Market Entry Guide Korea.
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- Introduction
- Modes of Setting up a Business in Korea
- Procedures for Immigration
- Social Insurance System in Korea
- Free Trade Zones and Free Economic Zones in Korea
- Opening a Bank Account in Korea
- Recruitment of Local Staff
- Taxation
- Appendix
Appendix I: Useful Links and Addresses
- Disclaimer
1 Introduction
Download PDF
- Introduction
- Modes of Setting up a Business in Korea
- Procedures for Immigration
- Social Insurance System in Korea
- Free Trade Zones and Free Economic Zones in Korea
- Opening a Bank Account in Korea
- Recruitment of Local Staff
- Taxation
- Appendix
Appendix I: Useful Links and Addresses - Disclaimer
1 Introduction
Korea is one of the key players in Asia and thirteenth-largest economy in the world. The adoption of liberal economic policies and reforms has helped the country recover rapidly from the 1997 financial crisis and maintain a stable economic growth rate during the past few years. In 2008, Korea was ranked 15th with its GDP reaching EUR 651.6 billion (USD 953.5 billion). Once the global financial crisis hit, the GDP slowed down to 2.2% in 2008 and unfortunately, by 0.8% by 2009. On a positive note, the South Korean economy has started to rapidly recover in part because of growth in exportations, lower interest rates, and a better fiscal policy1. The current forecasts for 2010 are projected at 5% by the South Korean Finance Ministry. If the country stays firm with this figure, they will retain their position as the 13th largest economy in the world.
As far as the South Korea current account balance, numbers reported in 2008 were at a negative USD6.349 billion. However, a significant change occurred over the following 12 months, putting 2009’s numbers at a positive USD30.38 billion. These numbers are what record a country’s net trade in both goods and services, along with net earnings, and net transfers. Major drivers of the Korean economy are automotive, petrochemicals, electronics, shipbuilding, textiles and steel products. The country reported foreign exchange reserve worth EUR 191.6 billion (USD 262.2 billion) by the end-2007as compared with EUR 104.4 billion (USD 96.2 billion) for 20003.
Korea engages in import and export activities with more than 220 countries worldwide. Driven by aggressive manufacturing oriented towards exports, South Korea economy rose to become the world’s eighth biggest exporter of goods. In 2009, import and export of goods accounted for 46 percent and 50 percent of the country’s GDP, respectively4. In 2008, the major exported goods were semiconductors, wireless telecommunications equipment, motor vehicles, computers, steel, ships and petrochemicals with the main export partners being China (21.5%), the US (10.9%), Japan (6.8%) and Hong Kong (4.6%). Keyproducts imported to Korea during this period were machinery, electronics and electronic equipment, oil, steel, transport equipment, organic chemicals and plastics and its importing partners were China (17.7%), Japan (14%), the US(8.9%) and Saudi Arabia (7.8%)5. Further, Korea has signed a Free Trade Agreement (FTA) with Chile, Singapore, the European Free Trade Association (EFTA), ASEAN and the US and is negotiating with the EU, Canada and India6. EU and South Korea singed free trade deal and the provisional application will be effective from the 1st of July 2011.
In 2009, FDI in the country decreased by 1.9 percent to EUR 8.25 billion (USD 11.48 billion) as compared with that in the previous year. In 2009, FDI in the country decreased by 1.9 percent to EUR 8.25 billion (USD 11.48 billion) as compared with that in the previous year. FDI inflows also witnessed a robust growth in sectors such as the food (1,220.5%), non-metallic minerals (453.1%), finance (101.0%), insurance investment (24.8%) and logistics storage facilities (376.7 %). The EU invested EUR 3.8 billion (USD 5.29 billion) (16.1 percent decrease on a y-o-y basis); Japan invested EUR 1.38 billion (USD 1.93 billion) (35.9 percent increase) and the US invested EUR 1.06 billion (USD 1.48 billion) (11.8 percent increase) to the FDI7. The table illustrates the major areas of foreign investments in Korea8.
| INVESTING COUNTRY | INVESTMENTS |
|---|---|
| US | Chemical and finance insurance |
| Japan | Non-ferrous and finance insurance |
| The Netherlands | Electric and electronic products and wholesale retail (distribution) |
| UK | Electric and electronic products and finance insurance |
2 Modes of Setting up a Business in Korea
This section explains the common investment vehicles available to foreign investors, the procedures to be followed in order to establish them and the regulations for each.
Table 1 lists the most common modes of setting up businesses by foreign investors and the legal particularities involved in the process.
Table 1: Different Modes of Setting up a Business in Korea9
| MODES OF SETING UP BUSINESS | DEFINITION | APPLIED LAW |
|---|---|---|
| Liaison (Representative) Office | Perform non-revenue generating business activities in Korea | Foreign Exchange Transaction Local Branch Act |
| Local Branch | Revenue generating business activities carried out by local branches of foreign firms in Korea | |
| Local Corporation | Investment of KRW 50 million (EUR 29,625) or more by a foreign individual or corporation to establish a local corporation in Korea | Foreign Investment Promotion Act |
| Individual Proprietor | Investment of KRW 50 million (EUR 29,625) or more by foreign individual to establish a business entity |
Source: Invest KOREA – FDI Procedure
2.1 Liaison Office
A liaison office is only allowed to operate non-sales activities such as market surveys, research and development, and other business activities that do not generate revenue in Korea. It does not place any limit on the invested amount and only requires three to four working days for set up.
2.1.1 Legal Registration Process
The establishment of a liaison office involves the following three steps:
2.1.1.1 Step 1: Notification of Liaison Office Establishment
The declaration of the establishment of a liaison office must be made to foreign-exchange banks (most major banks in Korea provide this service). However, for operating finance-related businesses in Korea, a permit from the Korean Ministry of Finance and Economy is also required.
The required documents to be submitted to the designated Foreign Exchange Bank are as follows10, 11:
Notification form of the establishment of a domestic office (provided by the bank)
Certificate of incorporation of the head office (notarised in the region where the head office is located)
Letter of appointment of the head of the domestic office
Power of attorney, if applicable (notarised in the region where the head office is located)
Corporate registry extract or business licence of the head office (a copy notarised in the region where the head office is located can substitute the original)
Other documents requested by the Ministry of Finance and Economy (if deemed necessary)
2.1.1.2 Step 2: Registration for Taxpayer’s Identification Number
A liaison office needs to apply for the taxpayer’s identification number at the relevant district tax office.
The documents required for this procedure are as follows:
Application form for taxpayer’s identification number (provided)
Certificate of incorporation of head office (notarised in the region where the head office is located)
Notarised letter of appointment to the head of the domestic branch
Notification of branch establishment (a copy from step 1)
Copy of the lease agreement for office space signed by the owner and head of the liaison office (notarisation not required)
Copy of the passport of the head of the liaison office (notarisation not required)
Notarised power of attorney (if applicable)
2.1.1.3 Step 3: Remitting Operating Funds
After obtaining the taxpayer’s identification number, the head of the domestic office can open a bank account in the designated foreign exchange bank for remitting operating funds.
2.1.2 Regulations
For liaison offices, the Foreign Exchange Transactions Act (FETA) is applicable.
A liaison office is only permitted to conduct non-profit activities.
The liaison office does not have an independent identity, and belongs to the head office in the home country.
There is no limit on the investment that can be made by the liaison office.
2.2 Local Branch
The procedure for setting up a branch office is similar to that of a liaison office. However, it requires registration as a place of business at the relevant court before registration of the taxpayer’s identification number. This commercial registration must be done within three weeks of the date on which the branch was established.
The documents required for this procedure are as follows:
Document verifying business operation of the head office (e.g., certificate of incorporation)
Document verifying qualification as a branch representative in Korea
Articles of incorporation (certified by relevant government authorities)
Certificate of approval, if any
Translated documents (into Korean) of the four documents listed above
Tax receipt
Transcript of seal impression of a branch representative in Korean (for a foreign national, a notarised sealed signature is required)
Company corporate statute or any other document identifying the nature of the company
Documents verifying the office address
2.3 Local Corporation
In Korea, a company founded by a foreign company or individual is regarded as a local corporation and is regulated under the Foreign Investment Promotion Act and the Commercial Act.
2.3.1 Legal Registration Process12
Establishing a foreign-owned corporation requires six key steps: notification of foreign investment, remittance of investment funds, incorporation and tax payer registration, account transfer of investment capital, registration of foreign-owned corporation and FDI company registration.
2.3.1.1 Step 1: Notification of Foreign Investment
Before transferring the investment capital into Korea, the foreign investor or its representative (with a letter of attorney) must notify the Foreign Exchange Bank or Invest KOREA (a government agency to support foreign investors) about the investment. The applicant only needs to complete an FDI notification form and provide documents verifying the nationality of investors (a copy of a passport is required for individual investors).
2.3.1.2 Step 2: Remitting Investment Funds
Investment funds can be remitted to local entities via foreign exchange banks or brought directly and declared at customs. The remitted capital is converted into Korean Won and deposited in a temporary account.
2.3.1.3 Step 3: Registration of Incorporation
Foreign investors need to register as a corporation at the relevant district (Gu) office; the following are required for this step:
Application form (provided)
Payment receipt of registration/education tax (issued at the relevant Gu office)
Supreme Court revenue stamp (purchased at banks)
Articles of incorporation (notarised)
Certificate of underwriting
Written subscription
List of shareholders
Written consent agreeing on matters concerning the issuance of shares
Custody certificate of paid-in capital
Copy of FDI notification
Application form for the establishment of a corporation
Written agreement on the curtailment of the incorporation period
Minutes of the inaugural general meeting (notarised)
Corporate registered seal
Seal of each director and promoter (including foreign directors and promoters)
Minutes of the first meeting of the corporation’s board
Power of attorney (if applicable)
Application form for the registration of the corporate seal
Document verifying stock acquisition
2.3.1.4 Step 4: Notification of Legal Person and Registration of Business
Generally, the notification of the legal person and the registration of a business are made together in the same application form at the relevant tax office or Invest KOREA.
Documents required for the procedure include the following:
Application form (provided)
Copy of business permit (if applicable)
Copy of lease contract
Notification of designated tax manager (required where an investor does not stay in Korea for more than six months)
Copy of FDI notification
Copy of certificate of foreign currency exchange
Certificate of foreigner registration (where a company representative is not a Korean resident)
Joint Venture Agreement (if applicable)
In some special cases where business registration needs to be completed prior to establishing the legal person, the foreign investor is required to prepare the following documents.
Application form for the business permit (provided)/sponsor
Transcript of residency registration of promoter
Business plan
2.3.1.5 Step 5: Account Transfer of Investment Capital
After the registration of the legal person and the business, the remitted capital deposited in a temporary account will be transferred to the company’s account.
During this procedure, the following is required:
Original copies of the transcript of legal person registration
Certificate of registered corporate seal
Corporate seal
Certificate of business registration
Seals to be used for corporate account
Identification card of representative director
2.3.1.6 Step 6: FDI Company Registration
FDI company registration needs to be completed where the FDI notification is filed within 30 days from the date on which the capital contribution was completed.
Required documents include the following:
Application form (provided)
Certificate of business registration
Certificate of exchange/deposit of foreign currency
2.4 Individual Proprietor
If a foreign individual opens a business independently then he/she can register as an individual proprietor. The registration procedure is similar to that of establishing a foreign-owned local corporation. However, the notification of the legal person is not required for the establishment of an individual proprietorship.
2.5 Average Time (in days) Required for Setting up a Business
To start a business, the legal and bureaucratic hurdles that entrepreneurs must overcome need to be identified. Registration is often critical for accessing a range of necessities including finance, physical infrastructure (electricity, water, etc.) and contract enforcement. The greater the number of procedural requirements, the more is the scope for uneven enforcement.
According to a World Bank report, the average time taken to start a business in Korea is less than in countries such as China, India and Russia.
Figure 1: Obstacles in Starting Businesses in Various Countries (2009)
Source: The World Bank Group - Document: Doing Business 2009
Note: OECD = Organization for Economic Co-operation and Development
Numbers represented for OECD based on the average calculated for the 27 countries in this category
3 Procedures for Immigration
In general, a foreigner must have a visa to enter Korea but there are some exceptions if a person falls into one of the following categories:
People from countries under visa waiver agreements with Korea if they stay in Korea for 90 days or less. Luxembourg has signed a visa waiver agreement with Korea.
Frequent visitors
Special entry arrangements for residents of the Jeju Island
APEC Business Travel Card holders
Visa-free entry as per appointment
Tourist transit to third country
Europe-bound Chinese transit tourists
Re-entry permit holders
In Korea, permanent residency is granted in two cases. A person who marries a Korean national and stays in Korea more than five years is granted permanent residency. Foreign investors or foreign professionals holding an F-2 visa, and working in Korea for foreign-invested companies for more than five years can also become permanent residents.
3.1 Visa Requirements
Table 2 lists the visa categories according to the different purposes of visit in Korea.
Table 2: Purpose of Visit and Visa Category in Korea
| PURPOSE OF VISIT | VISA CATEGORY |
|---|---|
| Diplomacy/Official mission status | Diplomacy (A-1), Official mission (A-2), Agreement (A-3) |
| Non-profit and short-term stay visa | Temporary press coverage (C-1), Temporary business (C-2), Temporary visit (C-3) |
| Employment visa | Temporary employment (C-4), Professor (E-1), Foreign language teaching (E-2), Research (E-3), Technological guidance (E-4), Profession (E-5), Arts/Entertainment (E-6), Specially designated activities (E-7), Non-professional employment (E-9), Labour aboard (E-10), Working holiday (H-1) |
| Long-term stay visa | Culture/Arts(D-1), Study (D-2), Industrial training(D-3), General training (D-4), Press coverage(D-5), Religious work (D- 6), Intra-company transfer(D-7), Treaty investment (D-8), Treaty trade (D-9), Visit and stay with family (F-1), Residency (F-2), Family dependency (F-3), Overseas Korean (F-4), Others (G-1) |
Source: Government for Foreigners of Republic of Korea
Documents Required for Visa Applications13
- A travel document (apart from passport)
- A recent passport-size colour photograph)
- Application forms
- A certificate for the recognition of visa issuance, if applicable
- Other documents that each category of visa may require
Visa Issuance Authority
- Korean Embassy or Consulate
Basic Visa Fees14
- Single-entry visa for a stay of no more than 90 days: USD 30 (EUR 22.0)
- Single-entry visa for a stay of more than 90 days: USD 50 (EUR 36.7)
- Multiple-entry visa: USD 80 (EUR 58.7)
Note
- The head of the embassy or consulate may issue the visa at his/her discretion.
- In cases where the issuance of a visa is not assigned, the applicant should request for the approval of the Minister of Justice.
3.2 Procedures for Work Permits
To work in Korea an individual must have a visa that allows employment activities, and must work in accordance with the specific restrictions on the scope of the activities allowed by the visa. Even for a person with a visa allowing employment, he/she can work only in the place designated by a local or district immigration office.
3.2.1 Business and Work Visas in Korea15
Temporary Business (less than 90 days)
The following individuals can apply for a temporary business (C-2) visa if he/she visits Korea for less than 90 days:
- A person who is heading the branch of a foreign corporation or foreign-investing corporation
- Self-employed people (e.g., shop owners) visiting the country to purchase commodities for their shops
- A person invited by a Korean public/private organisation to provide consulting services or to deal with contract issues
- A person who is an exporter and/or importer or has related knowledge of machinery installation, repair, inspection and operation
Business (more than 91 days)
- Intra-company transfer (D-7)
- Treaty investment (D-8)
- Treaty trade (D-9)
Temporary Employment (C-4)
With the C-4 visa, a foreign national is allowed to be involved in profit-making activities for a period of 90 days in Korea.
Foreign Language Teaching (E-2)
- A native speaker who holds a bachelor’s, master’s or doctor’s degree in the mother country can apply for this visa to teach foreign languages at any institution or educational facility.
Research (E-3)
Technological Guidance (E-4)
Professional (E-5)
- A person who obtains an authorised foreign certificate of qualification approved by Korean law can apply for the E-5 visa.
Arts/Entertainment (E-6)
Specially Designated Activities (E-7)
Employment after Industrial Training (E-8)
Non-professional Employment (E-9)
- A person who satisfies the required conditions based on the Law of Foreign Workers’ Work Permit Act can apply for the E-9 visa.
Labour Aboard (E-10)
A person who intends to work as a labouring seaman onboard the ships that are prescribed as ships for passengers & freight transportation in the Marine Transportation Act can apply for the E-10 visa.
3.2.2 Procedures
Temporary Business Visa (less than 30 days)
The applicant must submit the required documents to the embassy or the consulate of Korea. The embassy or the consulate will then check the documents submitted and issue the visa. The documents required for this visa are:
- Trade record with the inviting Korean enterprise (e.g. invitation, export and import licence, contract, letter of intent for business expedition and document related to import/export)
- All documents related to the foundation of the inviting Korean enterprise (e.g. a copy of business registration, a certificate of business registration, an attested copy of corporation registry and a certificate of tax payment)
- Document related to the invited person (e.g. a certificate of incumbency)
- Document related to the invited enterprise (e.g. business licence)
Business Visa (more than 30 days)
Firstly, the foreign national or the person who invites him/her should apply for a Certificate of Recognition of Visa Issuance at the relevant immigration office. After obtaining the Certificate of Recognition of Visa Issuance or Certification Number of Visa Issuance, the individual
needs to apply for a visa at the Korean embassy or consulate.
When applying for a Certificate of Recognition of Visa Issuance and visa, the following documents are required:
- Passport (copy of the passport, in the case of applying for a Certificate of Recognition of Visa Issuance)
- Application form for visa issuance
- A dispatch warrant or a certificate of incumbency
- A foreign investment report or a copy of the investment company’s registration
Employment
The procedure for applying for an employment visa is similar to applying for a business visa. However, the documents required differ depending on the employment type.
3.3 Availability of Commercial Real Estate
In Korea, foreigners can easily acquire local real estate, except in some special cases, which require legal permission (e.g., land in military installations, cultural properties and protected ecosystems). The procedures for land acquisition for foreign investment are governed by the Foreigner’s Land Acquisition Act.
Most foreign companies prefer to locate their office in Seoul despite the high rental rates caused by strong demand for land. The vacancy rate of commercial real estate is generally low (below 3 percent), especially in the Gangnam, Y eouido and CBD districts of Seoul. The government is establishing office buildings in the western neighbourhoods of Seoul and in Bundang, one of the capital’s satellite cities. In Korea, the average annual rent per square metre for a prime A-grade building is about KRW 50,215 (EUR 29.8) per square metre per month.
3.3.1 Procedure for Real Estate Acquisition
The following steps have to be carried out by foreign-investing companies to acquire real estate in Korea:
Make a contract of real estate acquisition and payment
Submit, within 60 days from the conclusion of the contract, a real estate acquisition report to the city/district/county land registery office where the real estate is located
Note: The real estate acquisition report is only required when the foreign investment rate exceeds 50 percent.
3.3.2 Related Regulations16
Foreigner’s Land Acquisition Act
Covers the basic procedures related to local real estate acquisition by foreigners
Foreign Investment Promotion Act
Covers the benefits of shortened foreign investment reporting procedures, tax reduction and sales of national property when local real estate is purchased after registration as a foreign investment company
Foreign Exchange Transactions Act
Covers matters related to foreign exchange flows caused by foreigners’ acquisition of local real estate
Registration of Real Estate Act
Provides the procedures for real restate registration
3.4 Average Rent for Off ice Space in Korea
In Korea, 71 percent of the FDI was made in the Seoul metropolitan area during the period 1998–2005. This was mainly through revitalised investment in services, including finance and insurance17. Office space in Seoul is mainly divided into three business districts, including the Central Business District (CBD), the Gangnam Business District (Gangnam) and the Y eouido Business District (YBD).
According to a report by Cushman & Wakefield, in Q1 2009, the net occupancy18 cost was EUR 31.5 per square metre per month for prime and A-grade buildings in the CBD, EUR 32.4 per square metre per month in Gangnam, and EUR 25.3 per square metre per month in Yeouido19.
3.5 Average Living Costs for Expatriates
According to the Annual List of Most Expensive Cities for Expatriate Employees, compiled by Mercer Human Resource Consulting, Seoul ranked 5th, while Luxembourg ranked 43rd in March 200820. In another survey in June 2008 by a London-based human resources consulting firm ECA International ranked Seoul 3rd in Asia and 18th in the world in terms of living costs for foreign executives21.
4 Social Insurance System in Korea
Korea has a uniform insurance system throughout the country with which companies are legally obliged to comply. All workers that meet certain criteria are insured.
4.1 Social Securitiy
The social insurance system in Korea consists of four parts, including the National Pension Act, the Industrial Accident Compensation Insurance Act, the Employment Insurance Act and the Medical Insurance Act22.
The Ministry of Health and Welfare is the legal authority for National Pension and Medical Insurance, while the Ministry of Labour is the legal authority for Industrial Accident Compensation Insurance and Employment Insurance.
The employer should pay the entire amount in the case of Industrial Accident Compensation Insurance, while both employers and employees contribute an equal amount in the case of National Pension, Employment Insurance and National Medical Insurance.
Table 3 shows the basic components of the social security system in Korea.
Table 3: Basic Social Security System in Korea
| SOCIAL INSURANCE | EMPLOYEE’S PAYMENT (%) | EMPLOYER’S PAYMENT (%) | AMOUNT TO BE DEPOSITED IN PERSONAL ACCOUNT (%) |
|---|---|---|---|
| National Pension | 4.50 | 4.50 | 9 |
| Industry Accident Compensation Insurance | 0 | NA | NA* |
| Employment Insurance | 0.45 | 0.45 | 0.90 |
| National Medical Insurance | 2.54 | 2.54 | 5.08 |
Source: Bizforms – Payment of Social Insurance - 2008
* Note: Each occupation has different payment percentage for Industrial Accident Compensation Insurance.
Note: The payment base should be the average monthly salary of the employee.
5 Free Trade Zones and Free Economic Zones in Korea
5.1 Free Trade Zone (FTZ)
To accommodate manufacturing and logistics corporations and boost their synergies, Korea has set up designated free trade zones (FTZs) in several areas, which include industrial complexes, airports, ports, distribution centres and cargo terminals.
To support investors, government agencies provide one-stop administrative services in FTZs, including investment reports, admission approvals, factory construction approvals and import and export approvals. Low-price real estate and facilities are available in these areas, and business conditions are favourable for foreign- investing corporations. As per the Customs Act, corporations are eligible for benefits (depending on which part of the act applies), such as customs duty exemptions on imported goods and prescribed domestic goods, exemption from valueadded tax (VAT) and the absence of complicated refunding procedures while using imported raw materials and/or producing and/or exporting products.
FTZs can be divided into industrial complex types, airports and seaports. Industrial complex types are managed by the Minister of Commerce and Industry and Energy; while airports are managed by the Minister of Construction and Transportation and seaports by the Minister of Maritime Affairs and Fisheries. This allows for a professional and specialised management of FTZs.
The table below lists the names and official websites of all FTZs in Korea.
Table 4: FTZs in Korea
| ZONE | OFFICIAL WEBSITES |
|---|---|
|
Industrial Complex Type
|
|
|
Seaport Type
|
|
|
Airport Type
|
|
Source: Invest KOREA – FDI Incentive (Location Incentive)
5.2 Free Economic Zone (FEZ)
Free Economic Zones (FEZs) are geopolitically beneficial locations having an airport, a port and tourist/leisure facilities.
FEZs must be equipped with infrastructure and related facilities, such as high-tech industrial complexes and hinterlands to provide backup for manufacturing, logistics and tourist businesses. They should enable the creation of a pleasant residential environment to attract highly skilled manpower from domestic and international markets, pursuant to the Law on the Designation and Operation of Free Economic Zones.
The Korean government has designated three FEZs—Incheon, Busan & Jinhae, and the Gwangyang Bay area. The Korean government plans to complete the first phase of development of FEZs by 2008. By then, it hopes to have attracted multinational corporations in the IT, biotech and logistics fields, and have completed the establishment of international business zones, residential complexes and tourist complexes. By 2009, it intends to develop FEZs into hi-tech international cities equipped with their own city functions.
5.2.1 Available Support within FEZs in Korea
The following support is available within FEZs in Korea:23
National and local tax breaks
- National taxes: Complete tax exemption for the first three years, 50 percent tax exemption for the following two years
- Local taxes: Complete tax exemption for the first three years, 50 percent tax exemption for the following two years (the period is extendable to 15 years according to municipality regulations)
Financial support
- Rental concessions on sites and land rented out to foreign corporations
- Financial support for the construction of major infrastructure facilities
Support for the improvement of the living environment
- Providing foreign language services (publishing, receiving and handling official documents in foreign languages)
- Installing medical service centres or pharmacies catering solely to the needs of foreigners
- Establishing and operating foreign educational institutions
6 Opening a Bank Account in Korea
6.1 Overview of Retail Banking
Two types of banks operate in Korea – general (commercial) banks and special banks. General banks mainly handle conventional services such as deposits, loans and payment services. Special banks focus on areas that are insufficiently funded by general banks due to service limitations.
Table 5: Major General Banks in Korea
| BANK | WEBSITE |
|---|---|
| Kookmin Bank | http://www.kbstar.com/ |
| Shinhan Bank | http://www.shinhan.com/ |
| Woori Bank | http://www.wooribank.com/ |
| Hana Bank | http://www.hanabank.com/ |
| Korea Exchange Bank | http://www.keb.co.kr |
| Standard Chartered First Bank Korea | http://www.scfirstbank.com/newweb/ |
Source: Hankyung – Major General Banks in Korea – October 2007
6.2 Procedures for Foreign Enterprises
Foreign enterprises and Korean companies have to follow similar procedures to open a bank account. After a foreign enterprise obtains the certificate of incorporation issued by the Korea Registration Office and Business Registration Certificate issued by tax offices, it is required to submit the following documents to open a bank account:
Certificate of incorporation
Business registration certificate
ID card of the local representative director
Seal
In case the representative director is unable to visit the bank, the person who submits the documents must carry the power of attorney sealed with the company’s registered seal, along with a certificate of sealed impression issued by the Korean Registration Office. The assigned person must also bring his/her ID card and a photocopy of the representative director’s ID card.
6.3 Procedures for Foreigners
In Korea, opening a local bank account is not complicated for foreign nationals. A foreigner is required to present his/her passport, a certificate of Alien Registration and a visa to apply for a local bank account. Foreign exchange services are available at all banks; a passport is the only document required.
7 Recruitment of Local Staff
The most common recruitment channels are media advertisements (newspapers, magazines and broadcasting), campuses, recruitment agencies, Internet recruiting, and head-hunting agencies in Korea. Large companies or government organisations usually arrange public recruitment events or job fairs and announce their recruitment in major newspapers and related websites. Applicants have to undergo rigorous tests and several rounds of interviews.
7.1 Major Recruitment Agencies and Websites
Table 6: Major Recruitment Agencies and Websites
| LEADING RECRUITMENT AGENCIES | WEBSITES |
|---|---|
| JOB KOREA | http://www.jobkorea.co.kr |
| SARAMIN | http://saramin.co.kr |
| INCRUIT | http://www.incruit.com |
| WORKNET | http://work.go.kr |
| CAREER | http://career.co.kr |
| Headhunt Korea | http://www.headhuntkorea.com |
| LEADING HEAD-HUNTING AGENCIES | WEBSITES |
| Top Headhunter | http://www.topheadhunter.co.kr |
| Nterway | https://www.nterway.co.kr |
Source: 100HOT- List of Leading Recruitment Agencies – Nov. 26 - Dec. 2, 2007
7.2 Brief Overview of Labour Laws24
Whilst Korea has a highly educated and productive workforce, labour/management relations remain a cause of concern for foreign investors. Korea loses more workdays from strikes than any other OECD (Organisation for Economic Co-operation and Development) country. It ranked 105th among 155 countries in terms of labour flexibility, based on a study conducted by International Finance Corporation in 2005.25
There are several categories of labour laws in Korea—individual labour-related laws, collective industrial relations laws, cooperative industrial relations laws and employment-related laws. The application of labour laws is related to the number of workers employed. These laws provide the standards to be followed in employment contracts. Any term of employment will be null and void if it does not meet the standards set forth in the laws, even though the employer and employee may agree on them.
Individual Labour-related Laws
Individual labour-related laws aim to establish certain legal standards for employment contracts such as content, modification and termination procedures. Typical individual labour-related laws include the Labour Standards Act, the Seamen Act, the Minimum Wages Act, the Industrial Safety and Health Act, the Worker Compensation Insurance Act and the Gender-Equal Employment Act.
Collective Industrial Relations Laws
Collective industrial relations laws ensure that workers, whose economic and social status is inferior to that of employers, are able to achieve a largely equal footing with employers, and ultimately achieve autonomous solutions of problems between employers and employees (labour management au-tonomy). Collective industrial relations laws include the Trade Union and Labour Relations Adjustment Act and the Labour Relations Commission Act.
Cooperative Industrial Relations Laws
Cooperative industrial relations laws aim to promote mutual benefits for both employees and management through participation and cooperation of parties, thereby pursuing industrial welfare and contributing to the development of the national economy. This includes the Promotion of Workers, Participation and Cooperation Act.
Employment-related Laws
Employment-related laws include the Framework Act for Employment Policy, the Employment Security Act, the Dispatched Workers Protection Act, the Employment Insurance Act, the Employment of Disabled Persons and Occupational Rehabilitation Act and the Employment Promotion for the Aged Act.
7.3 Average Salary Range
The average salary, ranges by gender, education level and job in Korea, as per Korea National Statistics Office and Korean Employment Information Service, are presented in tables 7–9.
Table 7: Average Salary by Gender in 2007
| GENDER | AVARAGE sALARY (IN EUR) |
|---|---|
| Male | 15,860 |
| Female | 10,918 |
Source: Korea National Statistical Office, 2007
Table 8: Average Salary by Educational Level in Korea in 2007
| EDUCATIONAL LEVEL | AVARAGE SALARY (IN EUR) |
|---|---|
| Middle School Graduate and Below | 11,266 |
| High School Graduate | 12,653 |
| Junior College Graduate | 13,106 |
| Bachelor Degree and Above | 19,957 |
Source: Korea National Statistical Office, 2007
Table 9: Average Salary by Job in Korea in 2009
| JOB | AVARAGE SALARY (IN EUR) |
|---|---|
| English for Speakers of Other Languages (ESOL) Teacher | 16,425 |
| Software Engineer/ Developer/ Programmer | 19,383 |
| Elementary School Teacher | 15,146 |
| Sr. Software Engineer/ Developer/ Programmer | 24,229 |
| Electrical Engineer | 44,052 |
| Mechanical Engineer | 26,431 |
Source : PayScale, May 2009
8 Taxation
8.1 Tax System in Korea
Taxes in Korea can be divided into national taxes and local taxes. National taxes include internal taxes, customs duty and earmarked taxes. Local taxes consist of provincial taxes and city and county taxes.
8.2 Tax Rates
8.2.1 Corporate Income Tax
Local corporations and foreign-owned corporations have different tax obligations. Local corporations, whose head office or main office is located in the domestic market, are obliged to pay corporate income tax on both domestic and overseas withholding income. Foreign corporations, whose head office or main office is located overseas, are obliged to pay tax on domestic withholding income.
The corporate income tax rate for the taxable amount (excluding income deduction) of KRW 100 million (EUR 59,250) or less is 13 percent; the taxable amount (excluding income deduction) in excess of) KRW 100 million (EUR 59,250) will be taxed at a rate of 25 percent.26
Corporate income tax consists of the following three parts:
Corporate income tax on income for each fiscal year
Corporate income tax on transfer income of land or others
Corporate income tax on liquidated income
Corporate tax obligations vary for local corporations and foreign corporations (both for profit organisations and non-profit organisations).
Table 10: Corporate Tax Obligation Scope
| CLASSIFICATION | INCOME FOR EACH FISCAL YEAR | CORPORATE INCOME TAX ON TRANSFER INCOME OF LAND AND OTHERS | LIQUIDATED INCOME | |
|---|---|---|---|---|
| Local Corporation | Profit Organisation | All incomes of domestic and overseas withholding | 0 | 0 |
| Non-profit Organisation | Withholding income from certain profit business (both domestic and overseas) | 0 | x | |
| Foreign Corporation | Profit Organisation | Domestic withholding income | 0 | x |
| Non-profit Organisation | Withholding income from certain domestic profit business | 0 | x | |
Source : PayScale, May 2009
8.2.2 Value-added Tax
Value-added Tax (VAT), under the VAT Act, is the general consumption tax imposed on all items categorised as monetary goods and services (except those tax exempt items). Businesses engaged in supplying monetary goods and services are subject to VAT.
VAT is applied at a rate of 10 percent but in some special international transactions and on specific monetary goods and services, zero percent VAT is applied.
8.3 Tax Incentives
The Korean government provides tax abatement to foreign companies that fall into the following categories:
Service industries supporting the manufacturing sector (97 businesses as of Dec. 1999)
Industry bringing about advanced technology (436 industries as of Dec. 1999)
Industry entering the foreign investment zone*
Overall procedures for tax reduction application are handled by the Economic Cooperation Bureau of Ministry of Finance and Economy. The businesses that are subject to tax reduction must also apply to benefit from a tax incentive. Table 13 lists detailed information about tax abatement.
Table 11 lists detailed information about tax abatement.
Table 11:Tax Abatement in Korea
| TYPES | SUBJECT SEGMENTS | REDUCTION PERIOD | REDUCTION RATE | APPLICABLE TAX / REMARK |
|---|---|---|---|---|
| National Tax |
|
10 years | 100% for the first 7 years; 50% for the next 3 years |
Income tax, corporate tax, income tax on dividends |
| Local tax |
|
8 years | 100% for the first 5 years; 50% for the next 3 years |
Acquisition tax, registration tax, property tax, comprehensive land tax |
| Tariffs including VAT, special consumption tax |
|
3 years | 100% for 3 years | Application to be made within 3 years from the FDI notification |
Source: Korea Exchange Bank - Tax Guide for Foreign Invested Enterprise
*Note: Foreign investment zone is the area designed by The Special Metropolitan City Mayor, any other metropolitan city mayor
and a Do governor, where a foreign investor desires to make an investment.
When applying for tax reduction at the Economic Cooperation Bureau of the Ministry of Finance and Economy, the following documents are required:
Application form for Tax Reduction & Exemption (3 copies)
Certificate of FDI Company Registration or notification form
Technology development-related fund and data verifying that the concerned technologies are state-of-the-art
8.4 Double Tax Treaty27
To avoid double taxation, Korea and Luxembourg signed the Convention between the Government of the Republic of Korea and the Government of the Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital on 7 November 1984.
The convention applies to the following taxes (in the case of Luxembourg):
- Income tax on individuals
- Corporation tax
- Tax on fees of directors of companies
- Capital tax
The following issues have been stated in the convention between Luxembourg and Korea:
- Income derived by a resident of the contracting state from immovable property (including income from agriculture or forestry) situated in the other contracting state may be taxed in that other contracting state.
- The profit of an enterprise of a contracting state shall be taxable only in that state unless the enterprise carries on business in the other contracting state through a permanent establishment situated there. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other state but only so much of them as are attributable to that permanent establishment.
- Where profits include items of income which are dealt with separately in other articles of this convention, then the provisions of those articles shall not be affected by the provisions of this article.
- Profits of an enterprise of a contracting state from the operation of ships or aircraft in international traffic shall be taxable only in that State.
- Dividends paid by a company of a contracting state to a resident of the other contracting state may be taxed in that other state.
- Interest arising in a contracting state and paid to a resident of the other contracting state may be taxed in that other state. However, such interest may also be taxed in the contracting state in which it arises and according to the laws of that state, but if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed 10 percent of the gross amount of the interest.
- Royalties arising in a contracting state and paid to a resident of the other contracting state may be taxed in that other state.
8.5 Repatriation of Profits
Korea permits foreign invested enterprises (FIEs) to repatriate the profits generated in Korea. However, transferring profits to the home country in the middle of a financial year is not permitted. To repatriate profits, FIEs must prepare the following documents:28
Remittance application form
Financial reports (including balance sheet and income statement)
Certificate of tax payment
Minutes of the meeting of the company’s board (not required for the local branch of foreign corporations)
Certificate of Foreign-invested Enterprise
Power of attorney (if applicable)
The local branch of foreign corporations must visit the bank where notifications of foreign investment for profit repatriation were made. A foreign-invested local corporation can choose between different banks.
9 Appendix
Appendix I: Useful Links and Addresses
| TYPE OF ORGANISATION | ADDRESS | CONTACTS | WEBSITE |
|---|---|---|---|
| MINISTRIES, AGENCIES aND SERVICES IN KOREA | |||
| Embassy of the Grand Duchy of Luxembourg (in Tokyo) | 8-9 Y onbancho Chiyoda-Ku Tokyo 102-0081 |
Ambassador Mr. Paul Steinmetz E-mail: tokyo.amb@mae.etat.lu Tel: +81-3-32 65 96 21 Fax: +81-3-32 65 96 24 |
www.luxembourg.or.jp |
| The Luxembourg Board of Economic Development (Seoul) | 1102 Jangkyo Bldg, 1 Jangkyo-DongChung-Ku, Seoul, Korea |
Executive Director Ms Younhee Kim Tel: +82 2 777 2552 Fax: +82 2 773 2574 E-mail: Younhee.kim@lux-bed.or.kr |
http://www.lux-bed.or.kr/ |
| Honorary Consul | 475-9 Pyeongchang-Dong Jongro-Ku Séoul, Korea |
Honorary Consul Mr Hong Young Chul Tel: +82 2 316 61 01 (office) Tel: +82 2 379 11 72 (home) E-mail: hoyc@kiswire.com |
|
| Invest Korea | 13, Heolleungno, Seocho-gu, Seoul, 137-749 |
E-mail: youngsuk@kotra.or.kr Tel: +82 2 3460 7551 |
http://www.investkorea.org |
| Ministry of Finance and Economy of Korea | 88 Gwanmoonro, Gwaceon City, Gyeonggi Province, 427-725, Korea |
E-mail: fppr@mofe.go.kr Tel: +82 2 2150 2975 |
http://english.mofe.go.kr |
| Ministry of Foreign Affairs and Trade of Korea | 37 Sejongno (Doryeong-dong,, Jongno-gu, Seoul 110-787, Korea |
E-mail: web@mofat.go.kr Tel: +82 2 2100 2114 |
http://www.mofat.go.kr/index.jsp |
| Ministry of Commerce, Industry and Energy | No.3, Joongang-dong, Gwacheon-city, Gyeonggi-do, 427-721, Korea |
Tel: +82 2 2110 5291 | http://english.mocie.go.kr/ language/eng/main.jsp |
| Government for Foreigners | 319-2, Sinjeong 6 dong, Y angcheon-gu, Seoul, Korea |
Tel: +82 2 2650 6399 | http://www.g4f.go.kr |
| Korea Immigration Service, Ministry of Justice of Korea | New-Core Bldg 8F, Korea Immigration, Service, Byeolyang-dong 1-19, Gwacheon-city, Gyeonggi-do, Korea |
Tel: +82 2 500 9031 | http://www.immigration.go.kr |
| National Tax Service | 104 Susong-dong, Jongno-Gu, Seoul, 110-705, Korea |
Tel: +82 2 397 1440 | http://www.nta.go.kr |
10 Disclaimer
The Government of the Grand Duchy of Luxembourg declines all responsibility regarding the use of information featured in this document. The contents are provided for information purposes only. They contain information which is not necessarily complete, exhaustive, precise or up to date. In the event of discrepancies between the texts of this publication and the original documents, the original documents as officially published shall apply. This publication may refer to external sites over which the Government of the Grand Duchy of Luxembourg has no control and for which it declines all responsibility.
June 2009
Ministry of the Economy and Foreign Trade
Directorate of Foreign Trade
L-2914 Luxembourg | Grand Duchy of Luxembourg
Tel.: (+352) 247 841 25 | Fax: (+352) 22 34 85
info@luxembourgforbusiness.lu
www.luxembourgforbusiness.lu
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