Legal Requirements for New Business: An Essential Compliance Checklist

Opening a new business in South Korea can open a window to quite dynamic market.  The country has a vibrant economy, the most advanced technology, and a strong governmental policy on innovation, which makes it an attractive business destination to international entrepreneurs. 

However, the most important aspect of a successful and compliant launch is going through the painstaking legal and regulatory system of the country.

This guide will walk you through the legal necessities starting of new business in South Korea, including the steps, structures, and other important requirement. 

Selecting an Appropriate Legal Structure: The Basis of Your Business

The first and, possibly, the most important factor that an entrepreneur has to consider is the choice of the business entity. This option defines the administrative load of the company, tax system, and risk of liability.

Here are the key South Korean business entity types presented as small sentences with bullet points:

Joint Stock Company (Chusik Hoesa - 주식회사)

• It is a separate legal entity.

• There is limited liability of shareholders.

• It is the most common form among large companies.

• High compliance (Board of Directors and Auditor are obligatory).

• It suits best ventures that need a large amount of capital raising and possible IPOs.

Limited Liability Company (Yuhan Hoesa - 유한회사)

• It is a separate legal entity.

• There is limited liability among the members.

• It possesses a loose internal governance.

• The compliance cost is reduced compared to a JSC.

• It suits SMEs, closely-held subsidiaries or private joint ventures.

Branch Office (Oeguk Hoesa Jijeom)

• It is not an independent legal entity.

• It is a continuation of the foreign parent company.

• All the liabilities remain with the parent company.

• It is used by foreign companies in small business.

Liaison Office (Yeonrak Seomuso)

• It is not an independent legal entity.

• It is not able to participate in business or make profit.

• It is only intended to do market research and coordination.

• It is appropriate to non-commercial, preparatory market exploration.

Minimal Capital and Foreign Investment Requirements

Although the Korean Commercial Code does not set any minimum capital requirement in the case of private Chusik Hoesa or Yuhan Hoesa, foreign entrepreneurs should take into consideration the Foreign Investment Promotion Act (FIPA).

Foreign Direct Investment (FDI) Status: A foreign investor is required to normally invest a minimum of KRW 100 million (currently USD 70,000 as of late 2024/2025) and own at least 10 percent of the total voting stock in the Korean entity to be granted FIPA protection and incentives. The preferred route, which is the usual path to most serious foreign entrepreneurs, is to be granted FDI status, where tax benefits and simplified visa application process are offered (D-8 Investor Visa).

Business Registration Requirements: The Basic Incorporation Process

After deciding on the type of business, incorporation is a multi-step process that legalizes the company as a legal entity.

Foreign Investment Notification

Most foreign entrepreneurs who want to receive FDI status must take this as the first step. The investment plan should be submitted to a specific Foreign Exchange Bank or Korea Trade-Investment Promotion Agency (KOTRA). This will make the capital a legitimate foreign investment under the FIPA.

Capital Remittance and Deposit

The minimum capital required should be deposited by the foreign investor on his or her account into a temporary corporate bank account (promoter account) in South Korea. A Certificate of Deposit Balance will be issued by the bank and this will be required as a mandatory evidence of capital to the court registration.

Registration of th e Company By The Court

This is the incorporation stage of the law. A copy of the Articles of Incorporation, Certificate of Deposit Balance, and apostilled or consular-legalized original documents (e.g. passports of directors/shareholders, Power of Attorney) are presented to the corresponding Commercial Registry Office of the District Court.

When it is approved, the company is given a Corporate Registration Number and a Corporate Seal Certificate (or Ingam), which officially incorporates the existence of the company. This is the official seal that is the legal signature of the company and is necessary in all legal and financial documents.

Registration of the Business with the National Tax Service (NTS)

The new corporation should submit its application to the office of the jurisdictional district National Tax Service (NTS) to get its Business Registration Certificate and Tax Identification Number (TIN). This is required as a legal requirement to start commercial operations, recruit workers, issue invoices, and pay taxes. This is normally a fast process and may only take 1-2 business days.

Opening of Corporate Bank Accounts

Once the Business Registration Certificate is received, the company is able to open a permanent corporate bank account. The money in the temporary promoter account should then be deposited into this permanent account.

Entrepreneurial Legal Requirement: Tax, Labor, and Compliance.

Tax and Accounting Obligations

The NTS controls the tax system that all registered companies in South Korea have to adhere to.

Corporate Income Tax (CIT): Korea has a progressive CIT system. In 2025, the standard rates will usually be 10% on taxable income up to KRW 200 million, with increasing rates charged at progressively higher rates (e.g., 20-25%).

Value-Added Tax (VAT): The standard rate of VAT is 10 percent that is levied on most goods and services. Businesses are required to pay and submit VAT returns after every quarter.

Bookkeeping and Filing: The businesses are required to comply with the Korean International Financial Reporting Standards (K-IFRS) or Korean Generally Accepted Accounting Principles (K-GAAP). 

Employment and Labor Law Compliance

Any business in South Korea that has employees must comply with the Labor Standards Act and other employment laws that are related to the act.

• Employment Contracts: The employees must have a formal, written employment contract that specifies the wages, working hours, job specifics, and termination conditions.

• Hours of Work: The legal standard working week is 40 hours, and the maximum number of working hours is 52 hours per week (including the controlled overtime).

• Minimum Wage: The government is obliged to follow the minimum wage per year (e.g., KRW 10,030 per hour in 2024, which is to be reviewed annually).

Four Major Insurances:

Every employer is required to subscribe the company and the employees to the four compulsory national social security programs:

• National Pension: Contribution is made by the employer and employee.

• National Health Insurance: Employer and employee contribute.

• Employment Insurance: Shared contribution, offers unemployment benefits.

• Industrial Accident Compensation Insurance: Paid in full by the employer

Severance Pay: Employees with a minimum of one-year service in a company are entitled by law to receive severance pay that is equal to at least 30 days of average wages per year of uninterrupted service.

Industry-Specific licensing and Intellectual Property.

In addition to the general registration, some sectors need special licenses and permits of the concerned government ministries. These are financial services, food and drug safety, broadcasting, and education. Before starting a business, entrepreneurs have to recognize and obtain all the required operation permits.

Moreover, the high-tech economy in South Korea is important in terms of protecting innovation. Business people are also encouraged to ensure they patent, trademark and design their products with the Korean Intellectual Property Office (KIPO) so as to protect themselves against infringement in the country.

The Bottom Line:

So, you must have understood the legal requirements to start a business in South Korea. While all steps and requirements mentioned here are important, it may be quite overwhelming for some ventures to start the things on their own. This is where our business support services come in. From business registration, business visa, taxation to outsources, we offer comprehensive solutions to help you start your business on the right foot. If you need any type of help to start your business in South Korea, get in touch with us now.