< Domestic Branch & Liaison Office of Overseas Corporation >
1. Establishment of a domestic branch (sales office)
When a foreign corporation establishes a branch (sales office) in Korea, it follows the same procedure as when a domestic corporation establishes a branch, but it must also file a report on the establishment of a domestic branch (sales office) to the foreign exchange bank. However, unlike the establishment of a corporation, there is no need for capital to be invested.
<Note 1> Flowchart of establishing a domestic branch for a foreign corporation
2. Establishment of a liaison office
A liaison office is set up for the purpose of providing non-commercial support activities such as advertising, market research, information gathering, and quality management only for the foreign headquarters, and does not engage in any other business activities.
A liaison office does not require registration with a court as a branch (sales office), and of course, no capital is required. To transfer funds between the headquarters and the liaison office, a report on the establishment of the liaison office must be filed with the foreign exchange bank, and a unique identification number certificate equivalent to a business registration certificate must be obtained from the relevant tax office to perform its duties. (However, it cannot issue tax invoices.)
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(1) Declaration of establishment of domestic branch office of foreign company to Foreign Exchange Bank
① Declaration of establishment of domestic branch office (or liaison office) of foreign company (Bank -> Minister of Finance and Economy)
② Certificate of recognition of the existence of the head office (foreign corporation) (requires notarization, Notary Public)
- Certificate of registration of the head office corporation
③ Resolution of the board of directors of the head office (foreign corporation) (requires notarization, Notary Public)
- Stating the installation of a liaison office in Korea
- Address of the liaison office in Korea
- Name, address, and resident registration number (date of birth) of the representative of the liaison office in Korea
④ Power of attorney for the declaration of establishment of the branch office
⑤ Copy of the passport of the representative of the head office
⑥ Copy of the passport of the representative of the branch office (or liaison office)
(*) If there are any documents written in a foreign language, a translated document must be attached. A document proving the existence of the head office, a document proving the qualifications of the representative in South Korea, and a document identifying the nature of the company or its articles of incorporation must be certified by the competent authority of the foreign company's home jurisdiction or by the embassy or consulate of that foreign country in South Korea.
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(2) Registration of domestic branch (sales office)
(When opening a liaison office, registration is not required)
① Proof of the existence of the head office (foreign corporation) (Notarization required, Notary Public)
- Certificate of registration of the head office corporation
② Resolution of the board of directors of the head office (foreign corporation) (Notarization required, Notary Public)
- Stating the installation of a liaison office in Korea
- Address of the liaison office in Korea
- Name, address, and resident registration number (date of birth) of the representative of the liaison office in Korea
③ Letter of acceptance of appointment (representative), seal registration application (representative) (form)
④ Certificate of foreigner's address or proof of address (if the representative is a foreigner)
⑤ Copy of the declaration of installation of a domestic branch office (Foreign Exchange Bank)
⑥ Application for issuance of corporate seal card
⑦ Power of Attorney for registration
⑧ Corporate seal and stamp
(*) A resolution certificate of the head office from the home country can replace the registration of the branch office.
(Depending on the situation, it is possible to proceed without registration of the branch office.)
(*) If there are documents in a foreign language, a translated version must be attached. Documents proving the existence of the head office, the qualifications of the representative in Korea, and the nature of the company that can identify the company's characteristics must be certified by the foreign company's jurisdictional authority or the embassy of that foreign country in Korea.
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(3) Application for business registration to the tax office
① Business registration application form
② Copy of domestic branch installation report (from a bank)
③ Copy of the head office's registration certificate (or a document equivalent to the registration certificate)
④ Copy of the branch registration certificate
If there is no registration certificate, documents such as a resolution of the board of directors proving the establishment of the branch may be necessary.
It is recommended to register the branch.
⑤ Copy of the articles of incorporation
⑥ License or permit application if required by domestic law for certain business types
⑦ Copy of the lease agreement for domestic office or liaison office
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(4) Opening of a bank account for foreign exchange transactions
① A copy of the ID card of the domestic representative
② A copy of the business registration
③ The corporate seal
④ A copy of the corporate (or branch) registration certificate
3. Obligations for Corporate Income Tax and Value-Added Tax Reporting
Domestic branches are subject to the same taxation laws as domestic corporations, and must report and pay value-added taxes and calculate and pay corporate income taxes for each fiscal year. If the branch is subject to branch office taxes, additional branch office taxes must also be paid.
On the other hand, liaison offices do not engage in profit-generating business operations, and therefore, are not subject to reporting obligations for corporate income tax and value-added tax. However, they are required to submit data on value-added tax.
(1) Domestic branches (sales office)
In the case of domestic branches (sales offices), they have the same obligation to report and pay corporate income tax as domestic corporations for the income generated from their domestic business operations. However, in consideration of fairness and equity in foreign investment, when a foreign company establishes a branch (sales office) in Korea and remits profits to its overseas headquarters, branch taxes on the portion that is remitted to the overseas headquarters are imposed
Foreign investment corporations are required to bear the tax burden on dividends when they are remitted to their overseas parent company. In contrast, as transactions between a domestic branch and its parent company are considered internal transactions, foreign corporations are able to remit profits to their overseas headquarters without any tax burden.
Therefore, branch taxes have been introduced as a taxation system to ensure equity in terms of tax between cases where foreign corporations establish a local corporation (subsidiary) in Korea and where they establish a branch, by first imposing corporate income tax on the domestic business operation of foreign corporations and then additionally applying the branch tax rate to the post-tax income.
[Countries subject to Branch Taxation and Branch Tax Rates]
The branch tax rate is 20% according to Article 96(3) of the Corporate
Tax Act, but if there is a separate tax rate set by a tax treaty with
a contracting country, it will be determined according to the treaty.
| Country |
Limited Tax Rates |
Subject |
Applicable Provisions |
|
Morocco
|
5%
|
income subject to taxation
|
Article 10, Paragraph 6
|
|
Brazil
|
15%
|
income subject to taxation
|
Article 10, Paragraph 6
|
|
Indonesia
|
10%
|
income subject to taxation
|
Article 10, Paragraph 6
|
|
Kazakhstan
|
5%
|
income subject to taxation
|
Article 10, Paragraph 6
|
|
Canada
|
5%
|
income subject to taxation
|
Article 10, Paragraph 6
|
|
Philippines
|
10%
|
profit that is acutually tranferred
|
Article 5, Protocol
|
|
France
|
5%
|
income subject to taxation
|
Article 10, Paragraph 7
|
|
Australia
|
15%
|
income subject to taxation
|
Article 10, Paragraph 6
|
|
Thailand
|
10%
|
income subject to taxation (after 01 January 2008)
|
Article 10, Paragraph 6
|
(2) Liaison Office
A liaison office performs preparatory and auxiliary activities only for the headquarters of foreign corporations located overseas, and therefore, it cannot be regarded as a domestic business place, and is not required to report corporate tax or value-added tax. It only needs to submit a withholding tax report and a value-added tax summary statement along with the issuance of a unique identification number card from the tax office. Additionally, since it is not a place of business, it cannot issue tax invoices. If it engages in business activities, it must return the unique identification number card and reapply for business registration as a domestic branch.
4. Remittance of Business Profits (Net Income) of Foreign Companies' Domestic Branches
(1) In the case of foreign investment companies, if surplus earnings are accumulated through business activities in Korea, they can take the earnings through the 'dividend' procedure.
(2) On the other hand, the remittance procedure for the headquarters of foreign corporations' domestic branches is as follows. According to Article 9-35 of the Foreign Exchange Transaction Act [Remittance of Net Income for Settlement], the net income for settlement must be remitted, and thus, it cannot be remitted to the headquarters during the accounting year but must be remitted after the accounting period is closed.
Required documents: :
- Application for remittance of net income for settlement of foreign companies' domestic branches
- Balance sheet and income statement of the relevant branch
- Tax payment certificate
- Auditor's report (if the ratio of the net income's operating fund introduction amount for the relevant accounting period is 100% or more or if the net income exceeds 100 million won)
Article 9-35 of the Foreign Exchange Transaction Act (Remittance of Net Income for Settlement)
① If a registered branch wishes to remit its net income for settlement to a foreign country under the provisions of Article 9-33, it must remit it through a designated trade foreign exchange bank. <Ministry of Strategy and Finance Notice No. 2007-62, Revised on December 17, 2007>
② The person who wishes to remit the net income under the provisions of paragraph 1 shall attach the following documents to the Application for Remittance of Net Income for Settlement of Foreign Company's Domestic Branch (Form No. 9-10) and submit it to the head of the designated trade foreign exchange bank. However, in the case of a registered branch that has been granted permission for the disposal of net income under the relevant laws and regulations regarding the disposal of net income for settlement, it may submit such permission instead of the following documents. <Ministry of Strategy and Finance Notice No. 2007-62, Revised on December 17, 2007>
1. Balance sheet and income statement of the relevant branch
2. Tax payment certificate
3. Auditor's report (if the ratio of the net income's operating fund introduction amount for the relevant accounting period is 100% or more or if the net income exceeds 100 million won)
5. Closure of Domestic Branch and Transfer of Liquidation Funds
When closing a domestic branch or disposing of assets held in Korea after closing, and recovering the funds to a foreign country, you must report it to the head of the designated foreign exchange bank. The amount of the recovery is limited to the total amount of the operating funds, retained earnings, and other reserve funds (minus the deficit amount, if any) of the domestic branch.
Required Documents for Funds Collection :
- Application form: Must be filed under the name of the liquidator upon appointment.
- Reason for application
- Certified audit report by a certified public accountant
(including balance sheet and income statement as of the closing date and the end of the liquidation)
- Certificate of payment of national and local taxes
- Statement of operating funds, retained earnings, and other reserve funds
- Certificate of deposit balance (must match the amount available for remittance in the liquidation report)
- A certified copy of the closing registration certificate for branches engaged in business activities,
* If a certified copy of the closing registration certificate cannot be provided, the following documents must be submitted:
- Proof of closure, proof of appointment of liquidator;
- Proof of the highest creditor notice (copy of newspaper notice);
- Confirmation of whether there are any outstanding payments to Korean employees (issued by the local labor office);
- Original foreign company's closure declaration for its domestic branch.
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