Establishing a company in South Korea includes government registration and acquiring a business license. The type of company you can form depends on your business nature and shareholder count. One of the company formations chosen by many foreign enterprises is a branch office.
If contemplating a South Korean branch, understanding the process intricacies is vital. Be aware of the elements involved to ensure a smooth incorporation process for your branch office in South Korea.
In this guide, we will walk through the key requirements of opening a branch office in South Korea. Let’s get started.
What is a Branch Office in South Korea?
Many foreign investors like to start a business in Korea by creating a local company. However, some foreign companies choose to expand in Korea by opening a branch. A branch is a type of company in Korea that belongs to a parent company. It operates under the rules set by the parent company, handling local business tasks like billing clients and making sales contracts, but it isn't its separate legal entity.
Understanding the Procedure to Set Up Branch Office in Korea:
Setting up a branch office in Korea involves a few steps:
· Apply to establish a branch at a designated foreign exchange bank in Korea and get the bank's approval (called "Bank Registration").
· After getting approval from the bank, register the branch with a court (known as "Court Registration"). · Once both registrations are done, inform a tax office about the branch's establishment and register it for tax purposes (referred to as "Tax Registration").
If all the necessary documents are ready, the entire process usually takes around one and a half weeks.
Documents You Need to Submit to Set Up a Branch Office
· A certificate showing the foreign company's decision to establish the Korean branch and the nomination of the Branch Representative (used for Bank and Court Registration).
· A certificate providing information about the foreign company (used for Court Registration).
· Acceptance of the Branch Representative's election (used for Court Registration).
· A certificate indicating the corporate nationality (used for Court Registration).
· An application for registering the seal impression of the Korea Branch (used for Court Registration).
· Powers of attorney (used for Bank, Court, and Tax Registration).
· A certified copy of the resident registration of the Korea Branch Representative if they are Korean, or a copy of their valid passport (with the photo page) if they are foreign (used for Court Registration).
· A copy of the Head Office's Articles of Incorporation.
A copy of the lease agreement for the Branch office (used for Bank and Court Registration). Note: The branch address should be provided in various applications to authorities like the bank, court, tax office, and Korea Foreign Trade Association.
What Happens During the Branch Office Registration Process?
Registration involves a few steps, which might vary depending on the location:
Give the required documents to the Korean Commercial Registrar’s Office or the local district office. This application includes details about the parent company, the branch’s activities, and the appointed representative.
If the chosen branch name isn't taken, it needs approval. The name must be unique and not misleading.
Legal Representative Appointment:
Choose a legal representative to handle main contact and legal matters for the branch.
Register with Tax Authorities:
Get a Tax Identification Number (TIN) by registering the branch with Korean tax authorities and fulfilling tax duties.
Obtain Business License:
Depending on your business, acquire the necessary licenses from relevant authorities.
Other Important Points to Remember During Registration
Open a business bank account in a Korean bank for smooth financial transactions.
Find a suitable office space for the branch that meets your business requirements.
Tax and Compliance:
Understand Korean tax rules and make sure you follow local tax laws to stay compliant.
When hiring for the branch, follow Korean labor laws. Create employment contracts and stick to labor standards.
Understanding the Tax Liability of a Branch Office
Corporate Income Tax:
· The branch needs to pay corporate income tax on the income it earns in Korea.
· Tax returns should be filed at the end of each fiscal year.
· Korean tax law requires the branch to maintain a double-entry bookkeeping system to support taxable income.
Value Added Tax (VAT):
· The branch must submit VAT returns quarterly.
· Similar to many European countries, when the branch sells goods or services in Korea, it collects VAT (at a 10% rate) from the buyer ("output tax").
· Conversely, when the branch purchases goods or services, it pays 10% VAT to the supplier ("Input VAT").
· The branch settles the difference between output and input VAT with the tax office quarterly. If input VAT is more than output VAT, the excess is refunded semi-annually.
· Exports and certain transactions, like healthcare, education, books, and magazines, may have special VAT treatment.
· When the branch makes payments such as interest, dividends, Class A wages, severance income, or other income, it must withhold income tax at the time of payment.
· The withholding tax rate varies depending on the nature of the income.
· The branch needs to remit the withheld income tax to the tax office by the 10th of the following month.
What are the Obligations of a Branch Office?
A branch is required to follow the compliance standards specified by the Rules and Regulations of the Authorities. In the event of any changes, the company must fulfill the obligation of informing the Authorities through its administrator. Additionally, the branch is responsible for regularly renewing and preparing financial reports, and undergoing audits periodically.
Let J&J Help You Form a Branch Office in South Korea!
Setting up a branch office in South Korea is a strategic move that can open doors to a dynamic market. By following this guide and seeking expert assistance if needed, you can navigate the process smoothly and establish a strong and legally sound presence in the nation.
Our South Korean business registration experts are ready to guide you through the detailed process and documentation required to register your branch office in Korea. Connect with us today to step into the vibrant South Korean business environment, leveraging our expertise and dedication to ensure your success.