Trademark and Copyright Registration
Limited Company Formation in Bangladesh, South Korea & Malaysia
Appeal Against Visa Refusals of UK & Schengen Visa

Legal entities for foreign investor

At a Glance :

Foreign investors can establish their business operations in Korea by registering or formation of companies; or to establish branch offices or liaison offices in South Korea.

  1. Incorporation of a local subsidiary

Foreigners can incorporate a company in order to conduct business activities in South Korea. A Limited Company or Yuhan Hoesa (in Korean) The most common forms of companies for foreign investors. There is no minimum share capital required to form of such companies pursuant to the Commercial Act in Korea but the minimum par value of shares is 100 Korean Won under the law. In case of foreigners investment is at least KRW 100 million in a company with at least 10% of total shares with voting rights (or paid-in capital), such a company is eligible to registration of a foreign-invested company under the Foreign Investment Promotion Act (FIPA).

As a local subsidiary is regarded as a domestic company, it is a Korean resident company for tax purposes. Therefore, a local subsidiary is required to file corporate income tax returns and pay income taxes on both Korean sourced income and foreign sourced income. Likewise, a local subsidiary is obliged to submit quarterly VAT returns to the relevant tax authority and pay the VAT payable. Otherwise, in case of a foreign-invested company under the FIPA, applicable tax concessions may apply, subject to meeting the prescribed requirements under the relevant tax laws.

A local subsidiary can pay dividend out of post-tax profits to foreign shareholders. Such a dividend attracts withholding taxes at 22% including local income tax. However, if there is a tax treaty between the residency country of the foreign shareholder and Korea, the relevant reduced tax rate or tax-exemption under the tax treaty applies.

  1. Establishment of a branch office of a foreign company

Foreigners (foreign investors) can establish a branch office of one of their companies abroad in order to conduct income producing activities, and a branch office is part of the investor company abroad in a legal sense and it is not a separate legal entity. As a result, there is no need for equity investment, and liabilities of a branch office extend to its head office too.

On the whole, branch offices have the same tax compliance obligations as companies do, which are submission of corporate income tax returns and quarterly VAT returns and paying income taxes and VAT payable. More, in case that the head office of a branch office is located in France, Canada and Australia etc., such a branch office is required to pay a branch tax under the relevant tax treaties. A branch office can remit its post-tax profit to its head office, and such profit remission does not attract any tax, unless the branch tax regime applies to the branch office.

  1. Establishment of a liaison office of a foreign company

A liaison office is not allowed to conduct income producing activities in contrast to a branch office in any place of South Korea. The business activities of a liaison office are limited to non-income producing activities such as market research and liaising with the head office. all the same, a liaison office can not to submit application for business registration to conduct business activities but is provided a unique identification number instead.

Since a liaison office cannot conduct income producing activities, there is no tax compliance requirements such as submission of corporate income tax returns and VAT returns. However, a liaison office is required to file monthly withholding tax returns in relation to income taxes withheld from salaries paid to its employees and submit certificates for income tax withholding to the relevant tax authority.

Coming More……