South Korea is home to many well-regarded multinational companies. What some may not know is that many of them are subsidiaries. Toyota Motor Korea is a subsidiary of the Japan-based Toyota automobile conglomerate. P&G Korea is a branch of the American multinational company Procter & Gamble.

These major companies found success in South Korea thanks in no small part to the country’s robust economy, strong consumer demand, and a lot of incentives provided by the government.

In this article, we’ll explore just what the incentives are for foreign companies, why your business should plant its roots in South Korea, and the steps on how to go about it.

Why set up a subsidiary in South Korea?

1. Autonomy and limited liability

As an independent legal entity, the subsidiary in South Korea is separated from the parent company’s assets and liabilities. Meaning that the parent company is protected from any debts or legal action taken against the subsidiary.

2. Insider access to a tech-driven market

Ranking among the top countries in R&D investment, South Korea is fertile ground for companies working in the electronics, IT, biotech, and green energy industries. As a tech hub in Asia, with free trade agreements covering more than 50 countries, South Korea is also a strategic location for cross-border commerce.

3. Market entry made easy

An active subsidiary in South Korea allows foreign companies to boost brand credibility in the local market. Cultivating a presence per the local business environment goes a long way toward building consumer trust. For that reason, a subsidiary is one of the main methods of seamless market entry, able to easily establish legitimacy in consumer minds.

4. Supportive government policies

South Korea’s government has a number of incentives and regulatory frameworks that promote foreign investment. One of them is the Foreign Investment Promotion Act (FIPA), with the purpose of easing regulations and providing necessary support for overseas businesses investing in the country’s economy. 

Additionally, there are Free Economic Zones (FEZs), areas with special subsidies and aid programs for foreign investors. These places include Incheon, Busan, Gwangyang, and others.

How to set up a subsidiary in South Korea?

1. Choose a business structure

Choosing what kind of business structure your company adopts is the first fundamental step of setting up a subsidiary in South Korea. This decision affects not only the level of control but also the legal liability and financial flexibility your company will have at its disposal. Making this choice requires careful consideration with a trusted legal counsel. These are the three main business structures:

• Limited liability company (LLC)

Popular among small to mid-sized foreign companies, an LLC offers full control, liability protection, and simpler reporting requirements. However, it typically requires a minimum capital deposit of around USD 75,000.

• Joint-stock

Ideal for larger companies planning an IPO, a joint-stock company allows publicly traded shares. While there’s no mandatory minimum capital, companies must pay a dividend tax. The main advantage of a joint-stock company lies in its scalability.

• Branch office

Operating as an extension of the foreign parent company, a branch office is not an independent legal entity. As a result, unlike the other two, the parent company remains fully liable for its activities. This structure is usually chosen for market testing or short-term operations.

2. Draft documents for commercial registration

Prepare and draft various documents from the parent company, such as company details, the identification papers of representatives, and a notarized power of attorney. Once these are prepared, the parent company can proceed with submitting its Certificate of Incorporation (issued by the Department of Commerce or an equivalent authority).

3. Reserve the company name

Register a unique company name in compliance with South Korean laws. This can be done through either the Korean Trade-Investment Promotion Agency (KOTRA) or the Ministry of Strategy and Finance (MOSF), depending on your business sector.

4. Finish up paperwork requirements

Last but not least, you need to complete the necessary steps of creating a local bank account, business address, and obtaining a tax identification code. Before hiring local employees, ensure your business is registered for Social Security as an employer. Additionally, consider the appropriate work visas, for example, the D-8 Corporate Investment Visa, which allows essential personnel from the parent company to work in the Korean subsidiary.

How long does it take to set up a subsidiary in South Korea?

If all goes according to plan, the business registration procedure for a subsidiary in South Korea should take about 20 days or 3 weeks to complete. However, delays may occur depending on pending approvals. For the incorporation notification required, it is issued around 2 months after registration.

Let Double M help your business spread its wings in South Korea

Setting up a subsidiary in South Korea is an effective move for businesses looking to establish a strong, trustworthy brand in Asia. However, it isn’t an easy task to do. The right planning and support can lead you to significant growth, but a misstep may cause unforeseen losses and be detrimental to your company’s success.

If you’re considering entering a foreign market, it’s better to have a trusted partner and market entry expert. That’s where Double M comes in. As specialists, we’re here to guide you through complex regulatory landscapes and avoid costly setbacks.

Contact us with your plans and let us be your launchpad for South Korean expansion.

Understanding etiquette and business culture in South Korea is too often underestimated when foreign companies plan market entry. South Korea is a culturally rich country with rapid technological advancement and business opportunities. Even though it is a global leader in digital technologies, forward thinking in AI, and big data, it still holds traditional values in high regard.

Deeply embedded in its culture, starting a business in South Korea can be a tough line to walk. If you’re not careful, you can unintentionally offend locals with your customary business practices. To avoid that from happening, it’s wise to watch out for the variety of etiquette and business cultures in South Korea. This guide will outline the essential formalities you need to keep an eye on.

Top 4 Core Business Cultures in South Korea

1. Working hours

South Korea has a standard working hour of eight per day and 40 hours per week. However, business hours usually start from 9:00 AM to 6:00 PM, and it’s not uncommon for employees to work overtime. A strong work ethic is typical of South Korean employees. It reflects the country’s perception of dedication and corporate commitment. So, if you’re planning on establishing a foreign company, you need to tailor it to a more rigorous pace.

2. Structure of business meetings

Punctuality is expected. In South Korean culture, tardiness will leave a bad impression, even if it’s only a few minutes late. After you’ve arrived, exchanging business cards is a must. When presenting or receiving a business card, you have to hold it with both hands facing the recipient. Then, you have to put it on the table in front of you and refrain from keeping it in your pocket.

On the meeting timeline, you have to prepare a clear agenda with thorough details on what has to be covered in each session. Time is precious, and wasting it on an ineffective meeting will put off potential business partners.  Speaking of efficiency, the order of speaking is usually predetermined, with the most senior person sitting at the head of the table and being the one to open it with introductory remarks.

3. A digital-first business mindset

As one of the most technologically advanced countries in the world, digital platforms are a mainstay of conducting business in South Korea. From scheduling to project management and file-sharing collaboration, expect cutting-edge software to be a mandatory service in your day-to-day business. Some of the software commonly used include WEHAGO, QuickBooks, moCal, and KakaoTalk.

4. Chaebols and their major roles

Unlike other countries, South Korea has a distinct custom that dominates its business landscape: Chaebols. In short, Chaebols are large, family-owned conglomerates that wield significant influence over the country’s culture, politics, and economics. They span multiple industries, from automotive to electronics, accounting for more than 40% of South Korea’s gross domestic product (GDP). And that’s just from the top four companies, which are Samsung, Hyundai, LG, and SK Group.

Top 4 Etiquettes when Doing Business in South Korea

1. Respect for hierarchy takes priority

Just like knowing the leading businesses in South Korea will help you better understand their professional climate, reading the room is an essential habit to practice in any Korean workplace. South Korea takes authorities and corporate hierarchy seriously. Decisions are made top-down, and respect for superiors is imperative. As a foreign company, respecting local business customs is not only recommended but required.

2. The importance of gift-giving

In South Korea, gifts are often exchanged between business partners as a sign of goodwill. These could happen on occasions like the beginning of a business meeting or during major holidays like Chuseok (Korean Thanksgiving). Popular gifts include cash, red ginseng, Hanwoo (Korean beef), Hangwa (traditional sweets), liquor, Spam, seasonal fruits, and daily necessities.

3. Warming up to a professional relationship

If you want to maintain a long-lasting business relationship in South Korea, you need to have patience and be conscious of their lifestyle. Some of the ways you can achieve this are through having casual drinks and eating out with potential partners. You can find the most natural occasion to approach them right after a meeting.

South Korean business culture is based on trust. You can’t rush a professional relationship. Foreigners need to be willing to invest time and effort into building a proper rapport. But once you’ve put in the work, it will pay off a great deal. Having a reliable local partner will give you an unmatched edge in the competitive South Korean market.

4. Reserved and dignified communication style

The foundational tenet of South Korean business etiquette is Kibun. It’s a key Confucian value that prioritizes harmony and well-being. In practice, this means that South Korean employees and business owners consider their reputation to be of utmost importance. They regularly save face to avoid humiliation and preserve their dignity.

If you’re used to conveying your opinions directly, you may need to rein in your bluntness. Being cautious is crucial in South Korea. Even when making a business deal, detailed contracts are preferable to avoid miscommunication. Final decisions are reviewed meticulously and made based on consensus.

How Double M can help your business integrate seamlessly in South Korea

Every country has a unique culture, and culture is intertwined with business negotiations and trade. So, if you want to form a successful foreign company in South Korea, it is paramount that you get accustomed to its many local cultures and etiquette. As detailed above, the business culture in South Korea, such as working hours, the structure of business meetings, frequently used software, and Chaebols, is important to learn. Moreover, etiquettes like respect for hierarchy, gift-giving, how to conduct a professional relationship, and local communication styles must also be kept in mind.
If you’re overwhelmed with the dense planning and preparation required before diving into the business culture in South Korea, Double M is here to assist you. Contact us with any questions, and we will guide you through all the requisite rules for entry. Our services range from tax planning, bookkeeping, legal consultation, B2B matchmaking with local partners, and market trends analysis. Start your journey with us now!

Establish a company in South Korea to gain access to one of Asia’s most innovative and strategically located markets. With a robust infrastructure, a highly skilled workforce, and strong government support for foreign investment, South Korea offers an ideal environment for international business expansion. Understanding the country’s legal, administrative, and cultural landscape is key to a smooth and successful setup. This guide outlines the essential steps and considerations for entering the South Korean market with confidence.

Why Establish a Company in South Korea?

Before diving into the process, it’s important to understand the benefits of setting up a company in South Korea:

• Strategic Location: Positioned between China and Japan, South Korea is a gateway to Northeast Asia.
• Innovation Hub: With advanced technology and a strong R&D ecosystem, it’s ideal for tech-driven industries.
• Business-Friendly Environment: The government provides incentives to foreign investors in certain sectors.
• Strong Trade Agreements: Access to major markets through multiple FTAs, including the EU and the US.

Types of Business Entities in South Korea

When looking to establish a company in South Korea, foreign investors can choose from several business structures:

1. Wholly Foreign-Owned Company (WFOE)

A WFOE allows full ownership by a foreign investor. It’s treated like any domestic company but requires a minimum investment of KRW 100 million (~USD 75,000).

2. Joint Venture

A partnership with a local entity. Ideal for leveraging local expertise and networks.

3. Branch Office

A branch is considered an extension of a foreign company and not a separate legal entity. It’s suitable for carrying out profit-generating activities.

4. Liaison Office

This type of entity is limited to non-commercial activities like market research and does not require registration as a legal entity.

Step-by-Step Process to Establish a Company in South Korea

1. Choose a Business Structure

Select the most suitable entity type based on your business goals, ownership preferences, and regulatory requirements.

2. Reserve a Company Name

Check availability and register the name with the Supreme Court’s registry.

3. Secure a Business Address

A physical office is required to register your company. Virtual offices may be acceptable for certain types of businesses.

4. Open a Bank Account

Deposit the required capital and obtain a capital verification certificate.

5. Register the Company

Submit your application to the relevant local district court. You’ll need to provide:

• Articles of Incorporation
• Business plan
• Shareholder and director details
• Proof of capital deposit

6. Obtain a Business Registration Certificate

Once approved, apply for a Business Registration Certificate (BRC) at the National Tax Service within 20 days of incorporation.

7. Apply for Relevant Licenses and Permits

Depending on your industry, you may need sector-specific licenses (e.g., fintech, food, import/export).

Tax and Compliance Considerations

When you establish a company in South Korea, understanding the local tax regime is crucial:

• Corporate Tax Rate: Ranges from 10% to 25% depending on taxable income.
• VAT: Standard rate is 10%.
• Annual Reporting: Companies must file financial statements and tax returns annually.

Hiring a local accounting and legal firm can help ensure compliance with South Korean laws and tax requirements.

Working with a Local Partner

Navigating South Korea’s legal and regulatory environment can be challenging without local expertise. Partnering with a consultancy that specializes in market entry services can:

• Simplify the incorporation process
• Ensure compliance with labor laws and tax codes
• Assist with finding office space and hiring talent

To establish a company in South Korea, thorough preparation and understanding of local regulations are vital. With a strong economy, transparent legal system, and government support for foreign investment, South Korea is a promising destination for business expansion. Whether you choose to set up a WFOE, joint venture, or branch, the right guidance will ensure a smooth market entry and long-term success.