Foreign Investor·s Mode of Entry into Local Business

Foreign investor·s modes of entry into local business may be classified into four categories: Establishment of a local subsidiary or Entry in the form of an individual taxpayer both subject to the Foreign Investment Promotion Act, or Establishment of a local branch office or Office under the procedures set forth in the Foreign Exchange Transaction Act, provided, however, that it is impossible for any foreign corporation itself to register its own business in Korea.

• [ Foreign Investor's Mode of Entry into Local Business ]

• Foreign investors· entry into Korea
  • Local subsidiary
  • Individual taxpayer
  • • Application of the Foreign Investment Promotion Act
  • Beanch office
  • Office
  • • Application of the Foreign Exchange Transaction Act

Local subsidiary

A foreign investor·s or a foreign company·s investment through establishment of a local subsidiary shall be subject to the Foreign Investment Promotion Act or the Commercial Code. The local subsidiary in which a foreign investor or a foreign company invests shall be treated equally as the local corporation.
Any local subsidiary desiring to be subject to the Foreign Investment Promotion Act shall require investment by a foreign investor(s) of 50 million Won or more.

Individual taxpayer

Even in a case in which a foreign investor invests 50 million Won or more in Korea and operates its business in the form of an individual taxpayer, such investment shall be recognized as foreign investment and shall be subject to the Foreign Investment Promotion Act as a local subsidiary of a foreign corporation. In the case that the foreign investor manages its business in the form of an individual taxpayer, such investor has comparative advantages in opening, suspending and closing its business over a local subsidiary, but the investor·s credit rating is low and the investor has disadvantages in raising funds and in securing superior manpower.

• [ Difference between an individual taxpayer and a corporation ]

• Difference between an individual taxpayer and a corporation

  Classification	Individual taxpayer	Corporation (joint stock company)
  General characteristics	1. Monopoly by the owner of profit of the company, 2.Simplicity of corporate establishment 3. Fast decision-making 4. Unlimited liability of owner 5. Low ceiling on raising funds	1. Relatively simple mobilization and formation of capital 2. Complicated incorporation procedures 3. Delays in decision making 4. Liability limited to the extent of invested capital 5. Ownership and management separable
  Optimum size	Small size	Medium and large size
  Registration	Registration not required	Registration required
  Legal investor	Representative	One or more promoters
  Investment amount	50 million Won or more	50 million Won or more

Branch office

A foreign corporation desiring to conduct ordinary business activities in Korea shall appoint an executive of its local branch office, follow the procedures for opening a branch office under the Foreign Exchange Transaction Act and register the opening of the branch office with the competent court. The branch office shall be recognized as a permanent place of business under the tax law and shall be subject to the same corporate tax rate as domestic corporations with respect to the earnings accruing from business operation in Korea.

• [ Difference between foreign investment company and local branch of foreign corporation ]

• Difference between foreign investment company and local branch of foreign corporation

  Classification	Foreign investment company	Local branch of foreign corporation
  Applicable laws	Foreign Investment Promotion Act	Foreign Exchange Transaction Act
  Nature of corporation	Domestic corporation	Foreign corporation
  Identity	Foreign investor and foreign investment company are separate entities (independent in respect of accounting and final accounts)	Head office and branch are a single entity (the same body in respect of accounting and final accounts)
  Agency for notification acceptance and permit	Invest Korea or Branch and head office of foreign exchange bank	Foreign exchange bank branch (filings),Ministry of Finance and Economy (authorization of banking business)
  Minimum/maximum investment amount	Minimum: 50 million Won per case/ Maxim: No ceiling	Amount unlimited
  Scope of tax obligation	Tax obligation for all earnings within and outside the country: 15%, 27% (13%, 25% from 2005 on)	Tax obligation for incomes accrued from domestic sources: 15%, 27%(13%, 25% from 2005 on)

Office

Unlike branches, an office cannot conduct business activities but may conduct non-business activities in behalf of the head office. Accordingly, the Office may be granted an identification number corresponding to business registration by the competent tax office. The Office does not require registration with the court.

Local Subsidiary Establishment Procedures

Local subsidiary establishment procedures may be divided into three steps: Foreign investment notification procedures, Individual taxpayer·s registration procedures and lastly, foreign investment company registration procedures. Compared to the domestic corporate establishment procedures by a domestic company, only pre-notification of foreign investment and foreign investment company registration are to be added and others are essentially all same.

Foreign investment notification

The person who gives notification of the foreign investment shall be the investor itself or the representative and, in cases in which notification by the representative shall be accompanied by the power of attorney, signed by the investor in person. The place for filing the notification shall be either the foreign exchange bank or Invest Korea and the notification shall be processed immediately upon filing thereof. The documents required for submission shall be the investment notification form and certificate of nationality.

Introduction of foreign investment funds

Methods of remitting foreign investment funds consist of remittance through a remittance account and carrying through customs.
In the case of remittance, the funds shall be converted within Korea and deposited in the securities subscription guarantee deposit account and the bank shall issue the paid capital deposit certificate.

Corporate establishment

Corporate establishment registration procedures are explained below.

Business registration

Business registration is explained under the title "Business registration" below.

To transfer the paid capital into corporate account.

Upon completion of incorporation registration and business registration procedures, the newly established company shall become a legally valid corporation and the paid capital in the custody of the bank shall then be transferred to the account of the newly established corporation.

Registration of foreign investment company

The foreign investment company shall register with the authority with which the company has filed the foreign investment notification within 30 days after completion of payment of the subject-matter of investment. The documents required to be submitted shall include one copy of the application form for registration of the foreign investment company and one copy of the corporation register, and one copy of the foreign exchange purchase and deposit certificate.
The certificate for foreign investment company registration shall accompany application for remittance of investment profits out of the country and is also required when applying for a long-term stay visa (D-8) for the investor.

Corporate Establishment Procedures

The forms of the companies recognized under the Commercial Code shall be four types of companies such as unlimited partnership, limited partnership, joint stock company and limited liability company, but since the joint stock company accounts for the absolute majority of the companies, an explanation shall concentrate around the establishment procedures for a joint stock company under the commercial Code. It is advisable to allow specialists such as lawyers or judicial scriveners to handle the procedures required for corporate establishment rather than for concerned persons to try to handle the concerned matters, provided, however, that in the case of entrusting such procedural matters to Invest Korea, the head office of the company shall be located in Seoul and the representative director of the local subsidiary shall accompany Invest Korea personnel on the day of registration of the company.

Modes of establishing a joint stock company

The modes of establishment are divided into incorporation by promotion and incorporation by subscription. Incorporation by promotion refers to the method of incorporation whereby the promoters shall underwrite the total number of shares to be issued at the time of incorporation of the company and incorporation by subscription shall refer to the method of incorporation whereby the promoters shall underwrite a portion of the total number of shares to be issued and the rest of the shares shall be issued by public offering.

A joint stock company establishment procedures

• Incorporation by promoting
  • Formation of promoters -> Preparation and authentication of the Articles of Incorporation of the company -> Determination of matters relating to issuance of shares -> Promoters· underwriting of shares -> Completion of investment -> Election of directors and auditors -> Investigation and report by directors and auditors on proceedings of incorporation -> Holding of the board of directors meeting and appointment of the representative director -> Corporate establishment registration -> Corporate establishment notification and Business registration

• Incorporation by subscription
  • Formation of promoters -> Preparation and authentication of the articles of incorporation of the company -> Determination of matters relating to issuance of shares -> Promoters underwriting of shares -> Share placement -> Completion of investment -> Holding of the inaugural general meeting (election of directors and auditors and investigation into the proceedings of establishment) -> Holding of the board of directors meeting and appointment of the representative director -> Corporate establishment registration -> Corporate establishment notification and business registration - Joint stock company establishment registration

A joint stock company establishment Registration

• Registration period
• Incorporation by promotion shall be registered within two week of completion of investigation of proceeding of the establishment proceedings and incorporation by subscription within two weeks of the close of the initial general meeting.

• Major decisions to be made prior to registration
  • Formation of promoters and any similar business name shall be reviewed. A joint stock company requires one or more promoters and promoters shall underwrite the shares in writing and become shareholders of the newly formed company. In addition, any business name which may not be definitely distinguished from other business name(s) registered by other person(s) in order to conduct the same business in the same Seoul special city, the same metropolitan city, the same city or the same Gun (Name of an administrative unit) shall not be registered.
    Any similar business name(s) may be checked and identified via the website of the Supreme Court ( Korean : http://www.scourt.go.kr), (English : http://www.scourt.go.kr/scourt_en/) in the Seoul city area and at a competent registry office in other areas by prior application.

• Documents required for registration are listed as follows

• Documents required for registration are listed as follows

  Document to be prepared by the applicant

  Assistance to be provided by Invest KOREA

  1. Letter of acknowledgment of foreign investment notification form 2. Power of attorney ① The representative director to file for registration: The representative director to be the appointee on the power of attorney. ② The judicial scrivener to file for registration: The representative to be the appointee regardless of whether such representative is a promoter or an officer. 3. Consent to act as an officer ① A Korean national: the consent after being sealed to be accompanied by a certificate of the seal impression and a certificate of residence. ② A foreign national: the consent to be accompanied by the original of the consent duly signed and notarized and a copy of the passport, 4. The paid capital deposit certificate. 5. Corporate seal 6. Subway bonds 7. Supreme court revenue law stamps 8. Receipt for payment of registration tax: to be issued by the ward office (Gu office) in the location of the head office9. Personal seal impressions of the respective officers and promoters (including foreign nationals)

  10. Articles of Incorporation: Notarization 11. Certificate of take over 12. Subscription blank 13. Report on activities related to the company establishment 14. Consent to the shortening of the inaugural general meeting 15. Minutes of the inaugural general meeting: Notarized 16. Minutes of the board of directors meeting: Notarized 17. Application forms for seal and report of seal and application for the corporate seal card 18. Register of shareholders19. Consent to the matters related to issuance of shares

The documents required to be prepared by foreign investors overseas shall vary with whether the foreign investor is an individual or a corporation except in the case of Japan. In the case of a corporate investor, the relevant representative director shall bring with him/her the copy of his/her certificate of residence or driver·s license, and all shareholders and officers (including foreign nationals) referred to in any of the documents shall bring with them their seals, and the powers of attorney/inauguration acceptance certificate of the foreign nationals (except Japanese) shall be notarized. The promoters and officers need not be the same persons.

• [ Documents required to be prepared by individual investor ]

• Documents required to be prepared by individual investor

  Power of attorney (1)	To be prepared by investors/officers referred to in any of the documents, - Koreans/Japanese: To be sealed and accompanied by a certificate of seal impression - Foreign nationals: To be signed and notarized
  Inauguration acceptance certificate (1)	To be prepared by all persons registered as officers - Koreans/Japanese: The inauguration acceptance certificate to be sealed. The certificate of seal impression and certificate of resident registration to be attached thereto, - Foreign nationals: Inauguration acceptance certificate to be signed and notarized
  Certificate of seal impression (2) Certificate of resident registration (1)	To be attached, if necessary, to the power of attorney/inauguration acceptance certificate
  Passport copy (1)	All foreign nationals

• [ Documents required to be prepared by individual investor by corporate investors ]

• Documents required to be prepared by individual investor by corporate investors

  Power of attorney (1)	To be prepared by all persons referred to in the documents including, but not limited to investors and officers. - Koreans/Japanese: To be sealed and be accompanied by a certificate of seal impression, - Foreign nationals: To be signed and notarized
  Inauguration acceptance certificate (1)	To be prepared by all persons registered as officers - Koreans/Japanese: To be sealed and then be accompanied by a certificate of seal impression and certificate of resident registration, - Foreign nationals: To be signed and notarized
  Certificate of seal impression(2) Certificate of resident registration(1)	To be attached, if necessary, to the power of attorney/inauguration acceptance certificate
  Certified copy of corporate registration Corporate power of attorney	- Koreans/Japanese: To attach the registered corporate seal certificate and copy of corporation registry to the power of attorney after affixing the corporate seal thereto - Koreans/Japanese: One copy each to be attached thereto - Foreign corporation: The representative director of the foreign investment corporation to sign and delegate to the representative director of the corporation - Foreign corporation: To attach the copy of the corporate registration after notarization
  Passport copy	All foreign nationals

• Joint stock company establishment expenses
  • Expenses required for establishment of a joint stock company shall include registration tax, education tax, urban railways bonds and registration application fees.

• [The case of company establishment expenses (on the basis of KRW50 million in capital) a large city]

• The case of company establishment expenses (on the basis of KRW50 million in capital) a large city

  Total	Approx 935,000
  Registration tax: 0.4% of the capital, 3 times when establishing in a large city.	KRW600,000
  Local education tax: 20% of the registration tax	KRW120,000
  Urban railways public bond: 0.1% of capital	KRW50,000
  Supreme court revenue stamps (registration application fees)	KRW15,000
  Notary fee (Articles of incorporation)	Approx 150,000

Corporation establishment notification and business registration

• In the case that notification of corporation establishment and business registration are processed simultaneously
  

  Generally, notification of corporation establishment and business registration are processed simultaneously. Notification and registration may be carried out at the relevant district tax office in the location of the head office of the Company or at Invest Korea and with respect to the deadline for the application therefor, the business registration shall be completed within 20 days from the beginning date of business and business registration within two months from the corporation establishment registration date.
  The required documents are as follows:

• Corporation establishment notification form and business registration application form (furnished by Invest Korea and the relevant tax office)
• Articles of Incorporation (to be accompanied by the specification of investment objects for investment in kind)
• Accounts of shareholders
• Business license (for businesses requiring authorization, approval or notification)
• Copy of the lease agreement (for leasing a place of business)
  ��� In the case of leasing a part of a commercial building, the drawings of such part of the building shall be submitted.

  (Provided that the lease of any commercial building is limited to the lease wherein the respective security deposits shall be KRW240 million or less in Seoul, KRW190 million or less in the national capital region, KRW150 million or less in metropolitan cities and KRW140 million or less in other areas.)

• Other
  • - Taxpayer registration notification form (in case there is no executive to handle matters relating to domestic tax)
  • - Copy of foreign exchange purchase and deposit certificate
  • - Copy of foreign currency purchase certificate
  • - Alien registration certificate or copy of passport (for cases in which the representative is a non-resident.)

• In the case that business registration is performed first,

  In the case that a foreign investor makes an investment in kind to establish a corporation, a business registration certificate is required to receive a value added tax refund when the investment in kind objects clear customs and therefore, the business registration shall be completed prior to importation of the investment objectives. The required documents shall include an attested copy of resident registration of promoters, copy of the lease agreement, copy of the business license application form (if applicable), etc. or the business plan are required, and the documents required at the time of filing the corporation establishment notification shall all be submitted after establishment of the corporation.

Individual taxpayer registration procedures

Registration procedure flow chart

Foreign investment notification -> Remittance of investment funds(Foreign exchange bank) -> Business registration -> Registration of foreign investment company

Foreign investment notification

The person who gives notification of the foreign investment shall be either the investor or the representative, and in the case of the representative, the power of attorney signed by the investor is required (but need not be notarized). The place of the notification shall be a foreign exchange bank or Invest Korea and the mode of notification shall be notification of foreign investment through acquisition of new shares and the notification shall be immediately accepted.

Remittance of investment funds

A foreign investor is not permitted to use domestic funds to remit investment funds. Furthermore, in principle, any third party other than the investor is not allowed to remit such investment funds. For remitted investment funds, the bank shall issue the foreign exchange purchase and deposit certificate which shall be required at the time of business registration and foreign investment company registration.

Business registration

The applicant, in principle, shall file application for registration in person but may use a representative to file for registration, in which case the power of attorney shall be required to be notarized. The place for the application shall be the tax office in the location of the place of the business of the applicant or Invest Korea. Registration shall be completed within 20 days from the opening date of business.
The documents required are listed as follows:

• Business registration application form (provided by Invest Korea or the relevant tax office)
• Copy of business license (for business requiring permits, approvals, notifications, etc.)
• Copy of the relevant lease agreement (in the case of leasing a place of business.)

  ※ In the case of leasing a part of a commercial building, the drawings for the part of the building shall be submitted.
  (Provided that the lease of any commercial building shall be limited to such lease wherein the respective security deposits shall be KRW240 million or less in Seoul, KRW190 million or less in the national capital region, KRW150 million or less in metropolitan cities and KRW140 million or less in other areas.)

• Other
  • - Taxpayer setup notification forms (for such case as where the owner of the business does not normally reside at the place or remains abroad for more than six months)
  • - Joint Venture Agreement for joint venture (requires notarization)
  • - Copy of foreign investment notification form
  • - Copy of foreign exchange purchase and deposit certificate
  • - Copy of alien registration certificate or passport (in a case in which the business owner is a non-resident).

Foreign investment company registration

The place for registration shall be the same in which the foreign investment notification form is filed and the deadline for registration shall be 30 days from the date of completion of full payment of investment object.
The required documents shall include a foreign investment company registration application form, business registration certificate and foreign exchange purchase and deposit certificate.

Procedures for establishment of a foreign company's domestic branch

Domestic branch establishment flow chart

Classification of branches

• Classification of branches

  Classification	Content of business
  Branch	A branch may undertake sales activities for profits in Korea.
  liaison office	A liaison office shall not engage in business activities for profits in Korea but may carry out non-sales functions such as business coordination, market research and R&D. The liaison office may engage in business of a preliminary and incidental nature but are not permitted to maintain products in stock for direct sales or sales on behalf of the head office.

Establishment notification

• Principle
  The foreign company shall file notification with the head of the designated foreign exchange bank.

• Matters on which to notify the Minister of Finance and Economy (both in the case of a branch and office)
  • - Financial operations such as financing funds, brokering and arranging of overseas financing, credit cards and installment financing other than banking business
  • - Operations related to securities and insurance
  • - Operations not permitted under the Foreign Investment Promotion and other laws
  • - Operations that could possibly harm public order and established customs

• Documents to be submitted when filing permit application or notification with a foreign exchange bank
  • Foreign company·s domestic branch establishment notification form
  • - Articles of Incorporation of Head Office (requires notarization in the location of the head office)
  • - Letter of appointment for the head of the domestic branch
  • - Power of attorney when commissioning branch establishment work to another person (requires notarization in the location of the head office)
  • - Certified copy of incorporation or business license of the head office (when submitting a copy thereof, the copy shall be notarized in the location of the head office.)

Branch establishment registration

The Commercial Code provides that if a foreign company desires to operate domestically without being classified as either a branch or an office, the foreign company shall establish a place of business and cause the place to be registered. According to the registration act, an office under the Foreign Exchange Control Act shall not engage in sales activities but may engage in routine information coordination. Therefore, the business place establishment is not feasible and a branch only may be feasible.

Closing of a branch and retrieval of liquidation funds

• Notification
  In the case that a person, who has acquired the appropriate establishment permit, desires to close down the domestic branch or close the branch and dispose of the assets held domestically and remit the disposal proceeds to the foreign country, such person shall file notification thereof with the head of the designated foreign exchange bank.

• Ceiling on retrieval amount
  • - Application form in one copy: to apply under the name of the liquidator when appointing the applicant,
  • - Statement of reason for liquidation
  • - Liquidation report prepared by a certified public accountant in one copy (including the balance sheet and income statement as of the closing date and the current liquidation conclusion date)
  • - Certificate of full tax payment (national and local tax) each in one copy
  • - Itemized accounts of funds imported for operation, profit surplus and other reserves in one copy
  • - Deposit balance certificate in one copy (the balance amount shall be identical to the remittable amount in the liquidation report.)
  • - Certified copy of liquidation conclusion registration for sales operation branches in one copy.
  • - If the certified copy of liquidation conclusion registration cannot be submitted, the following documents may be substituted: Closure notification certificate in one copy (issued by the district tax office) Documentary evidence of liquidator appointment, Documentary evidence of bond notice (copy of newspaper notice), Confirmation of outstanding money and other valuables to Korean workers in one copy (issued by the head of the district labor office)
  • - Original of foreign company·s domestic branch closure notification form