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Why should I invest in South Korea?

A large economic territory

South Korea’s economy is booming. With a population of over 51 million, South Korea represents one of the world's fastest growing economies, ranking top 10 in the world by nominal gross domestic product (GDP) and top 30 by purchasing power parity (PPP).

The South Korean economy has a rare combination of rapid growth rates and stability, which is very attractive for international investors. Moreover, thanks to an efficient education system there is a highly-skilled workforce present, as well as advanced R&D capabilities and a dominant position in high-end electronics.

How can I set up a company in South Korea?

A foreign-invested company is a domestic corporation established under the Commercial Act and classified as either a partnership company, a limited partnership company, a limited liability partnership, a limited liability company, a limited company, or a stock company. The most common types of corporations established by foreign investors are a limited company and a stock company.

Where a foreigner invests at least KRW 100 million (USD 90,000) with the goal of participating in business operations or acquires at least a 10 percent share of new/existing stocks with voting rights, it is recognized as a foreign-invested company under the Foreign Investment Promotion Act and established as a domestic corporation under the Commercial Act.

More details and business entity types can be found in our South Korea Business Guide (see below).

Limited Company

The Limited Company (“Yunhan Hoesa”) is a separate and distinct entity. A limited company is composed of maximum 50 shareholders with limited liability of their investment amount only. A limited company may have restrictions on the transfer of shares. A limited company is now subject to external audit due to an amendment of the Enforcement Decree of the Act on External Audit of Stock Companies Applicable from the fiscal year that commences after November 1, 2018.
 
Members purchase units in the company, but only 1 class of units is allowed
An external audit is required for limited companies with total assets or annual sales revenue of at least KRW 50 billion (USD 44.7 million), or limited companies that meet three or more of the following thresholds
 Total assets of at least KRW 12 billion (USD 10.73 million)
Total debt of at least KRW 7 billion (USD 6.3 million)
Total annual sales revenue of at least KRW 10 billion (USD 9 million)
At least 100 employees
At least 50 members
 

Except for certain businesses that require additional licenses, there is no minimum capital requirement; however, in the case of a foreign investor, at least KRW 100 million (USD 90,000) required for each foreign investor to be qualified for benefits under the FIPL.

Stock Company

The Stock Company (“Chushik Hoesa”) is a separate and distinct entity. Shareholders of a stock company only have limited liability of their investment amount. It is easy to transfer stocks and possible to issue bonds and list stocks.

Unlimited number of shareholders;
Generally, no personal liability of the shareholders outside of their financial contribution in the form of purchased shares;
An external audit is required for:
- Publicly listed companies, or companies that will be publicly listed within that fiscal year or the following fiscal year;
- Joint-stock companies with total assets or annual sales revenue of at least KRW 50 billion (USD 44.7 million);
- Joint-stock companies that meet three or more of the following thresholds:
Total assets of at least KRW 12 billion (USD 10.73 million)
Total debt of at least KRW 7 billion (USD 6.3 million)
Total annual sales revenue of at least KRW 10 billion (USD 9 million)
At least 100 employees

Except for certain businesses that require additional licenses, there is no minimum capital requirement; however, in case of a foreign investor, at least KRW 100 million (USD 90,000) is required for each foreign investor to be qualified for benefits under the Foreign Investment Promotion Law.

What is the tax framework in South Korea?

The tax system in Korea is categorized into national tax and local tax depending on the authority of taxation.

National tax includes corporate tax, value-added tax, wage and salary income tax, capital gains tax, securities transaction tax and customs duty on imported goods.

Local tax imposed by local governments includes acquisition tax, registration and license tax, property tax, automobile tax, local income tax and local education tax.

Find an extensive overview of the National and Local Taxes in our South Korea Business Guide, see below.

National Tax

  1. Corporate tax

Corporate tax is an income tax imposed on corporations. Incorporated associations and foundations, including for-profit and non-profit corporations, are taxed like general corporations.

Table 1

 

  1. Value-Added Tax

Value Added Tax (VAT) is a tax that is reported and paid for added value acquired in the process of providing goods and services and importing goods.

Table 4

  1. Wage and Salary Income Tax (for workers)

Wage & salary income tax is a tax levied on the price of providing and receiving work. Wage & salary income, regardless of its name and form, includes goods and stocks in addition to cash.

Table 3

 

  1. Capital Gains Tax (stocks, etc.)

Capital gains tax is levied when an asset is transferred to an entity for payment through sale, exchange, or in-kind contribution to a corporation.

Tax Rate

  1. Stocks, etc. Transferred by Majority Shareholders:
  • Stocks, etc. of a corporation, excluding small and medium size enterprises, held for less than a year: 30% of the tax base;
  • stocks, etc. that do not fall under the above:

Table 4 

  1. Stocks, etc. Transferred by a Person other than the Majority Shareholder:
  • Stocks, etc., of small and medium-size enterprises: 10% of the tax base;
  • Stocks, etc. that do not fall under the above: 20% of the tax base.
  1. Securities Transaction Tax

Securities transaction tax refers to tax imposed on the transfer value of share certificates, etc. where the ownership of share certificates or shares is transferred for value due to a contract or legal causes.

Tax Rate

The securities transaction tax rate (unlisted stocks, etc.) is 0.45 percent (from Apr. 1st 2020).

Disclaimer: illustrative; percentages based on latest applicable regulation at the time of publishing. Information provides does not substitute professional advice from our consultants. Exchange rate used for USD ~1,118.

Local Tax

Table 5

Download our South Korea Business Guide

HR & Employment

Foreigners' temporary stays in South Korea are divided into long-term stay and short-term stay depending on whether the stay is longer or shorter than 90 days. Foreigners staying in Korea for a period of 91 days or longer are subject to alien registration. Change from short-term to long-term stay may be permitted or unpermitted depending on the applicant’s status of sojourn.

There are three methods of entry in Korea for foreigners:

  1. by obtaining a visa issued at a diplomatic mission abroad;
  2. by obtaining the status and the period of stay through immigration declaration after entry, in the case where a foreigner holds the status of stay for a short-term visit or is eligible for entry without a visa;
  3. by obtaining visa issuance certificates (or certification number) from a regional immigration office in the jurisdiction of the inviting party’s residence and submitting it to an overseas diplomatic mission.

Business Investment (D-8) visa

A D-8 visa is issued to indispensable professional specialists engaged in the management, business administration, production, or technology of a foreign-invested company, or to a person who founds a start-up enterprise with industrial property rights or intellectual property rights from its proprietary technology, and has been certified as a venture business.

Where to apply: Immigration office or regional immigration service in the jurisdiction of the place of applicant's residence or the foreign-invested company’s location, KOTRA Foreign Investor Support Center.

Long-term Residence (F-2) Visa

A long-term residence (F-2) visa shall be granted for those who have invested at least USD 500,000 and resided in Korea for three years or longer on business investment (D-8) visa, and executives who have been dispatched to a foreign-invested company from a foreign company which has invested at least USD 500,000 in Korea after all documentation is submitted. An F-2 visa shall be granted to an employer who has invested at least USD 300,000 and hired two or more Korean employees.

Permanent Residence (F-5) Visa

A permanent residence (F-5-5) visa shall be granted to a foreign investor who has invested at least USD 500,000 and hired five or more Korean employees. Executives of a foreign-invested company can also apply for a permanent residency visa. A permanent residency for special contribution (F-5-12) visa shall be granted to executives (auditor and director only) who have been dispatched to a foreign-invested company which has invested at least USD 5 million and have resided in Korea for at least three years after documentation is approved by the Minister of Justice.

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