Methods of Entry into Korea for Foreign Investors and Comparison of Types
Methods of Entry into Korean Business for Foreign Investors
The ways foreigners may enter Korea for business purposes may be classified into four types:
Entering via a local corporation founded by a foreign corporation or individual (including acquisition of a domestic corporation's existing shares) or as an individual proprietor (to which the Foreign Investment Promotion Act is applied); or
Entering via a local branch or liaison office founded by a foreign corporation (to which the Foreign Investment Promotion Act is applied).
Comparison of Entry Types
Foreign-invested Firms under Foreign Investment Promotion Statutes
Local Corporation
The foreign corporation or individual investor organizes a local corporation in Korea pursuant to the Foreign Investment Promotion Act and the Korean commercial code. To enjoy the benefits under the Foreign Investment Promotion Act, the foreign investor should invest 50 million won or more in the local corporation.
Individual investor
When a foreign individual invests 50 million won or more as an individual proprietor, it is recognized to be a foreign investment provided under the Foreign Investment Promotion Act.
Local Branch of Non-Residents (Foreign firms) under Foreign Exchange Transaction Statutes
"Branch" that operates revenue-generating business activities in Korea
"Office" that does not operate any revenue-generating business (sales) activities in Korea but performs only non-business (non-sales related) functions such as business liaison, market survey, or research and development.
Differences between Foreign-invested Firms and Local Branches
Classification
Foreigner Invested Firms
Local Branches of Foreign Firms
Ground statute
Foreign Investment Promotion Act
Foreign Exchange Transaction Act
Corporate Nature
Domestic corporation
Foreign corporation
Relationship between investor and local entity
Foreigner invested firm is an entity separate from the foreign investor
(Accounting and closing are independent)
Head office and branch belong to one identical entity
(Accounting and closing are handled by one entity)
Agency Responsible for Receiving/Approving Declarations
KOTRA (Invest KOREA)
Home/branch offices of foreign exchange bank
Branch offices of foreign exchange bank (declaration)
Ministry of Finance and Economy (Permits for financial services, etc.)
Minimum (Maximum)
Invested Amount
Minimum: 50 million won per case
Maximum: No limit
No limits on invested amount
Scope of Tax Responsibility
- Taxes are levied on all income domestic and overseas: 13%, 25% (when income exceeds 100 million won)
- Taxes are levied only on income from domestic sources: 13%, 25% (when taxable income exceeds 100 million won)
- Branch tax paid
Organization and Registration Procedures for a Foreign-invested Firm by Establishing a Local Corporation
The procedure for establishing a foreign-invested corporation consists of four key stages- declaration of foreigner investment, remittance of investment funds, incorporation and tax payer registration, and registration of foreign-invested corporation.
Declaration of Foreign Investment
(Invest KOREA or foreign exchange bank)
>
Investment funds remitted to local entity
(Via foreign exchange bank or brought directly and declared at customs)
>
Incorporation registered to
(court corporate registrar)
Registration of Foreign-invested Corporation
(Invest KOREA/foreign exchange bank)
<
Transfer of paid-in capital into a corporate bank account
(Foreign exchange bank)
<
Incorporation and tax payer registered
(Municipal tax office where the home office is located)
Establishment procedures for a foreign-invested company are identical to those for a domestic company except for two additional stages: Advance declaration of the foreign investment and foreign-invested corporation registration.
When a foreign investment is made for a sole proprietorship, the procedure for registering its incorporation is not required.
Declaration of Foreign Direct Investment and Registration of Foreign-invested Firm
Classification of Foreigner's Direct Investment Declarations
Advance Declaration: Investment declared prior to acquiring shares etc.
Declaration of Foreign Investment through the Acquisition of Newly-issued Shares or Changes to the Foreign Investments
Declaration of Foreign Investment through the Acquisition of Existing Shares or Changes to the Foreign Investment
Declaration of Foreign Investment through a Long-term Loan or Changes to Foreign Investment
Subsequent declaration: Investment is declared after acquiring shares or concluding a contract
Declaration of Shares Acquired by Merger : This should be declared within 30 days of the acquisition
Acquisition through capital increase without consideration of using reserves or re-evaluation of reserves of the foreign-invested firm
Acquisition through merger, business division, inclusive stock swap or transfer
Reinvestment of gains (dividends) from already acquired shares
Acquisition through purchase, inheritance, testation, or donation
Acquisition through conversion, exchange or acceptance of CBs, EBs, or DRs.
Declaration of transfer of shares etc.
This should be declared within 30 days from the date when the contract is concluded.
Declaration of reduction of shares etc.
This should be declared within 30 days from the expiration of the final notice to the creditors under the Commercial Act, Article 439.
Application for registration of foreigner invested firm, changes or deletion
Agencies Receiving Declaration of Foreign Direct Investment and Required Documents
Declaration by: Foreign Investor (Proxy)
Declared to (entrusted agency)
Invest KOREA or KOTRA
local branch offices/overseas investment centers
Home or branch offices of domestic banks or local branches of designated foreign banks
Required Documents:
2 copies of Foreign Investment Declaration form by type (new or existing shares, or long-term loan)
Official documentation of foreigner's nationality
When the foreign investor is a corporation or organization: Corporate registration in duplicate issued by the government or other authorized agency of the relevant country or document that evidences that the corporation or organization exists in the country
When the foreigner is an individual: Documents that may evidence the nationality, including citizenship certificate or passport, issued by the government or other authorized agency of the relevant country.
When the foreign investor maintains his Korean nationality: A certificate of permanent residency issued by the government or other authorized agency of the relevant country where he/she resides or an overseas resident national certificate issued by the head of a Korean diplomatic mission overseas may be substituted for the aforementioned documents.
Additional Documents to be Submitted as Required:
Documents Certifying the Investment Object(s)
Documents Certifying the Acquisition of Shares
Power of attorney (When the foreigner investment is declared, or its permit is applied for by a proxy)
Remittance of Investment Funds
A bank will issue the share price payment receipt (required for incorporation registration) or foreign exchange purchase statement (required for registering foreigner invested firm or corporation) in the process of paying the share price.
The investment funds should be remitted in the name of the foreign investor. As a rule, any funds from a local source are not recognized as foreign investment.
Registration of Incorporation and Taxpayer Registration
The foreign-invested corporation should be registered with the court of law or tax office with all necessary documents.
Registration of Foreign-invested Firm
Declaration Period: Registration should be filed within 30 days from the date of of the completion of the paid-in capital contribution.
When the foreign investor completes payment of investment means (investment made to acquire new shares)
When the foreign investor completes acquisition of existing shares by full payment (investment made to acquire existing shares)
When the foreign investor acquires shares by merger (investment made to acquire new shares through CB conversion or business division)
Registration Applicant: Registration should be applied for by the foreign- invested corporation or the foreign investor (or a proxy)
In case of corporations, the foreign-invested firm's registration certificate is to be kept by the firm after applying for registration.
Agencies Responsible for Receiving/Approving Declarations
Invest KOREA or KOTRA trade offices in Korea
Home and branch offices of domestic banks or local branches of designated foreign banks
Required Documents:
1 copy of Foreign invested Firm's Registration form
1 copy of corporate register in duplicate (in case of a corporation) or taxpayer registration certificate (in case of individual proprietors) of the foreign-invested firm
1 copy of foreign currency purchase statement or foreign currency deposit certificate
1 copy of shareholder roster (certified with corporate seal, collated against original) or documents certifying transfer of share price payment
Additional Required Documents:
Documents certifying investment object(s)
1 copy of investment completion certificate (in case of investing in capital goods in Korea)
1 copy of inspection report or appraisal report under the Commercial Act
(in case of investing in existing shares or real properties located in Korea)
