KnowSouth Korea

Meeting your regulatory responsibilities

CHOOSING YOUR LEGAL STRUCTURE

TRADING FROM YOUR EXISTING LEGAL ENTITY AT HOME…

Selling online to South Korean consumers from your existing legal entity at home can offer a low-risk approach to entering this market. In such a case, you will continue to be bound by the domestic laws of the jurisdiction in which you have established a legal entity, though you will still need to be aware of and comply with South Korean customs procedures and requirements in order to import your goods. For example, country of origin labels are necessary for all commercial shipments entering South Korea – please see our logistics page for more information.

Should you additionally wish to establish a physical presence in South Korea without actually setting up a distinct South Korean legal entity, there are a number of options available to choose from. Foreign companies can elect to set up both representative and branch offices, though – as neither constitutes separate legal entities in their own right – it’s important to note that your domestic legal structure will remain liable for any debts incurred by these subsidiaries. The rules and regulations that apply to representative and branch offices are set out in the Foreign Exchange Trade Act. Unlike branch offices, representative offices need not be registered but their permitted commercial activities are quite substantially restricted.

Alternatively, foreign companies can enter this market through the use of an agent or distributor, giving you the benefit of local knowledge and a representative on the ground. However, it is highly recommended that you seek expert advice in advance of entering into any such agreements to ensure that your interests are protected and appropriate due diligence measures are taken.

SETTING UP A NEW LEGAL ENTITY IN SOUTH KOREA…

In recent years, South Korea has taken an increasingly active approach to encouraging foreign investment within its borders and, as a result, it is now relatively simple to set up as a foreign invested enterprise (FIE), a distinct South Korean legal entity, in this location. Increasing numbers of foreign companies are now establishing FIEs, which enable them to ring-fence their ventures, benefit from tax incentives and enjoy the advantages that come with having a local South Korean entity when it comes to building relationships with domestic suppliers and consumers. Foreign investment must be reported under the Foreign Investment Promotion Act (FIPA), and whilst there is generally a relaxed approach to foreign investment across South Korea’s industries, some restrictions do apply. Examples of restrictions are found in the wholesale of meat and in radio and terrestrial broadcasting. There are also heavy restrictions on doing business with North Korea under the National Security Act.

South Korean company law offers a number of corporate forms to choose from. These include partnerships, limited partnerships, limited liability companies and stock companies. Limited liability companies (yuhan hoesa) and stock companies (chusik hoesa) tend to appeal to foreign invested enterprises as the regulations that apply to these corporate forms are relatively unrestrictive. These companies will also benefit from a simple incorporation process and flexible corporate governance structures. Whichever form you choose, once incorporated you will naturally be bound by South Korea’s laws and regulations, and so seeking expert advice will be vital to ensure your meet your responsibilities.

 


SOUTH KOREAN TAX SUMMARY

Tax Rate Notes
Corporation Tax 10% – 24.2% Corporate income tax is imposed at a rate of 10% on taxable income up to $167,438 (USD) (KRW 200 million), 20% on taxable income in excess of $167,438 (KRW 200 million) up to $16,748,807 (KRW 20 billion), and 22% on taxable income exceeding $16,748,807 (KRW 20 billion). Local income tax equal to 10% of corporate income tax – payable before offsetting any tax credits and exemptions – is also charged, resulting in an effective tax rate of 24.2% on taxable income exceeding $16,748,807 (KRW 20 billion) if no tax credits and exemptions are available.
Capital Gains Tax – For Companies 10% – 24.2% In general, capital gains are treated in the same manner as other taxable income and are taxed at the same rates as corporation tax.
Withholding Tax – Dividends 0% There is a 10% withholding rate of tax on dividends.
Withholding Tax – Other Interest 14% This tax applies to payments to non-residents and non-corporate residents.
Value Added Tax 10% The standard rate of VAT is 10%, which is charged on goods sold and services rendered.
Social Tax on Employee’s Salaries 7.74% All monthly payments to an employee are charged at 2.54% for national health insurance, 4.5% for national pension and 0.7% for employment insurance.
Currency Exchange Control – Cash $6,700 or (KRW8,000,000) Individuals are permitted to carry a maximum of $6,700 (KRW 8,000,000) in cash into South Korea. The amount taken out is both subject to this threshold and to the amount declared on arrival; individuals cannot take out more than they brought in.
Currency Exchange Control – Bank Transfer N/A There are generally no restrictions on payments to foreign entities or individuals through normal banking channels.

KEY LEGISLATION

THE SNAPSHOT PROVIDED HERE IS NOT AN EXHAUSTIVE GUIDE. THE SOUTH KOREAN LEGAL FRAMEWORK CAN BE COMPLEX, AND APPLICABLE LAWS AND TAXES DIFFER DEPENDING ON WHICH APPROACH TO ENTERING THIS MARKET YOU DECIDE TO TAKE. CONSULTING AN EXPERT IS THEREFORE ESSENTIAL TO ENSURE YOU MEET YOUR REGULATORY RESPONSIBILITIES!

Privacy and Data

Many of South Korea’s primary laws on privacy and the protection of personal data are contained in the Personal Information Protection Act (PIPA) and The Network Act. These regulations contain provisions relating to the collection, use, outsourcing, storage and destruction of personal information. It is important to note that, in this area, South Korean regulations may apply to foreign companies regardless of whether they decide to set up a legal entity in South Korea or not, as websites that target South Korean users or hold a South Korean domain may find themselves liable under PIPA. Data controllers will need to obtain the consent of data subjects before data is collected or used, as well as make data subjects aware of the purpose for which data is being collected. Data controllers will also need to disclose the duration of possession of collected data and its use. Data subjects have the right to refuse the collection of data and may request the correction or deletion of any data stored. Organisations processing such data must ensure internal management processes are in place to ensure the security of data and prevent illegal access or unlawful disclosure. Any information leaked must be notified to the data subject.

The Act on Consumer Protection in Electronic Commerce sets out further provisions on the proper use of consumer data collected through electronic commerce.

With regard to the use of Cookies on websites, organisations must establish and disclose a detailed privacy policy and include all information on the operation of devices used to automatically collect personal data. They must also detail how to reject the use of such devices.

Advertising

The Fair Labelling and Advertising Act was implemented to prevent advertising thought to be likely to deceive or mislead customers. It is enforced by the South Korean Fair Trade Commission, and any promotional material must be compliant with its terms.

Further laws exist to regulate spam that is transmitted electronically; senders must obtain the consent of recipients before electronic advertisements are sent, and messages must contain the sender’s name, contact information and offer an ‘opt-out’ option. Consent must be newly obtained every two years and separate and additional consent must be obtained in order to send spam via SMS between 9pm and 8am. Exceptions do exist with regards to consent where the recipient’s information was obtained in the course of a former business transaction, wherein messages about the subject matter of the transaction can be sent for up to 6 months following the transaction.

Intellectual Property

In recent years, South Korea has made a number of developments in order to strengthen the protection of intellectual property rights (IPR) of holders. To protect your IPR you must register any trademarks with the Korean Intellectual Property Office (KIPO). South Korea operates a ‘first-to-file’ system and so it is vital you check whether the same and/or similar trademarks have been registered before exporting your goods. Equally, you must check that you are not infringing the property rights of other parties to avoid being implicated in selling counterfeit or illegal parallel imports. South Korea is also a member of WTO and a signatory of the Madrid Protocol, The International Trademark System, offering a one-stop solution for registering your trademarks all in one place, for one set of fees, and therefore protecting your mark in the territories of all its members across the world.

Consumer Protection

A variety of legislation has been enacted with the goal of protecting South Korean consumers, and of particular relevance here is the Act on Consumer Protection in Electronic Commerce. This Act provides that all pre-contractual information must be displayed clearly, and all terms and conditions explained. Online shops must further be transparent and make details regarding delivery costs and time-frames, returns procedures, cancellation policies and refunds easily accessible. Consumers must be notified promptly as to the confirmation of their orders, as well as the means available to correct or cancel the contents.

Further protection from unfair trade practices is provided by the Monopoly Regulation and Fair Trade Act (MRFTA), which can apply to foreign legal entities if their practices have an effect on the South Korean market. Additionally, the Product Liability Act exists to protect consumers against damage caused by defective products, and this legislation is supplemented by strict industry standards that apply across a number of different sectors to ensure the health and safety of products being distributed in the South Korean market.

 

Other areas of interest

Reaching and engaging your consumers

Consumers in South Korea expect excellent after-sales customer service, including a free local contact number for advice and support.

Receiving Payment From Your Customers

Bank cards are overwhelmingly the most popular payment method in South Korea.

Getting The Goods To Your Customers

Around 50% of South Koreans have reported that slow delivery is one of their primary concerns.

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