Do you want to start a business in South Korea as a foreigner? If YES, here is a complete guide plus legal requirements for starting a profitable business with no money in South Korea.
Okay, having provided an in-depth analysis of the 50 best small business opportunities in South Korea and a series of industry-specific sample business plan templates; we will now analyze in detail the legal requirements, market feasibility and every other thing it takes to start a business in South Korea. So put on your entrepreneurial hat and let’s proceed.
Why Start a Business in South Korea?
Statistics shows that the economy of South Korea is the 4th largest in Asia and the 11th largest in the world. It is a mixed economy dominated by family-owned conglomerates called chaebols; however, the dominance of the chaebol is unlikely to last and engenders risk of slowing down the transformation of Korea’s economy.
South Korea is known for its remarkable rise from one of the poorest countries in the world to a developed, high-income country in just a few generations. This economic growth is described as the Miracle on the Han River, which has brought South Korea to the ranks of elite countries in the OECD and the G-20.
South Korea still remains one of the fastest growing developed countries in the world following the Great Recession. It is included in the group of Next Eleven countries that will dominate the global economy in the middle of the 21st century.
South Korea is ranked 5th among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. South Korea is making commendable efforts to reduce some bureaucracies in a bid to make the market more accessible for both foreign and local companies; they are encouraging more investment and entrepreneurship.
South Korea can comfortably compete with any country of the world when it comes to the production of electronics, food processing, engineering, and automobiles. So, if you are looking towards starting any business in South Korea, here are the simple steps you should follow;
Starting a Profitable Business in South Korea as a Foreigner – A Complete Guide
If you are considering starting a business in South Korea, what is expected of you is to first and foremost conduct thorough research on the industry you are interested in starting a business in. There are different rules and regulations governing new business in South Korea and you would not want to settle for an industry that you won’t be issued a business license as a foreigner.
Step Two: Choose a Name for Your Business
The next step to take on your quest to starting a business in South Korea is to choose a name for your business. Before choosing a name for your business, it won’t cost you anything to go online and check out the names of leading brands in the industry you intend starting a business in so as to be properly guided when choosing your own name.
Step Three: Apply for The Appropriate Visa
If you are coming as a foreigner to start a business in South Korea, then you should ensure that you apply for the most suitable visa; a visa that can grant you access to live and run your business in South Korea.
Although there are various categories of visas that can give the access to work and live in South Korea, but foreigners who possess a residential visa (such as one of the F-2, F-4, F-5, F-6 visas) will have the most freedom to launch a business with similar benefits and relaxed limitations that a Korean national would receive.
Please be informed that if you have any of the E-series visas, such as the E-1 and E-2 visas, you do not qualify to run a business and any attempt to do so illegally is likely to be met with harsh repercussions.
Without an F-series visa, a safe bet is a visa for foreign entrepreneurs (D-8 or D-10). D-8 visa allows you to live in Korea and make money. The D-8 visa is valid for six months and can only be extended with proof that your taxes are current and documentation such as receipts and invoices show your business is thriving.
Step Four: Open an Account with a South Korean Bank
Once you have successfully obtained the appropriate visa, the next step you are expected to take is to open an account with a South Korean bank. Opening a bank account for the purpose of starting a business in South Korea is simple and straight forward.
As a matter of fact, you will only require your valid passport as the only documentation to tender in the bank. You are required to deposit block fund of an equivalent of 50 million Won (about $40,900 in U.S. dollars) wired from an account outside the country in your name to the Korean bank account you have opened in your name. This serve as a proof that you can invest and run a business South Korea.
Please note that the deposit must be in a lump sum and designated “For Investment Purposes Only.” If you are not too sure of the current conversion rate, you can use an online currency conversion chart to calculate it with your country’s currency.
Step Five: Register Your Business Name
The next step you are expected to take after you have successfully opened an account with a South Korean bank and you have made the required deposit, is to go ahead to register your business name. You are supposed to receive documentation from your Korean bank after making your deposit to start the paperwork for your business registration.
To get this process started, you should complete a registration form and then take your bank account documents and real estate lease to your local district office to register the business name. Please note that all business names must be registered in hangeul, the Korean alphabet. If you are not familiar with hangeul, you can contract the service to a business consultant to help you out.
Once you submit your original documents for sighting, the application form and the required fees for processing, processing will commence immediately and you will get it done the same day or at most the following day.
Make sure you contact your closest government office beforehand to find out exactly what steps you will need to take and what you will need to provide.
Step Six: Choose a Business Structure/Entity
Before settling for a business structure in South Korea, it is important to ensure that you examine the incorporation requirements and associated costs of the available Korean business entities. Also examine the Korean business taxation characteristics of the available entities.
It will also be to your advantage to conduct a thorough research on how the tax authority in your company’s home country treats income from the available Korean entities. Good enough, there are five different types of business structures you can choose from in South Korea. They are;
- The Joint Stock Company (Chusikhoesa)
- Limited Liability Company (LLC)(Yuhanhoesa)
- Private Limited Company (PLC) (Yuhanchaek-imhoesa)
- General Partnership Company (Hapmyunghoesa)
- Limited Partnership Company (Hapjahoesa).
Please note that if you choose to establish a commercial entity or limited liability company in South Korea, you will be required to deposit a minimum capital of 50 million Korean Won (about 36,000 Euros).
In making your choice of a business structure, you should be guided by your business vision, mission, tax implications, and business regulations in South Korea. A reasonable number of foreign investors start with a liaison office since this option does not require any complicated registration formalities, aside from registering it with the national bank and the tax authorities. A liaison office is governed by the Foreign Exchange Transactions Act and the Commercial Act.
Another option you can follow if you want to start a business in South Korea is to open a branch office of a foreign company in South Korea. To do this, you will have to report the branch to a specified foreign exchange bank and complete the court registration and business registration.
Please note that irrespective of the business structure you begin with, South Korean affords you the opportunity to change your business structure/status if you want to.
Step Seven: Notarize All Your Documents
The next step after you have settled for a business structure is to notarized your documents. In South Korea, your business documents are meaningless if the document is not notarized. Your company status must be certified by a notary and a founder shall be appointed for registration. With that, the Board of Directors of the company will then be responsible for its management.
Please note that you may also need either, or both, an official company seal and your personal seal. If so, head to your closest seal maker (these shops are often referred in Korean as a “do-jang-bang”) where you can obtain a customized business seal (for stamping official contracts) for roughly 30,000 Korean Won.
Step Eight: Sort Out Tax Issues
After you have registered your business, the next step that is expected of you is to apply for a tax registration payment certificate. You will need to register your business at your closest tax office (“se-moo-seo” in Korean), you would need to attach copies of this certificate in every business transaction you make. The local district office issues the certificate when you present your passport, business name registration and bank account documentation.
It is also compulsory to recommend a tax agent, preferably a Korean tax accountant for your business. The agent assumes financial responsibility for your business and makes sure your taxes are paid if you are out of the country.
Please note that in South Korea, foreign companies operating in the country are taxed only on income from domestic sources. The total amount of tax is deducted at source and paid to the government.
Moreover, companies subject to value added tax (VAT) must register with the tax authorities within twenty days following the start of their activities. VAT will be levied on the supply of goods and services at the rate of 10 percent. For further enquires on this, you are advised to contact the Korean taxation authorities before your start.
Step Nine: Sort Out Insurance and Pension Issues
After sorting out tax issues, your next task is to sort out insurance and pension related issues. You are expected to visit government agencies such as the National Pension Fund, Public Health Insurance Program, Employment Insurance et al to make enquiries on the requirements for a foreign company.
It is compulsory that you register with these government agencies if you want to operate freely in South Korea. They will guide you on the mandatory insurance policies you must have for the type of business you want to run. You can as well work with an insurance broker to help you with good deal that won’t put a hole in your pocket.
Step Ten: Choose a Location for Your Office
The fact that you must operate from a location means that you should look for an ideal business location that you can lease or rent for your business. When shopping for an office or business facility, you must ensure that the property is zoned for the type of business you want to run or else you won’t be allowed to open your business.
That is why it is important to make enquiries before signing your contract and also to know if you can live and work on the same property. You can contact a local real estate agent to help you handle this task.
Please note that before any property can be leased to you, you must have registered your business at the nearest government office such as your provincial government office ( “do-cheong”), city hall office ( “si-cheong”), or borough office (or “gu-cheong”) where, depending on your business type, you will need to obtain approval, make a registration, or make a declaration of your business.
This is a complicated process where the steps you need to take and the associated documents you are required to provide differ based on the purpose of your business.
Step Eleven: Open Your Doors and Start Welcoming Customers
If you have been able to successfully carry out step one to ten, then you have indeed come a long way and it shows that you are truly ready for business. If you are not sure whether you can open your door for business yet, you can make enquiries from your local district office if your business requires permission to open. There are 16 district offices in South Korea, one in each major province. If necessary, apply for the permission as soon as you can.
In conclusion, it is important to state that this article only covers basics steps of starting a business in South Korea and there are other legal issues and accounting requirements that are not covered here but are also important procedures when it comes to starting a business in South Korea.
To handle the complicated and strict process, you would need to source for support from business lawyers or consultants or preferably contact the Seoul global business center. The organization is created by the Seoul government to aid foreigners looking to either establish a business or who are already conducting a business in the capital.
The center provides a number of services and consultations all at no fee. You can even participate in programs such as business coaching and business incubating after registering with the center. Good luck as you start your business in South Korea!