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Establishing a business in Korea

Lenuel Morales
03-03

Foreigners can start a business in Korea by acquiring new or existing stocks as prescribed by the Foreign Investment Promotion Act, or by establishing a domestic branch or liaison office in Korea as prescribed by the Foreign Exchange Transaction Act.

A foreign-invested company is a domestic corporation established under the Commercial Act. It is classified as either an unlimited partnership company, a limited partnership company, a limited liability company, a limited company, or a stock company. The most common types of corporations established by foreign investors are limited companies and stock companies.

HOW FOREIGNERS CAN START A BUSINESS IN KOREA

Foreign-Invested Companies (Domestic Corporation)

A local corporation, in which a foreigner has invested not less than KRW 100 million for managerial participation and acquired not less than 10 percent of the company’s newly issued or existing stocks with voting rights, is recognized as a foreign-invested company under the Foreign Investment Promotion Act and thereby constitutes a domestic corporation established under the Korean Commercial Code.

• Stock Companies

• Limited Companies

• Limited Liability Companies

• Limited Partnership Companies

• Unlimited Partnership Companies

Domestic Branches of Foreign Companies (Foreign Corporation)

A branch office or a liaison office of a foreign corporation shall be divided depending on whether the office conducts business activities or not, and shall be governed by the Foreign Exchange Transactions Act. A branch office is a foreign corporation that carries out business activities of the head office. On the other hand, a liaison office is a foreign corporation that cannot carry out business activities but instead conduct market surveys, marketing activities, etc.

• Branches (Sales Office)

• Liaison Office

INCORPORATION PROCEDURES

The incorporation procedure of foreign-invested companies pursuant to the Foreign Investment Promotion Act consists of the following: foreign direct investment notification, remittance of investment funds, registration of incorporation, acquisition of authorization and permission, notification of incorporation, business registration, and registration of a foreign-invested company. The procedures applied to foreigners are basically the same as those applied to Koreans with the exception of two additional steps of foreign direct investment notification and registration of the foreign-invested company. It takes about two weeks for all those procedures and a residence visa is issued after the registration of the company.

1.) Foreign Direct Investment (FDI) Notification (Immidiately)

A foreign investor is required to pre-notify the FDI to KOTRA (Foreign Investor Support Center in KOTRA headquarters or at overseas investment hub offices) or a foreign exchange bank.

Requirements:

2 copies of notification form - Enforcement Rules of the Foreign Investment Promotion Act, Attached Form 1: notification of foreign investment by acquisition of stocks or contribution and application for its permission.

• Foreign investor’s certificate of nationality - foreigners: passport; foreign corporation or organization: business license, certificate of incorporation, or proof that the said corporation or organization is based in the said country.

*In case of non-cash investment

• Documents certifying object of investment - documents certifying the monetary value of industrial property rights, etc. where an agent files an application: Power of Attorney and the agent's identification. (ID card)

2.) Remittance of Invested Funds (within 2 or 3 days)

The foreign investor may wire-transfer the invested funds to a temporary account of a local foreign exchange bank in Korea or hand-carry foreign currency. In the latter case, the foreign currency should be declared to the customs to obtain a foreign exchange declaration certificate.

As a rule, the invested funds should be paid to acquire equity shares, etc. based on the given procedure, and the certificate of payment of stock subscription money should be submitted to the court. In case of a company with paid-in capital of less than KRW 1 billion, however, a bank account balance certificate may be submitted to the court after opening a passbook account at a local bank. The funds may be withdrawn from such bank accounts freely for business purposes.

3.) Authorization and Permission (within 2 or 3 days)

Where deemed necessary for business, a foreign investor must acquire the authorization and permission from the competent authorities: District Office, Health Center, Ministry of Food and Drug Safety, etc. The processing period may vary depending on the sort of authorization and permission for the type of business.

4.) Notification of Incorporation and Business Registration (within 4 or 5 days)

Every tax office accepts notification of incorporation and business registration regardless of the jurisdiction. It takes three days for the registration.

Requirements:

• Application Form - Enforcement Rules of the Corporate Tax Act Form 73: Notification of incorporation and application of business registration

• Articles of incorporation

Lease contract

• Incorporation registration certificate

• Shareholder’s list

Foreign currency purchase certificate

Representative’s passport

Foreign investment notification form

Certificate of authorization and permission (where necessary) etc.

* Contact: Department handling value-added tax at the National Tax Service (1544-0773-2-3)

5.) Opening a Corporate Bank Account (Immidiately)

A foreign investor may open a corporate bank account at a foreign exchange bank immediately. However, the choice of bank requires careful consideration since opening additional accounts at another bank is restricted for 20 business days.

Requirements:

• Incorporation registration certificate

• Copy of business license

• Certificate of corporate seal impression

• Corporate seal

• Copy of the representative’s passport

• Shareholders’ list of headquarters

• Shareholder's list

6.) Registration of Foreign-invested Company (Immidiately)

After the registration of incorporation , foreign-invested company registration shall be undertaken at KOTRA or at a foreign exchange bank where the notification was first made as the last step of FDI incorporation. The registration should be completed within 60 days following the payment of the object of investment.

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Ibrahim yahaya
05-07
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