability company is incorporated by one or<br />
more members, with each member’s liability limited<br />
to the amount of that member’s contribution to the<br />
corporation.