Types of Business Entities Established by Foreigners
Foreigners are allowed to start a business in the following ways:
(1) establishing local companies
(2) opening private companies
(3) opening a branch
(4) opening a liaison office
The first two business entities are mainly regulated by the Foreign Investment Promotion Act and the other two be regulated by the Foreign Exchange Transactions Act. Of the four types of entities, the liaison office should not be involved in any business activity that generates profits.
MAY 16, 2023
JULY 7, 2023
1. Local Corporation
The provisions of the Foreign Investment Promotion Act and the Commercial Act shall apply to the investments made through local corporations owned by foreign personnel or a foreign corporation; the corporations are equally treated as the domestic corporations. However, the amount of the investment should be KRW 100 million or above.
2. Private business
When a foreigner owns a private business in Korea with an investment amount of KRW 100 million or more, the investment is considered to be a foreign direct investment. This private business is equally treated as local corporations regarding its business activities. The private business is not much different from the local corporations, except that its establishment and temporal and permanent closure are not as complicated as local corporations’ and that the corporate social responsibilities are not as heavy, as well. However, because private businesses are considered to have lower credit rating than local corporations, they experience difficulty securing funds and outstanding human resources. Therefore, private businesses are usually small-sized businesses.
In January 2012, the Daegu District Court ruled that private businesses owned by foreigners are not considered to be foreign-invested businesses. Based on the judgment, the Ministry of Justice issues a D-9 visa instead of a D-8 visa to a foreigner running a private business without a joint venture with a domestic private business, only when the amount of investment is over KRW 300 million or above. Therefore, to operate a private business in Korea as a foreigner requires KRW 300 million or above.
A foreign company trying to develop business activities in Korea is required to appoint a representative for its local branch and to complete the court registration and the branch establishment procedure prescribed by the Foreign Exchange Transaction Act. Also, the branch is considered to be a permanent establishment regarding tax laws, and the tax rates on the profits are equivalent to those of domestic companies.
4. Liaison Office
Unlike the branch developing business activities, the liaison office only works on non-sales operations such as business contacts and market research on behalf of the headquarter. Therefore, the liaison office is not required to undergo the court registration and receives its own business code equivalent to business registration from the jurisdictional tax office.