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.

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)

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