We see clients, in Korea, at polar opposites when in comes to compliance – the works or hold everything.
The excuse of small companies is usually money. However, in reality, the cost is, normally, not significant and the advice of proactive counsel, often, leads to more business and less headaches.
We find, that it is, often, more important for a small company to engage in a Korean compliance program, since, when troubles occur they are less likely to be able to pay for the time necessary for the counsel to rectify the problem and therefore more likely to perish because of the issue.
For example, we had a client that was audited by the Korean National Tax Service, the result was a tax lien, Immigration hold and a less-than-happy wife. The large amount owed was caused by the lack of an understanding of the various expenses that could be deduced and the lack of the business registering their business as a corporation.
The basics to any Compliance Program, in Korea, includes at a bare minimum the inclusion of the review of the following:
- Company Formation
Review of the structure of the company, business scope, joint venture agreements, foundation documents and the company’s capitalization. We, often, find companies that have critical errors that cause the companies not to utilize tax deductions and government programs while adding risk to their business.
- Business Licenses/Permits
Review of business licenses, local permits and necessary laws governing business. I can’t name the number of businesses we have seen that are operating in violation of Korean law. Often the solution is simple and cheap.
- Accounting & Tax
Review of the bookkeeping structure, accounting practices, invoicing and tax reporting. Most accountants, in Korea, are less than proactive. Get a proactive accounting audit and you will, likely, pay less taxes.
- HR Practices
Review of employment agreements, independent contractor agreements and the employee handbook – if any. We, often, see clients without even a basic understanding of Korean employment law. The largest risk facing many employers, in Korea, is labor. A lack of an understanding and you will be, at sometime, burning time and money at the Labor Board or even the prosecutor’s office.
- 3rd Party Agreements
Review of all agreements with third parties including supplier agreements, client/customer agreements, NDAs, vendor agreements and the like. Too often, issues arise with third parties that leads to unpaid invoices, tax audits and other government agency audits.
- Due Diligence/Risk Assessment Diligence on key parties that you work with – when not feasible, a nuanced risk assessment. I wrote about this in many posts – check out: Listen to my Mother: JVs in Asia
- Management Structure
Review of the management structure. Often the structure, in of itself, lends itself to problems.
We, also, advise having a consultant review the marketing, management, client acquisition, client retention systems etc. within your company if your company is on a fast growth track. Often, these consultants, can lessen the learning curve, while, adding more business and lowering costs of doing business. Many proactive law firms have great individuals that are more than capable.
Sean Hayes may be contacted at: SeanHayes@ipglegal.com.
Sean Hayes 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.
- Accounting & Tax Consulting Services in Korea: JZ Associates
- Legal/Compliance Checklist for your Korean Company: Top 7 Things to Do Before you Do Business in Korea
- European Union Chamber of Commerce No Longer Doing Business in Korea by Tom Coyner
- English-Speaking Business Lawyers in Seoul, Korea: Corporate Law & Compliance Team at IPG Legal
- Tax Audits in Korea
- Contracts Necessary for Doing Business with a Korean Company?