Comparison between Branch and Liaison office of Foreign Entity

1.     Review for the setup

(1)   The setup of Business(Branch) office in Korea

In case the process for the setup of Branch office from foreign entity in Korea is the same as the local entity process but foreign entity have to file the Local Branch Opening Notice to Korean Exchange Bank in Korea. However there are no registration tax burden of the Paid-in Capital different from company.

<Reference 1.> Please refer to the Flow chart of Setup for Foreign Branch

(2)   The setup of Liaison office in Korea

The terms “Liaison office “means the office can do only the preliminary and supportive activities for the business which can be included the advertisement, collection of information and etc for headquarter however office's setup do not aim to operate sales activities, they have to file & receive the Unique Number Card from National Tax Service. (Can't issue the Tax Invoice)

<Required Documents>

❶ Local Liaison office Opening Notice to Korean Exchange Bank in Korea

❷ Appointment Certificate of Local Representative in Korea and Copy of Passport (ID card)

❸ Identified Documents which are included Company's AOI or company type (Public Limited Company, Limited Liability Company, etc.). It must be notarized by Home Country's Government Authority or Home country's Embassy in Korea.

❹ Minutes of Board of Director (Setup of Liaison office and appointment of representative) - Must be notarized by Home Country's Government Authority or Home country's Embassy in Korea however it's duplicated No. ❷ however in addition, BOD have to resolve the setup of Liaison office in Korea.

❺ Letter of Acceptance for Representative (signed personal seal), Certificate of Personal Seal, Certificate of ID Registration.

-       In case of foreigner, he/she have to sign the notice of company seal and letter of acceptance and then it must be notarized by Home Country's Government Authority or Home country's Embassy in Korea. Certificate of Foreign Resident (notarization) and Copy of Passport.

(*) If the above documents are prepared by English or other Korean, it must be translated in Korean and attached the original foreign documents.

2.     Review of return for Corporate Income Tax(“CIT”) and Value Added Tax(“VAT”)

In case of Branch office in Korea, office have to file & return both CIT and VAT at the same as local company based on the Korean Tax Code however it'll levy the Branch office tax in addition. On the other hand, Liaison office do not have a responsibility of paying both CIT and VAT because office do not operate the sales activity.

(1)   Setup of local Branch

Branch Tax is the tax levy method for making a balance between Local Direct Investment Company and Branch office. The tax assessment of Branch office is two steps; First, Tax Authority will levy the CIT in advance and second, the rest of branch income after tax will impose the branch tax by branch tax rates one more time. Because Foreign Company have to pay the CIT from their own income and the withholding tax when company will pay dividend but if branch office have a profit, it can remit the fund without any other tax burden.

(*) The tax rates of Branch tax is 20% on the CIT Act Clause 98-3 but the actual rates is applied by the Tax treaty with each country.