Looking to set up a liaison office in Korea?
Here we have come up with this guide to help you get familiar with the basics for a smooth process. Let’s get started.
What is a Liaison Office?
A liaison office is a type of foreign office recognized under the Korean Foreign Exchange Transaction Law. It's similar to a branch office but with some differences. Unlike a branch office, a liaison office is not allowed to be involved in any sales activities.
It is meant for non-sales activities such as research, market analysis, business development, and marketing for its parent or foreign company. And one more thing—a liaison office is not allowed to make profits on its own as per the law of Korea.
This type of office isn't subject to taxes in Korea, except for things like payroll and value-added tax reporting. Its main purpose is to support its head office by handling tasks like research, advertising, publicity, and other public relations activities.
Steps to Register a Liaison Office in Korea:
If a foreign company wants to set up a liaison office in Korea, it needs to follow these simple procedures:
· Your Korean bank will ask you to submit a report on the creation of a liaison office.
· Following the report submission, the foreign company should notify the tax office and complete the official registration for the liaison office.
These steps usually take about 2 Weeks Once all the required paperwork and information are submitted.
Required Documents for Establishing a Liaison Office:
Setting up a liaison office involves submitting several important documents, and they all need to be in English. Some documents might also need to be translated into Korean when submitting them to relevant government agencies in Korea.
Here are the documents you'll need when notifying a foreign exchange bank:
1. Articles of incorporation of the head office (with certification for the country of the head office):
· For corporations: Articles of incorporation of the head office
· For private businesses: Financial statement inspected by a licensed public accountant
2. Notification form to establish a foreign company
3. Provide the appointment letter for the head of the local branch, accompanied by either a passport copy or a certified resident registration copy.
4. Issue a power of attorney granting authority for the establishment of a local branch to another individual, with certification mandated in the country of the head office.
5. Attested copy of the company registry or a business license (If a copy is submitted, it may need certification in the country of the head office.)
6. The certificate confirms the resolution of the board of directors, including minutes that endorse the decision to establish a regional branch in Korea.
What is allowed to a Liaison Office in Korea?
A liaison office is not allowed to be involved in any profit-generating activities.
If a liaison office is involved in profit-generating activities, it may be treated as an integral part of the head office's operations.
A liaison office focuses on primary and secondary activities, acting as a bridge for communication and cooperation between the head office and the Korean market.
These permissible activities encompass crucial functions such as:
Publicity:
A liaison office is allowed to engage in publicity activities to enhance the visibility and awareness of the foreign company in the Korean market. This includes promoting the brand, sharing information, and creating a positive image.
Information Gathering:
Gathering market intelligence is another permissible activity. A liaison office can collect information about market trends, consumer behavior, and competitor activities, providing valuable insights to the head office.
Market Intelligence and Research:
By understanding the local market dynamics, the office aids the head office in making informed decisions about business strategies.
Understanding Tax Obligations for a Liaison Office
A liaison office doesn’t generate any kind of profit. It means that it doesn’t have to pay corporate income tax or file tax returns. However, it has to handle payroll income tax for its employees.
Although a liaison office doesn't have to report or collect Value Added Tax (VAT), it has to work with tax agencies. When buying things or services in Korea, the office needs to pay VAT to Korean authorities. Unfortunately, it can't get a refund for this VAT; it's treated as an extra cost. To make things official, the liaison office has to apply for a business tax code number from the tax office, making it exempt from tax payments.
Recruitment for a Liaison Office in Korea
When establishing a liaison office, consider hiring local staff to navigate the nuances of the South Korean market.
Get familiar with local labor laws, and opt for essential work permits and visas for any foreign employees. This strategic approach not only ensures a smooth integration into the local workforce but also shows a commitment to legal and regulatory requirements, fostering a positive and productive working environment for your liaison office.
Let Us Help You Setting Up a Liaison Office in Korea
Setting up a liaison office is more straightforward compared to creating a foreign-invested corporation or branch office, mainly because it skips court registration procedures. Despite its simplicity, managing the process independently may prove challenging for foreigners.
Each step involves meticulous document preparation, including reporting to the bank and tax office, handling foreign exchange transactions, opening an account, and dealing with notarized documents.
To streamline the process and save time and money, enlisting professional assistance is highly advisable for a smoother and more efficient establishment of a liaison office.
At J&J, we're help foreign companies every step of the way. From setting up your business to dealing with taxes, accounting, and payroll, we've got you covered. Our team specializes in making things easy for you as you navigate the challenges of running a business in a foreign country.
Trust J&J to guide you through the ins and outs of business operations, letting you concentrate on the essential parts of your enterprise with confidence. Get in touch now!