Forms of Incorporated Legal Entities

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Forms of Incorporated Legal Entities

Foreigners can start business in Korea (including the establishment of corporations) 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

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.

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.

Comparison of Foreign-Invested Companies, Domestic Branches of Foreign Companies, and Liaison Offices

Comparison of Foreign-Invested Companies, Domestic Branches of Foreign Companies, and Liaison Offices : Category,Foreign-Invested Company,Domestic Branch,Liaison Office
Category	Foreign-Invested Company	Domestic Branch	Liaison Office
Governing Law	Foreign Investment Promotion Act	Foreign Exchange Transaction Act	Foreign Exchange Transaction Act
Type of Corporation	Domestic	Foreign	Foreign
Recognized as FDI	Yes	No	No
Company Name	No restrictions	Identical to that of headquarters	Identical to that of headquarters
Scope of Business Activities	No restrictions, within the permitted scope	Same activities as headquarters; within the permitted scope	Profit-making activities not permitted; purpose of establishing business contacts only
Minimum Investment Amount	KRW 100 million¹⁾	N/A	N/A
Legal Liability	Limited to domestic corporations	Extend to headquarters	Extend to headquarters
Independence	Legally independent	Subordinated to headquarters	Subordinated to headquarters
Domestic Loans	Possible depending on credit rating of the domestic corporation	Almost impossible	Impossible
Establishment Procedures	1. Notify FDI 2. Remit investment funds 3. Register corporation 4. Register business license 5. Register foreign-invested company	1. Notify domestic branch establishment 2. Register corporation 3. Register business license	1. Notify domestic branch establishment 2. Register identification number
Accounting and Taxation	Must record and maintain bookkeeping according to Korean Accepted Accounting Principles; obligated to receive external audits on certain conditions	Must record and maintain bookkeeping according to Korean Accepted Accounting Principles; not obligated to receive external audits	Not obligated to record bookkeeping
Corporate Tax Rate	Liable to taxation	Liable to taxation	N/A
Taxable Income	All profit made by a domestic corporation	All profit including domestic source income made by a domestic corporation; branch tax applicable to some countries	N/A
Tax Benefits	Tax benefits for foreign-invested companies and SMEs according to the Restriction of Special Taxation Act	N/A	N/A

※ 1) A foreigner may establish a corporation by investing less than KRW 100 million. This case is not recognized as FDI and is subject to the notification of stock acquisition as prescribed by the Foreign Exchange Transaction Act (Attached Form No. 7-6 of the Regulation on the Foreign Exchange Transaction).