2/24/2017

Starting a Business in Korea: Foreign Capital-Invested Company, Branch or Liaison Office

There are, in short, three legal manners of entering into the Korean Market.  A business may enter as a Foreign Capital-Invested Company (Foreign Direct Investment Company), Branch or Liaison Office.  In most situations, the best manner to enter the Korean market is via the FDI Company route in order to avail of certain favorable tax treatments, not expose the foreign entity to liability, easier remittance of profits and easier processing of visas.

However, many exceptions to this general rule do exist.

FDI, Korea, Seoul

1. FDI Company (Foreign Capital-Invested Company)

  • Separate legal entity separate from the foreign company (Subsidiary of the Overseas Company)
  • Various benefits under Korea FDI laws and regulations (e.g. free trade zones).
  • Investment of at least KRW 100,000,000/investor.
  • Opportunity to obtain a D-8 Investment Visa.
  • Tax Support & Incentives available. 
FDI Company may be formed with the following types of businesses under the Korean Commercial Code (KCC):

Chushik Haesa (Joint Stock Company; Co. Ltd.; Corp.; Ltd.) 
Chushik Hoesa is the only corporate entity that is allowed, at the present, to publicly issue shares. The vast majority of incorporators in Korea choose the Chushik Hoesa corporate form. It is also the most common corporate form for foreign companies establishing subsidiaries in Korea and this will not change anytime soon.

Yuhan Hoesa (Private Company, sometimes referred to as an LLC)
Yunhan Hoesa is a closely held company that is prohibited from having more than 50 shareholders. In recent years, a few foreign companies (including some international hedge funds) have chosen Yuhan Hoesa.

 A few companies, recently, have chosen this form because of possible U.S. and E.U. tax benefits (pass-through benefits) and simplified reporting guidelines.  Additionally, there are few requirements in regard to directors, publication of balance sheet and accounting.

However, the KCC prohibits securitizing shares and issuing corporate bonds.

Hapja Hoesa (Limited Partnership; LLP)
With a Hapja Hoesa one or more partners must maintain unlimited liability and one or more partners may maintain limited liability. The entity is responsible to pay Korean corporate taxes and thus may not be treated as a pass-through entity.

Hapmyeong Hoesa (Partnership)
In a Hapmyeong Hoesa two or more partners form the partnership. The partners must maintain unlimited liability. The entity is responsible for corporate taxes and thus is not a pass-through entity. 

Hapja Johap (Limited Liability Partnership; LLP)
Hapja Johap is similar to Hapja Hoesa. With a Hapja Johap one or more partners may have unlimited liability and one or more partners may maintain limited liability. The critical difference between Hapja Hoesa and Hapja Johab is that Hapja Johap, like Johap (partnership) is not a separate legal entity. The tax treatment issues are not yet resolved; however, we doubt that it will be subject to double taxation, thus, we assume that it will be treated as a pass-through entity. The form, after the tax treatment issue is resolved, may be, in most cases, a more advisable solution than the Yunhan Hoesa form for those that may benefit from the pass-through nature of the entity.

Yuhan Chaekim Hoesa (Limited Liability Company; LLC) 
Yuhan Chaekim Hoesa is very similar to a U.S. LLC. It is intended to provide the advantages of Yuhan Hoesa and Chushik Hoesa. The liability is limited, shares are freely transferable between members, bonds may be issued, no capitalization requirements are imposed, no director or auditor requirements are imposed and the entity has easy exit requirements.

2. Branch Office

  • Considered the same legal entity as the overseas company (Headquarters).
  • Overseas manager is appointed as a manager of the branch. 
  • The conduct of the Branch can be imputed on the Headquarters. 
  • May engage in profit making in Korea.  

3. Liasion Office

  • May not engage in profit making in Korea.  
  • Intended for a company to engage in R &D, advertisement, research and explore the entry into the Korean market.  
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty.

Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.

Sean is known for his proactive New York-style street-market advice and his aggressive and non-conflicted advocacy.  Sean works with some of the leading retired judges, prosecutors and former government officials working in Korea.

Sean's profile may be found at: Sean C. Hayes