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The Ultimate Guide To
Employment in South Korea

Employing in South Korea: What You Need to Know

South Korean employment law appears complex and confusing when looking from outside view although in some ways there are many similarities to other countries. Other factors that complicate matters include the differences in rules depending on the type of business structure and number of employees.   For these and many other reasons the following are only guidelines in the broadest sense, and professional legal services are recommended when employing in South Korea.

Key Factors to Consider When Employing in South Korea

There are several key areas to be aware of within South Korea’s employment regulatory framework, especially for companies that plan to initiate a full local office and human resources department.  These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the local laws and rules for both local employees as well as foreign nationals.

  1. Contracts

    South Korea requires that employees have employment contracts that meet the requirements of the Fair Labor Standards Act.  http://www.moel.go.kr/english/poli/poliLaw.jsp?tab=6

Probation

Information Explanation
Probation Period ?

According to legal information site Korean Labour Law, the Labor Standards Act of Korea does not have an explicit regulation on probation periods. However, the law does state that notice of termination is not required for “Employees under probationary period (of 3 months or less)”.  This infers that while a probation period may be longer than 3 months, usually the employee will gain the rights of a regular employee after 3 months.

Pension

Information Explanation
Pension Requirements ?

A.  Employment Insurance

Businesses and workplaces with one or more regular workers are obligated to subscribe to employment insurance.

The employee and employer both evenly contribute 0.65% of the total wage. Sometimes there is an additional contribution by employer called “occupational ability daevelopment” which can range from 0.25 – 0.85% depending on the size of the company.

B.   Accident Insurance

Companies will be required by law to have some form of accident compensation insurance to cover any employees. Average monthly wages determine the relevant insurance premiums. Businesses and workplaces with one or more regular workers are obligated to subscribe to industrial accident compensation insurance.

The employer contributed from 0.6 – 0.34% of the total salary, depending on the type of business.

C.  National Pension

Korea has a mandatory state pension service which is contributed to by both employer and employee. The national pension scheme is run by the National Pension Service (NPS). All Koreans and foreigners aged between 18 to 59 who live and work in South Korea must contribute to the national pension scheme. A company only needs to start contributing when it has 5 or more employees (otherwise, employees must individually manage their own contributions).

The employee and employer both equally contributed 4.5% of the standard monthly wage.

D.   Health Insurance

Employer contribution 2.995% of standard monthly wage

Employee contribution – 2.995% of standard monthly wage

GEO Solutions or DIY Employment in South Korea?

Companies entering South Korea must make a decision whether to use their own resources for a Do-It-Yourself (DIY) approach, or to use a Global Employment Organization to handle payroll and employment responsibilities. A GEO pr South Korea Employer of Record solution makes it faster, easier and cheaper to deploy staff if they don’t have a South Korean entity established that can run payroll.

A DIY approach will typically take 6-9 months until there is a properly incorporated entity ready to run payroll. Shield GEO can deploy foreign staff in 4-6 weeks and local staff in 48 hours. Additionally Shield GEO is responsible for all compliance issues related to the employment.

Outsourcing Employment Through a GEO Employer of Record Service

Using Shield GEO Employer of Record Services in South Korea

Compliance with local employment requirements is just one of the issues foreign companies face when employing staff in South Korea. For companies which intend to employ their staff directly through their incorporated South Korea entity, professional legal advice is recommended. Shield GEO provides an alternative path for companies to outsource the employment of their staff in South Korea.

As a Global Employer Organization (GEO), Shield GEO acts as the Employer of Record and ensures the employment is compliant with host country regulations regarding employment. In addition Shield GEO will handle payroll processing, tax and immigration. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into South Korea.

The Shield GEO solution is an attractive alternative where:

– the company is looking to employ staff quickly

– the company doesn’t have an appropriately incorporated entity in South Korea

– the company wants to work within a defined budget

– the company wants to limit its initial commitment in South Korea

– the company needs help with tax, employment, immigration and payroll compliance in South Korea

Shield GEO can contract directly with the company to employ and payroll their staff in South Korea. Shield GEO supplies local employment contracts for the staff which ensure that local statutory requirements are met covering issues such as termination, probation periods, leave entitlements and statutory benefits.  Shield GEO is able to advise companies how to cover local employment regulations whilst still providing consistent global employment policies. Understand more about outsourced employment through Shield GEO.

Payroll

Payroll South Korea
Management Fee for Employer of Record Services / Monthly Payroll Costs

Please contact us for a quote

Notes

Shield GEO pays the employee on a monthly basis, typically on the last working day of the month although we can adapt to your preferred schedule. Income tax and social security (where applicable) are deducted at source and paid to the local tax authorities.

Currency ?

₩ Won (KRW)

 
Grossed income Tax Rate (%)
KRW0 - KRW12,000,000 6% + 0.6% (local income tax)
KRW12,000,001 - KRW46,000,000 15% + 1.5%
KRW46,000,001 - KRW88,000,000 24% + 2.4%
KRW88,000,001 - KRW150,000,000 35% + 3.5%
Above KRW150,000,000 38% + 3.8%
Tax Returns Supplied

If required

Corporate Tax Requirements

A tax year for companies is usually coincides with their accounting period specified in the articles of incorporation. This normally is a 12-month period and cannot be longer than that.

 

There is a self-assessment system in South Korea. Advance tax must be paid for the first six months of the business year if the year is longer than six months. This is based on 50% of the previous year’s tax liability or the actual financial performance for the six-month period.

Employers Social Security and statutory contributions

Both the employer and the employee pay the following social security contributions that are based on the gross income of employees: national pension, unemployment insurance and medical insurance premiums. They contribute 4.5% of the monthly salary to the national pension fund. The employer and employee also contribute 2.945% and 0.55% of the average monthly wage as a national medical insurance premium and an unemployment insurance premium, respectively. In addition to the unemployment insurance, the employer contributes an insurance premium, which varies from 0.25% to 0.85% of an employee’s average monthly wage based on the number of employees. The long-term care insurance contribution is imposed on the national medical insurance premium at a 6.55% rate.

 

The maximum amounts of the national medical insurance premium  and national pension premium are KRW 4,901,380 and KRW 350,100, respectively, including both the employee and the employer’s portion.

 

Employees Social Security and statutory contributions

See above

Can supply private health care

Yes

Can assist opening bank accounts

Yes

Work Permits

Work Permits
Can Sponsor Work Permit

Yes

Work Permit cost

$4250 USD

Work Permit processing time

2-4 weeks

Can Work Permit be processed in country

Yes

Switch Business Visa to Work Permit?

Yes but nationality dependent

Business Visas

Business Visas
Can do Business Visa

Yes, for non-visa exempt nationals. All non-visa exempt nationals require a C3-4 Business Visa.

Business Visa Cost

$500 USD

Business Visa processing time

5-7 days

Payroll and Tax in South Korea

There are specific rules for payroll and taxation in South Korea, depending upon the number of employees.  Foreign employees are required to pay income tax in South Korea.  The primary concerns for a foreign company that needs to comply with tax laws in South Korea are: individual income tax for employees in South Korea, social security costs, payroll tax, sales tax, employment insurance, social insurance programs, withholding tax, business tax, pension contributions and permanent establishment concerns.

Information Explanation
Remote Payroll ?

A remote payroll in South Korea is where a foreign company, i.e. a non-resident company, payrolls a resident employee in South Korea. One option for a non-resident company to payroll its employees (local and foreign) in South Korea is to use a fully outsourced service like a GEO which will employ and payroll the staff on their behalf.

Local Payroll Administration ?

In some cases, a company will register their business in South Korea under one of the forms available, but prefer to have another company administer its payroll.  This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll ?

Larger companies with a commitment to South Korea may wish to run their own local payroll for all employees, foreign and local.  In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff.  There will be a need for in country human resources personnel who have the background needed to manage a South Korean payroll, and can fulfill all tax, withholding, and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations.  The company will need a local accounting firm and potentially legal counsel to ensure full compliance with South Korean employment laws.

Fully Outsourced Payroll & Employment ?

Companies can outsource the employment and payroll of their staff in South Korea to a GEO, like Shield GEO. This is possible for both foreign workers and South Korea nationals. This is the easiest, fastest and safest way to payroll staff in South Korea.

Shield GEO manages all aspects of payroll for workers in South Korea, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.

Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with payslips.

Read more about outsourced payroll and employment through Shield GEO.

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Tax Figures

Information Explanation
Corporate Income Tax ?

First KRW 200,000,000 of taxable income = 10% tax rate;

Income in the KRW 200,000,000 – KRW 20 billion is taxed at 20%;

22% tax rate applies to all the income above KRW 20 billion.

 

There is also a local income surtax of 10% that applies to corporate income before tax credit and exemptions. Losses could be carried forward for a period of time up to 10 years. Small and medium businesses in some cases are allowed to carry losses back for one year.

Income Tax Rate ?
Grossed income Tax Rate (%)
KRW0 - KRW12,000,000 6% + 0.6% (local income tax)
KRW12,000,001 - KRW46,000,000 15% + 1.5%
KRW46,000,001 - KRW88,000,000 24% + 2.4%
KRW88,000,001 - KRW150,000,000 35% + 3.5%
Above KRW150,000,000 38% + 3.8%
Sales Tax ?

Value Added Tax of 10% is imposed on the supply of goods and provision of services. There is a zero rate that applies to exports and services rendered outside Korea.

Withholding Tax ?

Dividends, royalties and interest on regular loan paid to nonresident individuals or companies are taxed at a 22% rate (includes the local surtax), unless there is a treaty that reduces this rate. The same tax rate is usually imposed on services provided by a nonresident companies (or individuals). Interest on bonds is, however, subject to a 15.4% withholding tax. Technical service fees maybe classified as royalties in some cases.

Other Tax ?

When a company purchases real estate,heavy equipment, motor vehicles and other items it has to pay acquisition tax of 4.6% (including the local surtax).

 

There is also a capital registration tax of 0.48% (with the local surtax), which is levied when a company registers its incorporation or capital increase with the court registry. This tax rate for a company incorporated in the Seoul Metropolitan Area would be higher, at a rate of 1.44%.

Time to prepare and Pay Taxes ?

188 hours

Time required to start a Business ?

4 days

Immigration and Work Permits in South Korea

Foreign workers are required to have the proper visas and work permits in South Korea, as established by immigration laws.  Work permits must be secured for employees, and sponsored by a locally licensed and incorporated entity, which can be a problem for companies just entering the South Korean market.  If you have yet to complete the incorporation process you can use an outsourced management company or GEO Employer of Record to sponsor the employee for the necessary permits.

Have your own Company?

There is a multitude of working visas available to apply for in order to work in Korea. They range based on occupation and specialisation of the visitors. The most common one is the E-7 Foreign National of Special Ability Visa.

This visa is intended for individuals who plan to engage in a field designated by the Minister of Justice of Republic of Korea (ROK) for the enhancement of national competitiveness. This type of visa requires employees to have a contract with a public or private institute in ROK.

This visa process is complex and requires a number of different documents. To be eligible for this work permit individuals need to have either a Master’s degree in the relevant field, or a Bachelor’s degree with at least 1 year of working experience in the relevant field, or at least 5 years of professional experience in the chosen field of employment. Companies sponsoring this category of employees are usually subjected to certain strict requirements: the company with less than 5 Korean nationals employed cannot sponsor foreign employees, and a number of foreign employees hired by the company cannot be more than 20% of Korean nationals being employed by it.

Documents from employee (for UK citizens; will vary depending on the country):
– visa Application Form (Form No. 21), a copy of passport, a photo in a standard format, fee
– recommendation letter of employment (or gold card) issued by Small and Medium Business Association or Minister of Trade, Industry and Energy (KOTRA);

– copy of employment contract;

– letter of guarantee;

– document of requirements;

– copy of academic credentials;

 

Employers sponsoring workers for this visa will typically have to submit:

– letter of invitation;

– information regarding number of foreign employees currently employed;

– copy of Certificate of Tax Payment for the previous year;

– copy of financial statements for the previous financial year;

– copy of company’s Report or Registration certificate under the Foreign Investment Promotion Act;

– copy of Corporate Registration (Certificate of Incorporation);

 

Period of stay under this visa is up to 3 years.

General fee for most of the single entry visas lasting for more than 90 days is USD 60. This fee will vary depending on the country.

The processing time for the application for most of the working visas is approximately 1 to 4 weeks from the date of submission (will vary depending on the country of residency and other specific factors).

Use the Shield GEO Employer of Record Solution?

It takes around 2 to 4 weeks to secure a work permit (E-7) in South Korea.

The processing costs are and $4250 USD through Shield GEO’s local partner.

Documentation required (Employee): Copy of the personal pages of the applicant’s passport, CV, 2 passport photos, copies of degree/diploma/professional certificates and notarized copies of professional references.

The process for obtaining a Work Permit (E-7 Special Activity) for South Korea is as follows:

  • Shield GEO’s local partner and the employee sign a local employment contract (labour contract)
  • Shield GEO’s local partner makes an appointment with the Immigration Office in Korea to submit the documentation. If the applicant is in country then the applicant attends this appointment.
  • Processing times are 2 -4 weeks.
  • Once approved the applicant is issued with an (Alien Registration Card), if the applicant applies from outside Korea the ARC is sent to the Korean Consulate in the applicants country of residence and the applicant collects the ARC before entering Korea.

Types of visas in South Korea

Category Description of Visa
E-5 Professional

This visa is for professionals with a national certificate (such as a certified public accountant, foreign lawyer, doctor, etc.) under the laws of the Republic of Korea who plans to engage in professional work in medical, legal, accounting, and other fields prescribed by the country’s laws.

Period of stay is usually for up to 1 year.

Documents:
– Visa Application Form, a copy of passport, a photo in a standard format, fee
– degree certificate and a copy of license
– recommendation letter from the head of a responsible government department. If you wish to work in Korean Free Economic Zone, you must submit an employment recommendation letter or a document proving the necessity of employment issued by the respective mayor or provincial governor.
– employment contract

C-4 Short-Term Employee

This visa is for individuals who are planning to work in Korea for the period of time of less than 90 days (advertising, lecturing, IT consulting, music and arts, temporary show, modelling).

General documents required for this visa (for the citizens of UK, the list may vary depending on the country):

Visa Application Form (Form No. 17), passport, a photo in a standard format, fee
Employment Contract
Employment Recommendation Letter from the respective department (affiliated organisations)
Documents relevant to the establishment of institution (A copy of Business Registration Certificate or a certified copy of Corporate Register)

General fee: USD 40 for single entry visa (for all the single-entry visas, which are up to 90 days). This fee will vary depending on the country.

D-7-1 Intra-Company Transferee (Foreign Company)

This visa is for employees who have worked for at least 1 year at a foreign public company or headquarters, branch (or any other office) of a foreign company, and is transferred to the affiliates, subsidiary, or branch in ROK in a certain field that require their expertise.

– application form for Confirmation of Visa Issuance (Form No. 21), a copy of passport, a photo in a standard format
– Statement of Invitation
– document demonstrating you are a highly required specialist (i.e. resume, a certificate of employment history)
– proof of an applicant’s current employment status from an applicant’s company
– dispatch order from an applicant’s organisation
– document relevant to the establishment of a Korean branch
– copy of a permission for the establishment of a Korean branch or a copy of an Acceptance of Declaration
– document demonstrating that a Korean branch or a liaison office is operated properly
– record of the inflow of funds or capital to a Korean branch or liaison office in ROK

In case of a newly-established company, a business management outline is required to submit a Certificate of Tax Payment.

Duration: up to 1 year.

D-7-2 Intra-Company Transferee (Domestic Company)

This visa is intended for employees who have worked for at least 1 year at an overseas corporation or branch of a public organization (or of a listed company), and is relocated to headquarters or head office in ROK for training or sharing their professional knowledge.

– Visa Application Form (Form No. 17), passport, a photo in a standard format, fee
– A document demonstrating that you are an indispensable professional specialist (i.e. resume, a certificate of employment history and others)
– unabridged Corporate Register of the headquarter (certified copy)
– Foreign Direct Investment Declaration or Overseas Branch Office Establishment Declaration
– document proving international wire transfer
– copy of business registration certificate or a certified copy of Corporate Register(unabridged) of the overseas branch office
– proof of employment or a tax payment receipt
– dispatch order(It should indicate the period of the overseas assignment.)

Duration: up to 1 year.

D-8-2 Business Venture

Is for people who established a venture firm, or who has been confirmed with a preliminary venture firm (in accordance with the Act on Special Measures for the Promotion of Business Venture).

– Visa Application Form (Form No. 17), passport, a photo in a standard format, fee
– copy of Business Registration Certificate or a certified copy of unabridged Corporate Register
– Business Venture Confirmation or Prospective Business Venture Confirmation
– Documents demonstrating that you have either the intellectual property right or equivalent skills (know-how)
– copy of Patent Registration Certificate, Utility Model Registration Certificate, Design Registration Certificate, Trade Mark Registration Certificate issued by Korean Intellectual Property Office, a copy of Copyrights Registration Certificate issued by Korea Copyright Commission and others
– assessment result proving an excellent technical performance from Korea Technology Finance Corporation or Small and Medium Business Corporation

Duration: up to 1 year.

D-8-4 Technology and Business Start-up

This is visa is granted to founder of an enterprise with intellectual property rights or any technical skills (or the equivalent, e.g. know-how) who has acquired a bachelor’s degree or higher.

Documents required for this visa:
– Visa Application Form (Form No. 17), passport, a photo in a standard format, fee
– certified copy of Corporate Register (unabridged) and a copy of Business Registration Certificate
– documents demonstrating that you have either intellectual property right or equivalent skills
– any documents proving points earned through the Points-Based System (copy of Patent Registration Certificate, Utility Model Right Registration Certificate, Design Registration Certificate, Trade Mark Registration Certificate for intellectual property rights holders
– application certificate issued by the head of Korea Intellectual Property Office
– certificate for completion or graduation of the OASIS program issued by the head of Global Investment Center designated by the Minister of Justice, award winner confirmation letter, official statement of selection, and etc.
– other documents that can prove points earned through the Points-Based System

Duration: up to 1 year.

H-1 Working Holiday

This visa is for workers from the countries that signed a memorandum of understanding (MOU) or other agreement in regards to Working Holidays policy, who plan to engage in a short-term job to cover traveling expenses while in Korea.

– valid passport
– recent photograph (taken within the last 3 months)
– visa applications
– proof of a roundtrip airline ticket
– proof of financial support or other documents that show you have sufficient funds to support yourself (for at least 3 months)

Some extra documents:
– proof of student status or proof of highest academic qualifications (reciprocity) for Japan and USA
– criminal record (reciprocity) for Canada, New Zealand, France
– medical exam (Reciprocity) for Australia, Canada, New Zealand, and France

Duration: Up to 1 year (up to 18 months for U.S. participants)

Setting up a company in South Korea

When setting up a company you may want to consider these factors:

  1. Business Factors

    • The industry and type of business
    • Nationality of the headquarters/individual(s) and
    • Presence of existing trade agreements or relationships
  2. License and Product Approval

    Ensure that your products can be lawfully imported into South Korea, that all legal requirements of customs and import laws are met, that you have all required licenses and permits to import and sell the products, and export and import documentation complies with Korean law.

  3. Cultural Factors

    Culture is always important. Korea is apparently one of the most homogenous countries in the world, and doing business in South Korea can be a challenge for many business visitors. Similar to Japan, ‘face’ is of great importance and acknowledging the business culture and etiquette will be important.

  4. Language

    The local language is Korean and as such local bodies and official documents will be in Korean. While international business is often done in English, getting many things done will always be easier with some local language ability.

  5. Free Economic Zones

    The Korean government has established a number of free economic zones that provide additional incentives and tax benefits to foreigners who are investing or starting a business in South Korea. Generally, South Korea requires the business, or the foreign investor, to be located within the free economic zone in order to receive the benefits.

When setting up a company in South Korea you have three options:

  • Company
  • Foreign Branch
  • Liaison Office

This article provides a general guideline for foreign businesses on entering South Korea for business purposes. In particular it looks at common pathways to establishing a business presence in South Korea, generally through a liaison office, branch office or subsidiary company. In addition various economic, tax and regulatory facts are provided throughout as a source of useful information to assist those who will enter the Korean economy. The guide also looks at some immigration requirements such as obtaining the appropriate visa status.

Data is based on the time of writing this article, June 2015, or closest available dates.

South Korea is part of the Korean Peninsula situated between China and Japan. It is formally the Republic of Korea and governed by a democratic government. According to the CIA World Factbook, over the past decades the nation has worked towards global integration and seen incredible growth, becoming a high-tech industrialized economy. South Korea will host the 2018 Winter Olympic Games.

Population               50 million

Capital                       Seoul

Official language     Korean

Calling code             +82

Timezone                  UTC+9

Currency                   ₩ Won (KRW)

Nominal GDP            $1.435 trillion ($28,338Per capita)

Domain                      .kr

The Korean economy continues to grow with the size of the economy ranking as one of the world’s largest economies. The country has a high standard of living, education and income levels and is well known for global high-tech companies such as Samsung, Hyundai-Kia and LG.

There are three types of business forms available to foreign companies in South Korea.  Each of these business forms has distinct advantages and disadvantages, as well as differing scope of business activities, registration requirements and minimum capital requirements.  In most cases it will depend on the degree of commitment a company has to South Korea and the planned business activity.

Company

A. Requirements/Restrictions

A foreign owned local corporation is recognized as a ‘foreign investment’ under the Foreign Investment Promotion Act in South Korea. According to InvestKorea, the company must invest at least 100 million won. If an investee corporation is a private business, the company cannot issue a business investment (D-8) visa. A trade (D-9) visa shall be issued if it invests KRW 300 million or more. Foreign investors and foreign-invested companies are of separate entities (independent accounting & settlement).

Shares in Korean companies do not have to be held by Korean resident shareholders.

B.  Advantages/Disadvantages

The advantages/disadvantages to South Korean corporations are those typical for company structures. Thus, choosing a company structure rather than a branch or liaison office has the standard benefits, such as having a separate legal entity to the parent company to keep debts and liabilities separate, as well as the typical drawbacks such as higher administrative and compliance requirements.

However, a primary benefit may be due to the introduction of ‘Start-Biz’; registering and setting up a corporation is now manageable from a one-stop source, which can connect the various bodies from registration to tax. As branch and liaison offices do not appear to be able to be registered through this unified system, this suggests that corporations are probably even easier to set up than branches and liaison offices.

C. Registration Steps

1. Make company seal

Not much information could be found about the requirement for company seals. However, the Doing Business project listed it as the first required step to setting up a company in South Korea. It appears that the company can use any local ‘Sealmaker’.

Time: 1 day

Cost: KRW 30,000

2. Designate a Bank for Capital Deposit

While information wasn’t perfectly clear, it was suggested that it may be typical for corporations to first designate a foreign exchange bank to deposit the required capital before proceeding to register the company. After the company is registered, the company can open a commercial bank account and arrange for the transfer of the capital into the company’s bank account.

Time: 1 day

Cost: none (may include exchange fees, however)

3.  Register company

Previously, companies had to be manually registered with bodies such as KOTRA. However, with the introduction of Start-Biz, the founder can pay the corporate registration tax bill and incorporation fee online from one source. Start Biz Online is found at: www.startbiz.go.kr.

As usual, articles of association and documents like a company constitution must be prepared before registering a company.

The service has combined the Internet Register Office, the Local Tax Payment System, the Electronic Notarization System, the National Tax Information System, the Financial Common Network, and the Social Insurance Information System which for the purpose of incorporation. Start Biz Online allows its users to process the entire incorporation process online, including:

  • Checking the availability of trade name
  • Obtain a certificate of name availability
  • Filing the application package for incorporation
  • Obtaining a corporate registration tax bill
  • Register the company
  • Obtaining a certificate of seal impression of corporation
  • Registering and getting a tax identification number (TIN)
  • Submitting the rules of employment
  • Registering electronically for the Public Health Insurance Program,
  • Registering electronically for the National Pension Fund,
  • Registering electronically for Employment Insurance,
  • Registering electronically for Industrial Accident Compensation Insurance.

Generally documents required will include the incorporation documents, which must be in Korean (or translated) and identification documents of members.

The first step is checking the company name, uploading incorporation documents as well as filing company information. During this period, the court registry office reviews the documents and information provided by the applicants, and due diligence of company address is conducted by the tax office. Afterwards, applicants can then proceed to payments for the corporate registration tax bill as well as the registration fee. Since the system already has the company information, there is no need to fill in separate forms for the payments.

Time: 3 days

Cost:

  • e-registration KRW 2,000 fee
  • 2% of capital for capital registration tax
  • “education tax” (20% of the registration tax)
  • KRW 10,000 for incorporation fee (certificate of seal impression of incorporation)

4.  Pay Social Security registration fees

According to the Doing Business Project, after the submission of documents is completed, applicants can then proceed on the same Start-Biz system to payments for the corporate registration tax bill as well as the registration fee. Since the system already has the company information, there is no need to fill in separate forms for the payments.

Within the system it will apparently redirect the user as needed to pay various registrations for the Public Health Insurance Program, the National Pension Fund, Employment Insurance, and Industrial Accident Compensation Insurance.

Time: Instant (online)

Cost: No charge

5.  Open Commercial Bank Account

There was not much information available on starting commercial bank accounts in South Korea. Generally, documentation such as identification documents would be required, and may require an initial deposit, as well as the business registration number.

Generally a company will likely deposit capital in an exchange bank as mentioned earlier, and at this stage organize with the bank to transfer in the capital funds.

Time: 1 day

Cost: No charges

6.  Establish an Office

Generally a company is required to have a physical office in Korea. It seems that there is no restriction on using a virtual office as a business address. There appears to be no specific registration requirement of the office location with government authorities. Thus there is no estimated time or cost related to setting up a business (though of course there will be separate time and cost arranging lease agreements with a real estate agent or virtual office)

Time: n/a

Cost: n/a

7.  File Rules of Employment

According to international HR consultancy Compandben, if a company has 10 or more employees in Korea its working conditions need to be documented in a “Rule of Employment” and this has to be filed with the Labor Authority as per the “Labor Standard Act”. Either one “Rule of Employment” or different “Rules of Employment” split by working type or occupation type are allowed. The Employer can prepare its own “Rule of Employment” but is obliged to hear opinion from half the employees at least or get consent in the case where an amendment will lead to worse working conditions.

Time: 1 day

Cost: no known charges

Foreign Branch

A.  Requirements/Restrictions

A ‘branch’ operates business that generates profits in Korea, but is not locally incorporated and is not recognized as direct foreign direct investment. According to InvestKorea, headquarters and their foreign branches are treated as a single legal entity (the same accounting & settlement). There is no limit in investment amount or ownership.

B.  Advantages/Disadvantages

Branches do not require formal incorporation, making them easier in principle to set up than a local corporation, and with less registration fees. Unlike liaison offices, branches are also allowed to engage in sales activity. They are considered a separate legal entity providing some separation of debts and liabilities from their parent.

Generally branch offices are suitable for smaller scale operations.  Foreign companies can move on to a local subsidiary later as needed.

C.  Registration Steps

1.  Notify Designated Exchange Bank

Branches of foreign corporations must designate a foreign exchange bank for the usual purpose of channeling working capital, but also to receive permission to establish in Korea.

In order for a foreign company to establish a domestic branch, a notification must be sent to the head of the designated foreign exchange bank (any Korean bank which handles foreign exchange), according to Korea Law. Alternatively, Invest Korea reports that a financial business must register at the Ministry of Strategy and Finance for permission of establishment of a financial business. Required Documents generally include:

  • Report form of the establishment of a foreign company’s domestic branch
  • Article of association (Notarization of the location of the headquarters is required)
  • A certified copy of registration or operation permission of headquarters
  • General principles of headquarters
  • Minutes of board of directors meeting that state the establishment of a branch or liaison office in Korea and the appointment of a Korean representative.
  • A certificate of permission for business
  • Power of attorney where the establishment of a domestic branch is commissioned to another person (Notarization of the location of the headquarters is required)

All documents from the home country need to be notarized, and most likely provided with a Korean translated copy (the translator need not be certified).

2.  Register with Court Registry Office

Once notification is confirmed by the exchange bank, the company must submit this to a local court registry office. In addition to the report/confirmation from the bank, the branch must nominate a representative who is responsible for day-to-day administration of the branch. The representative does not have to be a Korean resident.

Little to no information was found on the actual procedure of registering, so time and cost is an estimation.

Time: 1-2 weeks (estimate)

Cost: no known charge

3.  Register at Tax Office for Business Registration Certificate

The branch must register at a tax office to obtain a business registration number. This process covers registering for tax such as sales and payroll tax.

Korea4expats reports that most foreign employees are required to pay Korean income taxes, which are generally withheld and paid by the employer. Meanwhile, according to a guide by KPMG, every business engaged in supplying of goods or services, whether or not for profit is required to register for VAT purposes by applying for a business registration certificate.

There was not much information available on the actual procedure. It seems that the forms can be downloaded from the national tax office’s website at http://www.nts.go.kr/eng/data/Application(Forms-2).pdf and must be submitted to it, or to a district tax office.

Time: 1-3 days

Cost: no known charges

4.  Open Commercial Bank Account

There was not much information available on starting commercial bank accounts in South Korea. Generally, documentation such as identification documents would be required, and may require an initial deposit, as well as the business registration number.

Generally a company will likely deposit capital in an exchange bank as mentioned earlier, and at this stage organize with the bank to transfer in the capital funds.

Time: 1 day

Cost: No charges

5.  Establish an Office

It was not clear whether a branch is legally required to have a physical office in Korea. In any case, there appears to be no specific registration requirement of the office location with government authorities. Thus there is no estimated time or cost related to setting up a business (though of course there will be separate time and cost arranging lease agreements with a real estate agent or virtual office).

It seems that there is no restriction on using a virtual office as a business address or similar services in Korea.

Time: n/a

Cost: n/a

6.  Register for Social Security Insurances

According to the National Pension Service website, since 1 Jan, 2011, the National Health Insurance Service (NHIS) has been collecting contributions for all social insurance programs (National Pension, Health Insurance, Employment Insurance, and Industrial Accident Compensation Insurance).

Korea has a mandatory state pension service which is contributed to by both employer and employee. The national pension scheme is run by the National Pension Service (NPS). All Koreans and foreigners aged between 18 to 59 who live and work in South Korea must contribute to the national pension scheme. A company only needs to start contributing when it has 5 or more employees (otherwise, employees must individually manage their own contributions).

Branches will be required by law to have some form of accident compensation insurance to cover any employees. The Korean Workers’ Compensation & Welfare Service states all workplaces subject to the declaration of WCI/EI relations shall submit a Declaration of WCI/EI Relations within 14 day after having started their business(es). An employer must report employment information including worker’s name, resident registration number, address, employment date, employment termination date, average monthly wages, etc. using “relevant declaration forms”; the reported information will be used to assess and bill relevant (insurance) premiums.

The employer must enroll and declare employees to the system. According to the NHIS, documents required include:

  • Employee Health Insurance Application Form (Annexed Document Form: No. 27)
  • Copy of the business registration

Presumably, details of employees and wages would also be required. The website and information is located at http://www.nhis.or.kr/static/html/wbd/g/a/wbdga0602.html however it does not appear provide more details of the exact procedure or where/how to enroll. The forms most likely need to be submitted to the NHIS, at least via post or in person. A listing of office locations can be found at http://www.nhic.or.kr/english/about/about04_5.html

Time: 1-3 days (estimate)

Cost: no known registration charges

7.  File Rules of Employment

According to international HR consultancy Compandben, if a company has 10 or more employees in Korea its working conditions need to be documented in a “Rule of Employment” and this has to be filed with the Ministry of Labor and Employment. Either one “Rule of Employment” or different “Rules of Employment” can be created, split by working type or occupation type.

As with most other steps, while several sources mention the requirement to file at the ministry (e.g. Korean Law Blog or Reuters’ PLC Law Guide, among others), none provide any detail on the details of where or how to apply, or if there is any processing time or costs. It would be necessary to look up a local office of the ministry and apply there directly.

Time: 1-2 weeks (estimate)

Cost: no known registration costs

Liaison Office

A.  Requirements/Restrictions

An ‘liaison office’ does not carry out business that generates profits in Korea, but instead undertakes a non-sales function such as market research, R&D etc.

While the liaison office does not need to incorporate or register like a company or branch office, it must still report to an exchange bank. According to InvestKorea, a liaison office must however register at the tax department, where it is granted a distinct number, equivalent to business registration, at a jurisdictional tax office in Korea. There is no restriction on foreign ownership.

B.  Advantages/Disadvantages

The restriction on sales activities is the main disadvantage of a liaison office, as with the typical representative office structure. However, it is relatively simpler and less expensive to establish.

C. Registration Steps

1.  File Notification to Exchange Bank

According to KoreaLaw, a liaison office does not need to formally register, however a notification must be reported to a designated foreign exchange bank. Or alternatively, InvestKorea states a financial business, must notify the Ministry of Strategy and Finance for permission of establishment of a financial business.

Usually required documents include:

  • Company documents of head company
  • Board resolution of setting up a branch office
  • Certificate of appointment for the president of the liaison office
  • The passport or ID card of the president of the liaison office
  • Power of Attorney if a law firm is acting on the company’s behalf

2.  Register at Tax Office for Business Registration Certificate

The branch must register at a tax office to obtain a business registration number. This process covers registering for tax such as sales and payroll tax.

Korea4expats reports that most foreign employees are required to pay Korean income taxes, which are generally withheld and paid by the employer. Meanwhile, according to a guide by KPMG, every business engaged in supplying of goods or services, whether or not for profit is required to register for VAT purposes by applying for a business registration certificate.

There was not much information available on the actual procedure. It seems that the forms can be downloaded from the national tax office’s website at http://www.nts.go.kr/eng/data/Application(Forms-2).pdf and must be submitted to it, or to a district tax office.

Time: 1-3 days

Cost: no known charges

3.  Establish an Office

It was not clear whether a branch is legally required to have a physical office in Korea. In any case, there appears to be no specific registration requirement of the office location with government authorities. Thus there is no estimated time or cost related to setting up a business (though of course there will be separate time and cost arranging lease agreements with a real estate agent or virtual office).

It seems that there is no restriction on using a virtual office as a business address or similar services.

Time: n/a

Cost: n/a

4.  Register for Social Security Insurances

According to the National Pension Service website, since 1 Jan, 2011, the National Health Insurance Service (NHIS) has been collecting contributions for all social insurance programs (National Pension, Health Insurance, Employment Insurance, and Industrial Accident Compensation Insurance).

Korea has a mandatory state pension service which is contributed to by both employer and employee. The national pension scheme is run by the National Pension Service (NPS). All Koreans and foreigners aged between 18 to 59 who live and work in South Korea must contribute to the national pension scheme. A company only needs to start contributing when it has 5 or more employees (otherwise, employees must individually manage their own contributions).

Employers will be required by law to have some form of accident compensation insurance to cover any employees. The Korean Workers’ Compensation & Welfare Service states all workplaces subject to the declaration of WCI/EI relations shall submit a Declaration of WCI/EI Relations within 14 day after having started their business(es). An employer must report employment information including worker’s name, resident registration number, address, employment date, employment termination date, average monthly wages, etc. using “relevant declaration forms”; the reported information will be used to assess and bill relevant (insurance) premiums.

The employer must enroll and declare employees to the system. According to the NHIS, documents required include:

  • Employee Health Insurance Application Form (Annexed Document Form: No. 27)
  • Copy of the business registration

Presumably, details of employees and wages would also be required. The website and information is located at http://www.nhis.or.kr/static/html/wbd/g/a/wbdga0602.html however it does not appear provide more details of the exact procedure or where/how to enroll. The forms most likely need to be submitted to the NHIS, at least via post or in person. A listing of office locations can be found at http://www.nhic.or.kr/english/about/about04_5.html

Time: 1-3 days (estimate)

Cost: no known registration charges

5.  File Rules of Employment

According to international HR consultancy Compandben, if a company has 10 or more employees in Korea its working conditions need to be documented in a “Rule of Employment” and this has to be filed with the Ministry of Labor and Employment. Either one “Rule of Employment” or different “Rules of Employment” can be created, split by working type or occupation type.

As with most other steps, while several sources mention the requirement to file at the ministry (e.g. Korean Law Blog or Reuters’ PLC Law Guide, among others), none provide any detail on the details of where or how to apply, or if there is any processing time or costs. It would be necessary to look up a local office of the ministry and apply there directly.

Time: 1-2 weeks (estimate)

Cost: no known registration costs

Outsourcing Employment Through a GEO Employer of Record Service

Whether to incorporate in South Korea, and what sort of entity to setup are just two of the many choices companies must make when expanding into a new market.

If the company intends to have staff in South Korea they must also decide whether they will administer that employment internally or use a Global Employment Organization to handle payroll and Employer of Record responsibilities.  A GEO Employer of Record solution is an attractive alternative where

  • the company is looking to setup an office quickly
  • the company wants to work within a defined budget
  • the company wants to limit its initial commitment in South Korea
  • the company needs help with tax, employment, immigration and payroll compliance in South Korea

The complexity of employment regulations in South Korea makes the use of a GEO advisable coupled with local legal counsel to ensure full compliance with employment laws, for example the drafting of local contracts for workers.

Shield GEO provides a comprehensive service in South Korea allowing companies to deploy their staff quickly with reasonable, clearly stated costs and timeframes. The company contracts directly with Shield to employ and payroll their staff on their behalf in South Korea.

Shield GEO then becomes the Employer of Record. Shield GEO assumes the legal responsibility for these employees, sponsoring them on work permits, complying with local employment law and running their monthly payroll. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into South Korea . Read more about outsourced employment through Shield GEO.

Summary of Set-Up Steps

Subsidiary Company Branch Office Liaison
Office
Time Cost (KRW)
Make Company Seal Yes 1 day 30,000
Designate Bank / Capital Deposit Yes Yes Yes 1 day 0
Register Company Yes 3 days 12,000
(plus tax)
Register at Court Registry Office Yes 1-2 weeks 0
Business Registration Yes Yes 1-3 days 0
Social Security Registration Yes Yes Yes instant 0
Open Commercial Bank Account Yes Yes Yes 1 day 0
Establish an Office Yes Yes Yes n/a n/a
File Rules of Employment Yes Yes Yes 1 day 0
TOTALS:*applications and processing times, not including internal document preparation, lawyer fees, etc Subsidiary7 days42,000 Branch11-20 days0 Liaison4-7 days0

 

Conclusion

The most common kinds of entry into South Korea are through a subsidiary company, branch office or liaison company. A foreign owned local corporation is recognized as a ‘foreign investment’ under the Foreign Investment Promotion Act in South Korea.

Due to the introduction of ‘Start-Biz’; registering and setting up a corporation is now manageable from a one-stop source which can connect the various bodies from registration to tax. Branch and liaison offices do not appear to be registered through this unified system, making subsidiary corporations possibly the easiest and most secure company form for foreign investors.

  • South Korea Employer of Record Overview

South Korea Employer of Record Overview

  • South Korea Employer of Record Overview

South Korea

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