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Korean branch of a foreign corporation
This post is about establishing a branch office, one of the ways for foreign companies to enter Korea.
A Korean branch of a foreign company is not a separate, independent company, but a business office subordinate to the head office. As such, it has the characteristics of a foreign corporation, which has the following advantages and disadvantages.
Pros
- Create a legal entity with no initial investment
- Enable monetized sales
- Register of deeds, business license, and open a corporate account
Cons
- Since it is classified as an overseas corporation, it cannot register as a small business or venture company subject to domestic laws.
- Your business is limited to the work of your foreign headquarters
- Liability extends to foreign headquarters in the event of a legal dispute
Establishment Process / Time Frame
The process of setting up a branch is as follows
- Notarized apostille or consular confirmation of foreign headquarters documentation
- Notification of establishment of domestic branch / Notification of designated foreign exchange bank
- Register of incorporation
- Business registration
- Open a corporate account
While the process may seem simple, setting up a branch office is the most complex of the company formation forms.
Here are some of the challenges of setting up a branch office
First, you need to obtain an apostille for the documents related to your foreign headquarters, which must not contain any errors in order to be registered correctly. If there is an error, you will need to repeat the apostille or consular confirmation process.
In addition, all documents must be translated into Korean and notarized, which is not only a time delay but also a significant additional cost. The most effort and time goes into preparing the correct documentation.
Second, it is not uncommon for the person in charge of reporting the installation of a branch office to not know what they are doing. Sometimes we get requests for a specific bank to be the designated foreign exchange bank, but the bank representative doesn’t know what they’re doing, so we have to teach them.
Many lawyers do not have much experience working with foreigners, so they have difficulty preparing the necessary documents for registration, and the tax office is not familiar with their work.
Third, banks are often reluctant to accept an installation report from an individual or agency with no existing transactions. Many bank branches don’t want to open branches because it’s not immediately profitable for the bank, and sometimes it’s not very nice. It’s not very nice.
Therefore, it is important to find a professional who is familiar with foreign documentation, has experience in setting up Korean branches, and has connections with cooperating banks and law firms.
How long does it take to set up a branch?
It usually takes a long time to prepare the documents, apostille, translation, etc. for the foreign headquarters, and once the documents are ready, the whole process can be completed in 7-10 days.
Preparation documents
The following documents are required to obtain an apostille from the foreign office
- Certificate of Legal Authority
- Board resolutions – including resolutions to establish branches
- Articles of Incorporation
- Shareholder List
- Letter of Appointment
- Inauguration acceptance letter
- A copy of the headquarters representative’s passport
- In writing to the headquarters representative
- A copy of the Korean representative’s passport
- Power of Attorney
Domestic documents
- South Korea office lease
- ID, seal stamp, and seal certificate if the branch manager is Korean
Tax accounting after establishing a branch
Corporate tax and VAT filing obligations
- Books must be recorded and maintained in accordance with Korean Accounting Standards and there is no requirement for an external audit.
- A branch tax is imposed on after-tax income after corporate tax. Branch tax is a tax on amounts repatriated, or recognized as repatriated, to the home country by a domestic branch in lieu of the dividend income tax rate. The branch tax rate is 20%, with treaty rates taking precedence for countries that have tax treaties.
Withholding on representative/employee’s paychecks
- If you’re paid by a foreign entity
- If you file your taxes abroad and get paid directly into your representative’s personal account, then you’re not required to withhold.
- You must file and pay comprehensive income tax in May of the following year, and taxes paid abroad are deductible.
- If you’re being paid by your local office
- Withholding taxes are due on the 10th of the month following the paycheck date, and year-end reconciliation is done in February of the following year.
- Apply the foreign tax exemption to receive a special tax rate of 19% for 5 years (optional)
Sending sales proceeds overseas
- You can’t send net profit to headquarters during the fiscal year, only after the end of the fiscal year.
- Must be sent through a designated correspondent foreign exchange bank
Establish a domestic branch and apply for a D7 visa
There are many restrictions on applying for a D7 visa immediately after establishing a Korean branch.
In order to apply for a visa, the following conditions must be met: size of headquarters / introduction of sales funds / use of sales funds.
- Revenue data from headquarters (financial statements, tax returns)
- Documentation of sales funds transferred to a branch from a foreign headquarters
- Proof of use of business funds
- Existing branches prove tax delinquency
Inquire about establishing a branch in Korea
- English, Chinese, Japanese, and Spanish support
- The client only needs an apostille
- Non-stop services from documentation, translation, notarization, incorporation, business registration, account opening, and more
- Find an office and get your taxes done
Provide samples for accurate documentation
- 외국인 투자신고 / 지점, 연락사무소 설치신고
- 거래은행 지정신청
- 법인설립 등기
- 사업자등록증 / 고유번호증 발급
- 외투기업등록증 발급
- 은행계좌개설
- 비자발급
- 세무대행
