Doing business in South Korea
South Korea’s sophisticated infrastructure, digital economy and export-led industries make it a prime location for foreign investment. However, international businesses must navigate tax changes, employment regulations and reporting requirements.
South Korea is a prosperous nation in East Asia with a population surpassing 51 million. Renowned for its leadership in technology, innovation and manufacturing, it boasts one of the most advanced infrastructures globally. The economy is driven by exports, with significant industries including electronics, automobiles, shipbuilding and petrochemicals. South Korea is highly rated for ease of doing business, global innovation and logistics performance. The primary language is Korean, and the local currency is the South Korean won (KRW).
Advantages of doing business in South Korea
South Korea presents numerous benefits for overseas investors. The nation boasts an advanced IT infrastructure and is a global centre for semiconductors, consumer electronics and automotive exports. Its strategic position makes it an entry point to Asian markets, particularly China and Japan.
The government promotes foreign direct investment (FDI) through tax incentives, free economic zones and support for R&D. Intellectual property rights are well safeguarded and the legal environment is transparent and business-friendly. South Korea’s network of free trade agreements (FTAs) provides investors with preferential access to major global markets.
Challenges of doing business in South Korea
Despite its advantages, doing business in South Korea can be intricate. Employment laws are changing and may be challenging for foreign employers to navigate. The regulatory environment frequently updates, especially regarding tax changes and digital reporting.
Language and cultural barriers can also hinder market entry as much of the corporate culture is based on hierarchy, consensus and long-term relationships. Businesses should also be aware of requirements to localise data and comply with Korean commercial law.
Cultural considerations when doing business in South Korea
Business culture in South Korea is formal and hierarchical, giving significant respect to seniority. Titles are important, and business card exchanges should be done with both hands and attention.
Meetings often emphasise relationship-building, as opposed to immediate outcomes. Trust is developed over time, and social engagements outside of work - such as meals - are crucial for forming strong business bonds.
Communication tends to be indirect, and open disagreement is avoided to maintain harmony. While English is widely spoken in large firms, Korean is usually necessary for legal and contractual matters. Punctuality and well-structured agendas are expected in all business interactions.
Compliance and the regulatory environment in South Korea
The regulatory landscape in South Korea can be moderately complex due to frequent updates and evolving compliance frameworks. Businesses must register with the Supreme Court Registry Office and the National Tax Service. Financial statements need to adhere to Korean GAAP or K-IFRS, depending on the entity's type and size.
The government has embraced global standards such as FATCA and CRS and enforces strict anti-money laundering and beneficial ownership disclosure rules. With increased digitisation, companies are required to comply with e-tax invoicing, digital signatures and local data reporting via the Home Tax system.
Hiring and employment in South Korea
South Korea’s labour market is led by the Labour Standards Act, which outlines minimum employment conditions. Employers need to issue a written contract and adhere to maximum working hours, overtime pay and mandatory leave.
The statutory work week is 40 hours and employers must contribute to four social insurance programmes: pension, health, employment and industrial accident insurance. The total employer contribution rate generally exceeds 10% of gross salary.
Employing foreign workers requires a visa and work permit. Specific rules apply to different visa categories and employers must follow reporting regulations for expatriates.
The financial and tax environment in South Korea
South Korea’s standard corporate income tax rate stands at 9% for the first KRW 200 million of taxable income, 18% up to KRW 20 billion and 22% beyond that, with an added local income tax of 10% of the national corporate tax amount. VAT is charged at a standard rate of 10%.
Withholding tax is applicable to dividends, interest and royalties, generally set at 22% unless reduced by tax treaties. Resident entities face taxation on worldwide income while non-residents are taxed on Korean-sourced income.
Companies are required to file annual returns and engage in either quarterly or monthly VAT reporting. There are also transfer pricing, thin capitalisation and BEPS-aligned disclosure rules in place.
Starting a business in South Korea
Foreign enterprises can set up operations through local subsidiaries, branches or liaison offices. The most prevalent legal structures are Limited Liability Companies (Yuhan Hoesa) and Joint-Stock Corporations (Chusik Hoesa).
Registering a company involves drafting the articles of incorporation, appointing directors, registering with the court, securing a business registration certificate and opening a local bank account. Minimum capital requirements differ by sector and certain business types must also obtain sector-specific licences.
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