Branch vs Subsidiary: What Works Best in South Korea?
With a tech-savvy consumer base and a strong industrial sector, Korea is a no-brainer for global expansion. However, there are multiple monumental decisions that foreign companies must make before entering, such as whether to establish a branch or a subsidiary.
Both models are legally recognized in South Korea, but each has distinct advantages, disadvantages, and regulatory requirements. In this article, we’ll break down the differences between branches and subsidiaries, compare their pros and cons, and help you determine which structure is best suited for your business goals in South Korea.
What Is a Branch in South Korea?
A branch in South Korea is an extension of the parent company abroad. It is not a separate legal entity but operates directly under the foreign headquarters. A branch can engage in commercial and revenue-generating activities in Korea.
Key Features of a Branch:
- Not a separate legal entity, instead fully owned and controlled by the parent company
- Liable for the parent company’s debts acquired in Korea
- Must register with the Korean Tax Office and the Foreign Exchange Bank
- Withholding tax is applied on the remittance of profits
- South Korea’s corporate income tax rates range from 10% to 25%, depending on taxable income. Both branches and subsidiaries are required to file taxes and maintain accounting records in the Korean language
Pros of a Branch:
- Faster setup and fewer legal formalities
- Lower administrative and tax compliance costs. Because you don’t need to create a new legal entity, you avoid having to pay legal fees, registration costs, and other expenses associated with company creation.
- Easier to divert profits to the parent company
- Ideal for testing the market before making a hefty investment
Cons of a Branch:
- The parent company is fully liable for the branch’s obligations
- Less credibility in the local market compared to a subsidiary
- Limited access to certain government incentives or local funding
What Is a Subsidiary in South Korea?
A subsidiary is a separate legal entity incorporated under Korean law. Most foreign businesses register a Yuhan Hoesa (LLC) or Chusik Hoesa (joint stock company) as their Korean subsidiary. Because a subsidiary has its own legal standing, it can own property, sign agreements, and even sue independently of the parent company.
Key Features of a Subsidiary:
- Independent legal status from the parent company
- Can be 100% foreign-owned
- Required to follow Korean corporate governance rules
- Needs a local board director (doesn’t have to be a Korean national)
- Must file separate financial statements
- Withholding tax is applied to dividends
Pros of a Subsidiary:
- Having limited liability means that it protects the parent company from local risks. For example, if a subsidiary faces a lawsuit, the parent company isn’t directly liable. Meaning that if a subsidiary in South Korea goes down, the headquarters abroad can still stay afloat, risk-free.
- Higher credibility with Korean partners, clients, and regulators
- Access to tax incentives, government subsidies, and R&D support
- Easier to raise capital or enter joint ventures locally
Cons of a Subsidiary:
- Longer setup time and a more complex legal process
- Higher initial and ongoing compliance costs
- Subject to full corporate taxation in Korea
Branch vs. Subsidiary in South Korea: a Comparison Table
| Attributes | Branch | Subsidiary |
| Legal Status | Not a separate legal entity from the parent company | A fully independent and separate legal entity |
| Ownership | Only an extension, thus fully owned by the foreign company | Can be 100% foreign-owned if the structure is a Wholly Owned Foreign Subsidiary (WOFS) |
| Liability | The parent company is fully liable | Liability is limited to the subsidiary |
| Ease of Setup | Simple and faster to establish | More complex steps with additional requirements |
| Setup Time | Around 3 weeks | Typically 1–2 months |
| Taxation | On Korean-sourced income | On global income |
| Regulatory Complexity | Fewer reporting demands | More stringent reporting and audits |
| Access to Incentives | Limited access to government support | Eligible for tax breaks, grants, and R&D support |
| Recruitment | Less attractive to top talent | Easier to attract high-skilled Korean employees |
| Recommended For | Market access and direct sales to Korean consumers | Stable, long-term investment, with full operational autonomy |
Which Is Better for Foreign Companies Entering Korea?
Choose a Branch if:
- You’re testing the waters in the Korean market
- You want a low-cost and fast-entry structure
- You plan to maintain tight control from the parent company
- You’re not concerned about liability
Choose a Subsidiary if:
- You want legal separation and protection of the parent company’s assets
- You have a long-term business plan in Korea
- You need local credibility to build partnerships or hire talent
- You want access to government incentives and funding
Why Double M is your Answer to Setting Up a Branch Office or Subsidiary in South Korea
Double M is a market entry consultant based in multiple Asian countries, with extensive partners across a variety of industries. We are an experienced advisor who understands the particulars of Korean corporate law, well-versed in local legal and tax matters. Our company expansion services are tailor-made for foreign businesses, including:
- Business Entity Formation
- Regulatory Compliance And Licensing
Setting up a branch or a subsidiary in South Korea depends on your strategic goals, risk tolerance, and investment budget. A branch offers simplicity and speed, making it ideal for temporary or small-scale operations. A subsidiary, while more complex, provides stronger legal protection and market credibility, making it a better fit for companies planning long-term involvement in South Korea.
Before making a decision, consult with Double M and let us guide you through the setup process. The right choice today can make a significant difference in your company’s success tomorrow.