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The procedures for establishing a local corporation by foreign investors are quite similar to those for establishing a domestic corporation. The difference between a local corporation and a domestic corporation is that foreign investment injection needs to be notified in advance and its incorporation registered.

 


■ Local Corporation vs. Branch vs. Liaison Office

Type of Entities

Govering Law

Note

Local Corporation

Foreign Investment Promotion Act

Recognized as a foreign-invested company

Branch

Foreign Exchange Transactions Act

Categorized as a domestic branch
of a foreign company

Liaison Office

■ Local Corporation under Foreign Investment Promotion Act

Establishing a local corporation by a foreign company in Korea is regulated by Foreign Investment Promotion Act (FIPA) and the Commercial Act. The FIPA stipulates that capital injection of KRW 100 million or more is required in order for an entity to be recognized as a local corporation.

Foreigners who establish private business with capital investment of KRW 100 million or more are also recognized as foreign investment under FIPA. However, D-8 (business investment) Visa is issued only to local corporations and not to private companies. Meanwhile, private companies that inject capital of KRW 300 million or more can apply for D-9 (trade) Visa.
■ Domestic Branch of a Foreign Company under Foreign Exchange Transactions Act

While a ‘branch’ operates business and generates profit in Korea, it is not recognized as foreign direct investment.

A ‘liaison office’ does not engage in business and undertakes only non-sales fuctions such as market research and R&D. The difference between ‘branch’ and ‘liaison office’ is that while a branch is issued a business registration number, a liaison office is issued an indentification number from the tax office.

■ Foreign-Invested Company vs. Domestic Branch of a Foreign Company
Category Foreign-invested company Domestic branch of a foreiign company
Form of entry Local corporation Branch and liaison office
Governing law Foreign Investment Promotion Act Foreign Exchange Transaction Act
Type of corporation Domestic corporation Foreign corporation
Indentity The foreign investor and foreign-invested company are separate entities(independent accounting & settlement) The headquarter and branch are a single entity(consolidated accounting & settlement)
Delegated agency to process notification and grant permission Designated foreign exchange bank

Designated foreign exchange bank Ministry of Strategy and Finance(securities, insurance, etc)

Minimum(maximum) investment amount KRW 100 million or more per case no upper limit No limit on the investment amount
Scope of tax obligation Tax obligations for all domestic and overseas income Tax obligations for income from domestic sources only