Damalion South Korea desk
Doing business in South Korea
Located amid three formidable neighbors: China, Japan, and North Korea, is the Republic of Korea (ROK) – one of the biggest economies in the world.
With a population of about 52 million, South Korea is a developed country with a very high standard of living.
The nation boasts a prosperous, tech-savvy population with a well-educated and highly skilled workforce. With a GDP of $2 trillion, South Korea is one of the most advanced in today’s world. As such, it is recognized as a coveted place when it comes to the extension of business and it is also an optimal location for doing business and engaging the overall Asian market.
South Korea provides a host of advantages to foreign investors looking to expand their business into Asia.
Advantages of doing business in South Korea
- South Korea has the world’s 10th largest economy, it also has a good economic forecast for the near future.
- South Korea ranks 5th out of 190 countries, according to the World Bank’s Ease of Doing Business rankings for 2023.
- It is an innovative, free-market economy with a highly skilled and resilient workforce.
- South Korea GDP ranks 13th in the world and is the 5th largest exporter and 8th largest importer worldwide.
- According to Bloomberg’s Innovative Index, South Korea is the most creative country with one of the world’s best digital infrastructures.
- South Korea provides a considerable range of market opportunities for its businesses, particularly in sectors like telecommunications, and chemicals.
- South Korea has free trade agreements with over 50 countries, and this makes the country a world leader in innovation in trade.
South Korea has a self-governing government and is divided into three branches (judicial, executive, and legislature). Its local governments have specific degrees of independence and can enact self-governing laws with binding power.
The country’s legal system is based on a civil law system that has been historically impacted by Japanese and European laws and civil law principles. Also, recently, US law has become crucial in South Korean commercial law.
The South Korea Judicial system comprises
- the Supreme court,
- appellate courts, and
- the Constitutional Court.
The highest court is the Supreme Court, which is the final appellate court, and it reviews the decisions of the middle appellate courts. All cases are concluded by judges, as no jury system exists in the country.
South Korea is welcoming of direct foreign investments, but foreigners aiming to invest in South Korea must report certain investments to the Minister of Trade, Industry, and Energy beforehand. In addition, certain industries are subject to restrictions on share acquisitions by foreigners.
Also, under the Foreign Investment Promotion Act (FIPA) and its enforcement statute, foreign investments are not authorized in certain areas, e.g. the central bank, the securities and futures exchange, professional bodies, religious entities, beef cattle breeding, periodicals publishing, and power generation.
Outlined below is an overview of all general business forms that are recognized in Korea Under the Korean Commercial Code (KCC), and from which foreign legal entities can choose form when setting up a business in Korea:
Korea Joint stock company (Chushik Hoesa)
A Chushik Hoesa is the most generally used type of entity in Korea. It’s a company established by one or more individuals, with each shareholder’s liability restricted to the amount of contributed capital.
- It is one of the most popular corporate forms for foreign companies that affirm subsidiaries in Korea.
- It can publicly issue shares in South Korea.
- Its stockholders’ liability is restricted to their capital investment in the company.
- It Stocks may be willingly transferrable
- Yearly shareholder meetings are mandated for this type of company.
- A company registered under this form must end with Corp. / Ltd / Co., Ltd.
Korean Limited liability company (Yunhan Hoesa)
A Yunhan Hoesa is a corporation established by one or more members, with each member’s liability restricted to the amount of capital contributed.
- A minimum of one shareholder and director are required.
- It is a company with 50 or fewer shareholders.
- It Shareholders enjoy limited liability.
- It has a minimum share capital of USD 1
- The Korean Commercial Code restricts these types of companies from securitizing shares and issuing corporate bonds.
- It is sometimes referred to as an LLC.
Korean Partnership (Hapmyeong Hoesa)
A Hapmyeong Hoesa is a corporation established by two or more partners, all of whom retain unlimited liability.
- It required two or more partners which have unlimited liability.
- Its members are responsible for corporate responsibilities if the assets of the corporation are not adequate to entirely satisfy the obligations of the corporation.
- Transfer of ownership is limited for this type of structure
- It is liable for paying Korean corporate taxes
- It cannot be treated as a pass-through entity.
Korean Limited partnership (Hapja Hoesa)
A Hapja Hoesa is a company comprised of one or more partners with limited liability and one or more partners with unlimited liability.
- It requires at least one of the partners to retain unlimited liability and at least one partner to retain limited liability.
- It is liable for paying Korean corporate taxes
- It cannot be treated as a pass-through entity.
Korean Limited liability partnership (Hapja Johap)
Hapja Johap is a Korean corporation that enables one or more partners to have unlimited liability and others to have limited liability. It can be treated as a pass-through entity, but its legal entity isn’t separated from its members.
A Branch office is a department of a foreign company that is registered in its home country.
- It doesn’t require special incorporation,
- It s not considered a separate legal entity.
- It is less expensive and is permitted to engage in sales activity.
- it is regarded as the same legal entity as the overseas company.
- There is no threshold for the amount of investment of a branch office.
- An overseas manager is assigned as the branch manager.
- The branch office is restricted to the operations clarified by the parent company.
A liaison office in Korea is a company that doesn’t carry out business activities but instead performs non-sales functions.
- Setting up a liaison office is quite simple and less expensive.
- It is restricted to certain activities,
- The office cannot engage in profit-making activity
- Its setup process is fast
- It must be registered at the tax department.
The banking system in South Korea is as developed as in most Western countries and there is a wide range of financial services available from an extensive range of banking and financial network in South Korea.
The Financial Services Commission and the Financial Supervisory Service, are responsible for overseeing and examining all banks in Korea, and these include specialized and government-owned banks, in addition to securities and insurance companies.
Bank account in Korea
If you’re thinking about moving to Korea, planning to study at a Korean school, want to get payments in Korea from an employer overseas, or want to get a Korean credit card you might consider opening a Korean bank account.
As a worker, student, or investor in Korea, opening a bank account is not too difficult at all. No appointment is required to open a bank account. You simply have to arrive at the bank with all of the necessary documents, such as a copy of your working visa as an expats, Alien Registration Card (ARC), and your passport. Depending on your reason for moving to Korea, you may also submit a certificate of employment or university documents.
If you need help opening a Korean bank account, contact your Damalion expert now.
South Korea has one of the fastest-growing economies, in addition to industrial prosperity in the last decade, which develop its economy even further, and made it more attractive to foreigners.
South Korea has now become a hotspot for foreigners, due to its high living standards, modern infrastructure, low crime rate, the opportunity for jobs, and newer immigration laws.
If you are thinking about moving to this magical Asian country, it has its doors opened for you. South Korea offers a residence permit to anyone who meets certain criteria.
Getting Korean residency
Obtaining a South Korean residency is pretty complicated, but not impossible, especially with your Damalion expert by your side.
All foreign individuals that enter Korea and plan to stay for more than 3 months must register with local immigration authorities within the first three months of their stay.
Outline below are the options for obtaining a residency visa to South Korea:
The type of visa will get you residency in South Korea depending on what you do. Your options for an employment visa in Korea include getting employment as either a professor, foreign language instructor, researcher, technological guidance, etc.
If you’re looking into South Korean residency for business reasons, and you have the ability to invest in your own small business, you may be eligible for an intra-company transfer (D-7), corporate investment (D-8), or trade management (D-9) Visa.
The type of visa is principally available to foreigners who are of South Korean descent of some sort. To be eligible, it’s important that you either have a parent who was a South Korean citizen, you were born in South Korea, you are an adopted child of a South Korean citizen, or your spouse is a South Korean citizen.
If you choose to pursue higher education in Korea, you can obtain a long-term D-2 visa.
You can also opt for an investment visa by investing in a company you are starting.
In order to get an investor visa in South Korea, you must invest at least 500 million KRW (300 million KRW for a retiree investor over 55 years of age) in your small business in South Korea. You must also prove that the business is profitable.
Getting Korean permanent residency
To become a citizen of South Korea, most foreigners go through a naturalization process. A foreigner can apply for naturalization after 5 consecutive years of living in South Korea.
Whether you’re hoping to form a business, find a new job, or just start a new way of life, we will walk you through and help you in obtaining South Korean residency.
Korea’s tax system comprises of a vast range of imposts on businesses and individuals applied at both federal and local levels, including but not limited to corporate income tax, individual income tax and value-added tax.
Tax residency in Korea
A taxpayer in Korea is classified into resident and non-resident for income tax purposes.
A resident is liable to income tax on all incomes originating from sources both within and outside Korea, while a non-resident is subject to income tax on income originating from sources within Korea only.
Types of Taxes in South Korea
As a progressive country with a rich economy, there are several different types of taxes in South Korea, and include the following:
Personal Income Tax (PIT) in South Korea
Most expats entering the South Korean tax system have the choice between a flat tax rate or a progressive tax rate and this is based on their income. The flat tax rate will vary between 19-21% of the salary earned in Korea. But the more progressive rate will fall between 6 to 44% depending on the individual’s salary. In essence, there are eight progressive tax bands varying from 6% to 44% in South Korea which are paid to the National Tax Service.
Local Income Tax
Local Income taxes in Korea are paid to the city or province where the taxpayer lives and are evaluated at a rate of 10% of the PIT rates. It is a separate income tax in its own right, and it has its own set of exemptions, rates, and credits.
Social Insurance Taxes
In Korea, employers and employees are obliged to jointly contribute 9% to the National Pension and virtually 7.8% to National Health. Employers will contribute between 1.4% and 2.6% to Employment insurance funds, while employees will contribute 0.8%. In addition to this, employers alone must contribute between 0.7% and 18.6% to Workers’ Compensation Insurance, but this will depend on the type of industry.
Corporate Income Tax
Corporate taxpayers in Korea fall between the resident corporation, which is a domestic company with its head office or place of management in Korea and is taxed on its entire income, or Non-resident corporation, which is a foreign company that earns income from domestic sources in Korea, and if taxed on income originated from Korea only.
Its rates are 10%, 20%, 22%, and 25% and will range from KRW 200 million up to KRW 300 billion. Additional premiums are paid at different bands. Alternative Minimum Tax also applies to smaller companies with rates varying between 10% and 17%, and SMEs are taxed at 7%. The official local corporate tax in Korea applies at 1%, 2%, 2.2%, and 2.5%.
Value Added Tax (VAT)
VAT in Korea is charged at a rate of 10% on the supply of goods and services. Some sections such as unprocessed foodstuffs, medical and health, and insurance services aren’t charged. VAT Invoicing must be done electronically, and if the taxpayer fails to issue the VAT electronically to tax authorities, penalties will apply.
Korea Double Tax Treaties
South Korea has enforced the Convention for the Avoidance of Double Taxation with over 90 countries, including the US, Japan, China, Germany, the UK, and France. Some are in effect, some are not yet in effect, and some are suspended.
Intellectual property refers to a brand, invention, design, or another kind of creation, which an individual or company has legal rights over.
Intellectual property can be either registered or unregistered and is classified into industrial property rights (patent, utility model, design, and trademark) and, copyrights.
Copyrights are rights given to imaginative works or productions that convey human thoughts and emotions. Copyright protects written or published works such as books, films, and artistic works. Copyright is an unregistered intellectual property right in South Korea, so it is not necessary for it to be registered, however, it is a good idea to do so in case of a disagreement. Copyrights are better insured if the right is registered with the Korea Copyright Commission. And its holders can seek damages and can request a halt of infringement, discardings of goods made through infringing acts, or other essential measures. Copyright infringements in Korea are punishable by imprisonment, fine, or both.
Copyrights in South Korea are protected for 70 years from the death of the author.
Patents protect commercial inventions, e.g., a new business product, and it grants the right to solely own or uses an invention for a specific period of time.
Patents in Korea must be registered with the KIPO (Korean Intellectual Property Office), which gives policies on the application process and examination. criteria. Korea recognizes a first-to-file rule that authorizes patent rights to first applicants. Patents in south Korea are protected for 20 years from filing.
Trademark rights are the rights to solely use the labels that specify a particular product. Trademarks protect signs, logos, or sounds that differentiate products and services from those of competitors.
Registration of a trademark bestows the right to use the registered mark for the designated goods or services.
Trademarks must be registered with KIPO in Korea, and their rights last for ten years from the registration date, and an application for renewal is needed every ten years.
Design rights are the rights enjoyed by the registrant for all designs that build an aesthetic impression through optical aspects. Design right protects designs, such as drawings.
There are two types of designs in south Korea:
Registered designs are aimed to protect the pattern, color, or any variety thereof, of articles with industrial relevancy and creativity.
Registered design applications in Korea must be filed with KIPO and are protected for 20 years from the filing date but are not renewable.
The UCPTSPA (Unfair Competition Prevention and Trade Secret Protection Act) effectively protects unregistered designs by restricting the transfer and lease of goods where the shapes of those commodities have been duplicated from the goods created by others. The protection will last for three years starting from the date the shape of the goods was finalized.
Utility model rights protect designs. The utility model refers to the design itself which boosts an existing invention to make it more valuable and useful. The utility model is registered with KIPO, and its registration system helps determine whether to register a utility model after conducting a substantive examination. Utility model rights in Korea are protected for ten years from filing and are not renewable.
If you plan on doing business in Korea, it is important to know how to utilize the rights you have over the intellectual property that you or your business own. It might be tricky but your Damalion expert is here to help. Just contact us now.
LABOR AND EMPLOYMENT
The Korean labor market is mainly regulated by the Labor Standards Act (LSA) and is very employee friendly. The LSA regulates the employment relationship, provides minimum employment criteria, and governs the terms and conditions of employment. Any conditions of an employment contract or internal work regulations that attempt to establish lower standards in Korea are invalid.
Employment Contracts in South Korea
Under the LSA, South Korean employers must provide written agreements for workers detailing the important elements of employment. Any agreements that do not acknowledge LSA regulations are invalid.
Main employment contract types in south Korea include:
- Open-ended employment Contracts: this is the most common type of employment contract in South Korea. It generally ends with termination by employment law or by retirement.
- Fixed-term employment Contracts: these types of contracts cannot exceed two years. If employment continues after this period of two years, they become open-ended. Employers cannot discriminate against fixed-term employees in comparison with those on open-ended contracts.
- Part-time employment Contracts: employees under this type of contract are authorized to have the same working rights as employees who do the same job full-time.
- Probation period: although not stated by law, the first 3 months of employment count as a probation period.
Key minimum employment rights in South Korea
- Annual leave: a south Korean employee who works a full year is privileged to 15 days of annual paid leave. This entitlement can rise up to 25 days. An employer shall give paid leave to an employee who has worked more than 80% of the working days for one year.
- Sick leave: in south Korea employees are not legally authorized to time off in association with non-work related illnesses or injuries. But, where an employee wants to use sick leave on the basis of personal injury or disease, the employee may obey the regulation, if it is specified by a collective agreement.
- Public holidays: other than Labour Day, an employer is not beholden to provide paid leave on public holidays. Starting recently, private employers are also being mandated to provide workers with paid holidays on public holidays.
- Working time: the standard workday in Korea is 8 hours and the standard workweek is 40 hours eliminating hours of break. Overtime of up to 12 hours per week is acceptable but the employer shall pay 1.5 times the ordinary wage for this.
- Maternity and paternity leave: a south Korean employer must grant a pregnant woman a total of 90 days of maternity leave, and under such circumstances, at least 45 days of the leave period after childbirth shall be authorized.
- South Korean employers are also employed to guarantee 10 days of paid paternity leave. Employees can request to use paternity leave within 90 days after the delivery date.
- Wages: south Korean national minimum wage is fixed at KRW 9,620 per hour and KRW 2,020,000 per month applies to all south Korean employees with some exceptions.
- Terminating employment: in South Korea, unfair dismissal laws apply to employers with at least five employees, who are restricted from dismissing an employee without a “just cause”. Also, an employer must provide employees with a minimum of 30 days’ notice or they can pay the employee 30 days of salary instead of the notice as a dismissal notice fee.
- Discrimination: same as in other countries, discrimination against employees on the grounds of sex, disability, age, nationality, or religion is prohibited.
Comprehending and complying with labor and employment laws in South Korea can be challenging for many, but with the right firm, e.g., Damalion, by your side, it’ll basically be a walk in the park.
Are you ready to expand to South Korea?
– Damalion assists entrepreneurs and investors in setting up a business in South Korea. We have the expertise and experience in providing various integral business solutions, including compliance, entity management, taxation, accounting, payroll support, and many more across the world.
Contact us now to establish your business in South Korea
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