Foreigners can start business in Korea (including the establishment of corporations) by acquiring new or existing stocks as prescribed by the Foreign Investment Promotion Act, or by establishing a domestic branch or liaison office in Korea as prescribed by the Foreign Exchange Transaction Act.
A foreign-invested company is a domestic corporation established under the Commercial Act. It is classified as either an unlimited partnership company, a limited partnership company, a limited liability company, a limited company, or a stock company. The most common types of corporations established by foreign investors are limited companies and stock companies.
A local corporation, in which a foreigner has invested not less than KRW 100 million (about USD85,134) for managerial participation and acquired not less than 10 % of the company’s newly issued or existing stocks with voting rights, is recognized as a foreign-invested company under the Foreign Investment Promotion Act and thereby constitutes a domestic corporation established under the Korean Commercial Code.
A branch office or a liaison office of a foreign corporation shall be divided depending on whether the office conducts business activities or not, and shall be governed by the Foreign Exchange Transactions Act. A branch office is a foreign corporation that carries out business activities of the head office. On the other hand, a liaison office is a foreign corporation that cannot carry out business activities but instead conduct market surveys, marketing activities, etc.
Incentives for doing business
1/ Tax Reduction and Exemptions
Properties acquired and owned by foreign-invested companies to operate registered businesses are eligible for acquisition tax and property tax reductions or exemptions. For the businesses deliberated and decided upon by each committee for companies engaged in new growth engine industries or companies in individual-type foreign investment zones, this is 100% exemption of taxes eligible for reductions or exemptions (amount eligible for deductions) for 5 years from the date of business commencement; 50% reduction of taxes for 2 years thereafter (deduction from tax base). For the companies and project entities in complex-type foreign investment zones, free economic zones, Jeju Investment Promotion Zones, enterprise city development zones, Saemangeum project areas, free trade zones, etc, this is 100% exemption from the date of business commencement; 50% reduction of taxes for 2 years thereafter.
In the case of capital goods imported through the notification of foreign investment by the acquisition of newly issued stocks, etc. among capital goods (listed below) that are used in businesses subject to tax reductions or exemptions, customs duties, individual consumption tax, and value-added tax are exempted under the Restriction of Special Taxation Act.
o Capital goods imported by a foreign-invested company with a foreign or domestic means of payment obtained as equity investment from a foreign investor
o Capital goods imported by a foreign investor as an object of investment
The income earned by foreign engineers offering services in Korea is subject to a 50% income tax reduction for a period of five years from the date they started offering services. Foreign engineers engaged in materials, parts, and equipment businesses prescribed by Presidential Decree are subject to a 70% income tax reduction for a period of three years from the date they started offering services, and a 50% reduction for two years thereafter.
In addition, there are tax deductions for investment in certain facilities, Commercializing New Growth Engine Technologies, Enterprise Cities, Special Research and Development Zones, Job Creating Companies, Startups in Employment or Industrial Crisis Areas, and SME companies from corporate tax in accordance with a calculation of a certain ratio.
2/ Location support for foreign investment zones
Location support provided to facilitate and attract foreign investment consists of foreign investment zones as prescribed by the Foreign Investment Promotion Act, free trade zones as prescribed by the Act on Designation and Management of Free Trade Zones, and free economic zones as prescribed by the Special Act on Designation and Management. Among these, foreign investment zones are further classified into complex-type, individual-type, and service-type zones.
Specific details of location support available for foreign investment, such as requirements, eligible businesses, and incentives (rental fees, taxes, customs, cash) vary depending on the purpose of designation. It is recommended that investors carefully review and analyze investment locations, even for planned sites with seemingly simple procedures for factory establishment, authorization, and permission.
3/ Cash grants
Foreign investments made by the acquisition of new stocks and with ratios of foreign investment 30% or greater are eligible for cash grants, where Investments with long-term loans are excluded. And such stocks shall be related to New Growth Engines, High Technologies, Materials and Parts, Job Creation, R&D centers, Regional Offices, or Industries that are specialized in certain regions that create jobs and strengthen the competitiveness of local industries.
4/ R&D support
Business-affiliated research institutes or R&D departments that meet certain qualifications may apply and register to the Korea Industrial Technology Association to receive various types of support for their research and development activities, including but not limited to the below supports:
Tax reductions for research and HR development expenses
Local tax deductions for real estate
Special taxation for technology transfer and leasing
Income tax reductions
Corporate tax reduction
Customs reductions or exemptions
Financial support
Employment support
Technical support
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(Source: Invest Korea)
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