Set up as a local business, a subsidiary in Korea maintains closer relationships with the local business community. It is also able to offer the parent company the chance to benefit from the tax incentives put in place by the local government. As follows, our company formation advisors in Korea explain how to set up a subsidiary in this country and various matters related to this subject.
| Quick Facts | |
|---|---|
| Applicable legislation (home/foreign country) | The subsidiary must respect South Korean laws. |
|
Best used for |
– commercial activities; – trading operations; – other activities as needed by the parent company. |
|
Minimum share capital (YES/NO) |
Yes, 100 million WON (approx. 80,000 USD). |
| Time frame for the incorporation (approx.) | Approx. 3 weeks. |
| Documents to be filed by the parent company |
– information about the parent company; – Articles of Association; – proof of legal address; – proof of share capital. |
| Management (local/foreign) |
The subsidiary can have a foreign manager who can obtain a Korean residence visa. |
| Legal representative required (YES/NO) |
Yes, a subsidiary must have a local representative. |
| Local bank account (YES/NO) |
Yes, a local bank account is required when setting up a subsidiary in Korea. |
| Independence from the parent company |
The subsidiary is fully independent of the parent company. |
| Liability of the parent company | The foreign entity is not liable for the subsidiary’s debts and obligations. |
| Corporate tax rate |
9%, 19%, 21%, and 24% rates, depending on the income generated worldwide. |
| Annual accounts filing requirements |
Annual accounts and financial statements must be filed on an annual basis. |
| Possibility of hiring local staff (YES/NO) |
Yes, the subsidiary can operate with local workforce. |
| Travel requirements for incorporating branch/subsidiary (YES/NO) |
No, there is no need to travel to Korea for opening a subsidiary. |
| Double tax treaty access (YES/NO) | Yes, Korea has more than 90 double tax agreements. |
Table of Contents
Steps to create a Korean subsidiary company
Foreign companies interested in launching their businesses in South Korea can opt for independent structures such as a subsidiary which can adjust to market specifics better. The registration procedure entails the following:
- drafting a set of documents that must be filed with the Commercial Register;
- obtaining a company seal;
- setting up a local bank account;
- establishing a local address;
- obtaining a tax identification code;
- registering for social security as an employer.
Subsequently, each employee must be registered for social security and health insurance.
Apart from these requirements, an authorization from the Korea Trade-Investment Promotion Agency is also necessary given the fact that the shareholding of the company is foreign.
If you need assistance in setting up a subsidiary in South Korea, you can rely on our local specialists.
How to open a subsidiary in Korea
After the authorization to proceed with investment has been obtained from the Korea Trade-Investment Promotion Agency (KOTRA), the company has to notify the local Ministry of Trade, Industry and Energy (MOTIE), a delegated official agency or Invest Korea, a non-profit organization of KOTRA. Because of the language barriers, the Korean legislation complexity and the possibility of having many misunderstandings, it is advisable to seek the service of a reputed company registration firm in Korea to help you with this.
Searching for qualified workforce is the next step, as locals are attracted by foreign companies because of the wages, work conditions, reputation, traveling opportunities, the chance to practice or learn English, and the ability to transfer to the parent office or into another foreign subsidiary.
You can also trust our lawyers if you are interested in Korean immigration. We can advise on how to apply for a wide range of visas, including long-term resident permits. The last category has the benefit of enabling permanent residency in South Korea after living here for a certain period of time.
Here is also an infographic on how to establish a Korean subsidiary:
Business forms that can be used to open a subsidiary in Korea
One of the best methods to create a Korean subsidiary is to incorporate it as a private limited liability company. This type of entity with foreign ownership is regarded as a foreign investment and as such it must meet certain financial requirements. The share capital options are:
- at least KRW 100 million or USD 75,560;
- KRW 300 million (USD 226,681) or more, case in which a D-9 visa for trading activities is required.
The limited liability company also safeguards the parent company. The subsidiary can run under an independent structure that fits the country’s rules and laws without worrying about any losses being incurred by the parent firm. While there are also other legal entities that can be used to establish a subsidiary in Korea, this one is the most employed. However, if you want to choose another structure, feel free to enquire with our local company formation experts.
Documents to draft when opening a subsidiary
The foreign company or a representative must file the notification, among other people. When the notification is filed through a proxy, a power of attorney is necessary. The documents that need to be filed are:
- details of the foreign company;
- the identification papers of the of the representative (copy of passport, etc.)
- the foreign investment notice form for the capital contribution;
- the power of attorney (when notice is given by the representative).
The parent company must file its Certificate of Incorporation (issued by the Commerce Department or the equivalent of the Korean Trade Register).
Our Korean company registration agents can represent foreign business in the process of setting up subsidiary businesses. The advantage of working with us is that we can handle the procedure on your behalf without you having to travel here until necessary.
Other requirements for subsidiaries in Korea in 2024
A subsidiary company in Korea is required to organize a yearly meeting of the directors to approve the financial statements. It also has to hold a general meeting of shareholders each year.
Such a company in this country usually must lodge externally audited financial statements and the statutory accounts have to be reported to the local tax authorities yearly, together with the corporate income tax returns.
Our Korea company formation agents can provide further details on the other requirements imposed for subsidiaries in this country.
The economy of South Korea is expanding. With a population of more than 51 million, South Korea is one of the economies in the world that is expanding the fastest. It ranks top 10 globally in terms of nominal gross domestic product (GDP) and top 30 globally in terms of purchasing power parity (PPP).
The South Korean economy offers a unique blend of stability and strong growth rates that is very alluring to foreign investors. Also, there is a highly qualified workforce, strong R&D capabilities, and a dominant position in high-end electronics thanks to an effective educational system.
Once you come into the country, you must register with the local authorities. You also need the proper visa in order to live here. There are severe regulations for Korean residency depending on the type of visa you have gained to move here. If you are a new comer to this country, contact our lawyers who can help you.
How long does it take to create a subsidiary in Korea?
Payroll services and HR services are also available with our South Korean accountants. You can count on our assistance in creating the required documentation for employment, salary payments, and other connected matters. Do not hesitate to contact us for information on any of our options, including guidance on how to reduce taxes.
The procedure for setting up a Korean subsidiary company may seem complex given the two distinct phases it needs to pass through. In fact, it is quite easy to register any type of business in this country. Here is what to expect:
- the business registration procedure takes about 20 days or 3 weeks to complete;
- the notification issued by the Foreign Trade Agency is issued in the 2nd day after filing the documents;
- the incorporation notification is issued in about 2 months from the registration of the company.
We also have a video on this topic:
Taxation of subsidiaries in Korea
The subsidiary is a local company, which is why it will pay the corporate tax on its entire income. From this point of view, the following rates must be considered:
- a 9% rate imposed on a tax base of up to KRW 200 million;
- a 19% rate applies for a tax base ranging from KRW 200 million to KRW 20,000 million;
- a rate of 21% for income ranging from KRW 20,000 million to KRW 30,000 million;
- a 24% rate of income above KRW 30,000 million.
Economic estimates for Korea’s economy
With a projected 1.4% GDP growth last year, South Korea’s development fell well short of expectations. Forecasts for 2024 point to a notable acceleration of growth, which is mainly attributable to a robust rebound in exports, particularly from the semiconductor sector. It is also anticipated that investments in industrial facilities, which are strongly associated with exports and the semiconductor industry, will contribute to this growth comeback. Though predictions are still cautiously optimistic, modest growth of 2.1% is anticipated in 2024, which is consistent with the predicted potential GDP growth rate of South Korea.
In case you would like to know more about subsidiaries in Korea in 2024, or for help in setting up such a business here, please speak to our company formation representatives in Korea.