Both local and foreign citizens can open sole proprietorships in Korea by following specific steps. Considering this is the simplest business form under which a person can operate in South Korea, the procedure implies fewer stages compared to when registering another type of company.
Below, our company formation specialists in Korea explain how to start such a business. You can rely on us for support with the incorporation.
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Steps to register a sole proprietorship in Korea
Here is what it entails to set up a sole trader in Korea:
- register with the National Tax Service, which will issue the business certificate and the tax identification code;
- open a bank account with a Korean bank;
- file for specific business permits, if the activities to be completed require one.
Following that, the sole trader can consider applying for a VAT number voluntarily. If not, the businessperson can wait until the annual revenue reaches KRW 48 million (approx. USD 35,500). Our accountants in Korea can help you decide when it is the best time to consider registration for this tax and its benefits.
Documents to file with the National Tax Service
Just like in the case of other types of companies, a Korean sole trader must also prepare a set of documents based on which he or she will receive the business certificate. These are:
- ID/Korean residence permit (Alien Registration Card);
- proof of a business address;
- proof of qualifications/diplomas/other documents that attest to the applicant’s craftsmanship or expertise in a certain field.
Other documents may be required depending on the type of activity carried out by the sole trader.
Foreign citizens who want to become sole traders in Korea
There are various visas foreign entrepreneurs can apply for to immigrate to Korea and start their own businesses. Among them are:
- the F-2 visa, which enables foreign citizens to move to Korea to start an economic activity;
- the D-8-4 startup visa.
There are also other types of visas that can be obtained depending on the status of the foreign citizens coming here. Our Korean lawyers can offer guidance on the immigration requirements for setting up a business in this country, including when starting a sole proprietorship.
What to consider when you start a sole proprietorship in South Korea
Opening a sole trader in Korea has various benefits; however, it is also important to note some of its characteristics. Specifically:
- as a business form, it can be operated by a single individual;
- it also comes with increased liability, as the owner will be solely responsible for the debts and obligations of the business, meaning in case of bankruptcy, he or she must pay with personal assets to cover the losses;
- the owner will also be the manager of the business;
- in terms of taxation, those who make substantial profits will be subject to higher levies under the personal income tax.
The advantages of this business form, however, should not be forgotten. Among them, we mention the following:
- access to all the profits at all times;
- simple compliance and administrative requirements;
- the possibility to make one’s decision regarding the business without external intervention.
If you decide to open a sole trader, you can rely on our company registration agents in Korea for support.
Taxation of sole traders in Korea
Here are the main taxes to be paid in South Korea as a sole proprietor:
- the personal income tax which is levied progressively at rates ranging from 6% to 45%;
- the value added tax which has a standard rate of 10%;
- social security contributions can also be paid voluntarily, if the self-employed person decides to have a salary (the compulsory payment can be a maximum of 20 times the statutory pay rate).
Contact us if you need assistance in preparing and filing the documents to become a sole trader in Korea.