1/22/2014

Guide to Establishing a Company in Korea: Branch vs. Office; FIPA vs. FETA

The establishment of a foreign enterprise in Korea is governed, inter alia, by the Foreign Investment Promotion Act and/or the Foreign Exchange Trade Act.

Formation of a local corporation of a private business in Korea is governed by the Foreign Investment Promotion Act of Korea.  The establishment of a branch or office is governed by the Foreign Exchange Act of Korea.  A branch or office, in Korea, is considered a  domestic branch of a foreign corporation under Korea law.

FOREIGN-CAPITAL INVESTED COMPANIES IN KOREA
The Foreign Investment Promotion Act and the commercial law of Korea apply to investments that a foreign individual or a foreign corporation makes by establishing a corporation in Korea.  The corporation is considered a local corporation that was foreign-capital invested.  The foreigner or foreign company, in most cases, must  invest a minimum of KRW 100 million to avail of the benefits of the acts.

The Foreign Investment Promotion Act will, also, apply to foreign individuals investing KRW 100 million and more who operate a "private business." Such an investment is a foreign investment under the Foreign Investment Promotion Act and other acts.

OFFICE VS. BRANCH
An "Office" as compared to "Branch"  differs in that a Office is unable to conduct any sales functions in Korea and, also, only need to register at the tax office.

Comparison of a Foreign-Invested Company and a Domestic Branch
Category Foreign-Invested Company Domestic Branch of a Foreign Company
Law Foreign Investment Promotion Act Foreign Exchange Trade Act
Corporation Type Domestic corporation Foreign corporation
Identity Foreign investors and foreign-invested companies are of separate entities (independent accounting & settlement) Headquarters and branches are of a single entity (the same accounting & settlement)
Institution for
Notification
Acceptance
and Permit
Invest KOREA (KOTRA) or headquarters of a foreign exchange bank Foreign exchange bank branch (notification), MOFE (permission of financial business etc.)
Minimum (Maximum)
Investment Amount
Minimum KRW 100 million per case,
no upper limit
No monetary limit
Scope of Tax
Obligations
Tax obligations for all domestic and overseas income
 Corporate tax rate:
10% for KRW 200 million and less
22% for over KRW 200 million * The business year starting in 2009
(11% for KRW 200 million and less, 22% for over KRW 200 million)
Tax obligations for income from domestic sources
Corporate tax rate:
10% for KRW 200 million and less
22% for over KRW 200 million

 * Branch tax obligations
(France, Australia, Morocco, Brazil, Indonesia, Canada, Kazakhstan, the Philippines)
                           (This Chart was created by Invest Korea and was updated in August 2009)

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Sean Hayes, IPG's Co-Chair of the Korea Practice Team, may be contacted at: SeanHayes@ipglegal.com