Foreign investment in Korea (I)

Date: Nov 20, 2020

I. Introduction

Due to COVID-19 trade volume in goods andservices have been retreated but now we are in the era where labor divisioncreates more value. We are in a difficult situation now but transactions willrevive and they will lead to investment.

This post is to help foreign investors who arelooking for opportunities to make an investment in Korea. The first post willlay out the procedure to establish foreign corporations in forms of subsidiaryor branch or corporation. The second one will have information about taxes onforeign corporations in Korea and the last one will be for Korean investors whowant to make an investment in foreign countries.

This post will lay out the procedures forforeign investors. There are two ways to invest in Korea. They are subsidiary,corporation and branch. In addition to this tax liabilities and tax benefitswill also be offered.

II. Form of Business

There are three kinds of business forms. They arebranch and corporation. The big difference between them is whether registeredcapital is invested which also affects the availability of dividends. Profits generatedfrom a branch is aggregated to that of their headquarters. However, the profitsfrom a corporation should be remitted to their headquarters only after dividenddecision. A foreign branch should also bear the same corporate tax and VATliabilities as a foreign corporation.

The type of investment should be decided basedon their type of business. When an investment is made, the capital and equitystructure should be considered.

III. Procedures of corporation Establishment

Foreign Investment Promotion Act offers taxcuts and benefits to foreign invested companies which make a certain amount ofinvestment. The investment capital should exceed 100 million won and whereinvestment shares exceed 10 percent it is subject to notification of investmentand is eligible for tax benefits.

If the investment capital does not exceed 100million won Foreign Currency Regulation is applied but cannot be deemed aforeign invested company.

(1) Professional consultation beforeestablishing a company in Korea

In order to decide the type of investmenthaving professional consultationis very important to save time and energy to have required documents and foreign investment notificationthoroughly prepared.

• Checkthe products and services and categories of business (Korea standard industrialclassification(KSIC))

• Decidethe type of corporation (stock company, limited company etc.)

• Decidethe scale of investment and equity structure (whether the investment meets therequirements of the Foreign Investment Promotion Act)

• Decidethe site of business

   

  (2) Fill out foreign investment notificationform (English and Korean)

• Thecategory of business: business and services on Korea standard industrialclassification

• Investmentmoney: KRW 100 million or more per investment

• Proportionof investment: 10 percent or more per investment

• Investor'scompany name and nationality

• Investingcompany's trade name and address

   

  (3) Foreign investment notification and foreigninvestment notification certificate

• Makenotification to KOTRA or headquarters and domestic branches of delegatedforeign banks

• Wherethe capital is remitted in advance changing the remittance must be after the notification

  (4) Transfer of paid-in capital to corporateaccount

• Transferringpaid-in capital to corporate account is usually carried out right after foreigninvestment notification but it does not matter if it's done before notificationbut exchanging the capital for Korean Won must be after notification.

   

  (5) Preparation for required documents beforecorporation establishment

  The procedures of foreign-invested corporationare the same with what are required for domestic corporation establishment.However where the share-holders or executives are foreigners more documentsshould be prepared which needs more time and energy preparing for required documents.The required documents differ based on the fact weather the foreign share-holdersor executives stay in Korea.

  (6) The procedure of registration ofincorporation

• Theprocedures are the same with what domestic corporations go through inregistration of incorporation but foreign-invested companies are required tosubmit more documents.

   

  (7) Registration of incorporation and businessregistration

• Aftercompleting registration of incorporation applying for business registration isrequired to the tax office having jurisdiction over the place of tax payment

• Oncebusiness registration certificate is issued opening a corporate account isrequired as a next step

• Then,paid-in capital should be transferred to corporate account and then make acorporate credit card

   

  (8) Application for foreign-invested companyregistration certificate

• Applyfor foreign-invested company registration

• Startbusiness in Korea as a foreign-invested company

   

  (9) Issuance of the D-8 corporate investmentvisa

• D-8corporate investment visa is issued and granted for an investment exceeding KRW100 million

   

    

Learn more about Korean tax system by visiting our website

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