South Korea company registration
Healy Consultants Group PLC
26 March, 2014
South Korea is ideally located between China and Japan, two of the world's biggest economies. International trade between these economies is seamless and thus, it is a strategic location to incorporate a company. South Korea business setup has the following advantages:
1. A limited liability company can be incorporated within one week, with a minimum of one shareholder and one director of any nationality.
2. There are no restrictions on foreign currency accounts or the repatriation of capital earnings.
3. To attract foreign direct investment (FDI) on South Korea offshore company, the Korean government passed the Foreign Investment Promotion Act in 1998. The Act opened up 99.8% of Korea's industries to foreign investment and provided significant protection for investors' interests. Under the Act, foreign investors also receive incentives including tax breaks, cash grants and affordable land.
4. South Korea boasts a technologically advanced air, land and sea transport network, allowing quick delivery of goods and raw materials within the country.
5. South Korea boasts high skilled labor with a literacy rate of above 97% and a technologically advanced rate of 60%. Labor surveys show that 80% of adults aged 25-64 have a university degree.
6. Incheon International Airport is a leading logistics and transportation hub in Northeast Asia, equipped with state-of-the-art facilities. Entrepreneurs can expect to have their customs clearance time cut by 50%.
7. South Korea has the world's highest estimated national IQ, with leading rankings in mathematics, science, problem solving and reading, as declared by the OECD.
Before entering the South Korean market, global investors should be aware of the following accounting and tax regulations:
1. South Korea taxes on corporate income are 10% on the first 200 million won of income, 20% for income between US$180,000 and US$20m, and 22% for income in excess of that.
2. VAT in South Korea amounts to 10% on sales and transfers of goods and services. Electronic VAT invoicing is compulsory, and failure to report electronically may result in penalties.
3. South Korea non-resident companies without permanent establishments (PEs) in South Korea are subject to a withholding tax on each income item.
4. Resident foreigners are taxed on their worldwide income if they have stayed in South Korea for more than 5 years out of a 10-year period. Those who have stayed for a shorter period are only taxed on their locally sourced income and foreign-sourced income.
5. There is a special concession for foreigners working in South Korea, where foreign expatriates and employees can apply for a flat tax rate of 16.5% on their income employment.
6. Quarterly VAT filing is compulsory even though the company is dormant.
7. Annual tax returns must be filed to the National Tax Service of South Korea after setting up a business in South Korea.
8. There are no export duties in South Korea.
9. Following South Korean company formation, annual external audits must be conducted if a company has more than US$1 million total assets.
10. All goods being imported to Korea from foreign countries must have their customs duties prepaid. The tax amount is dependent on the type of imported goods and quantity.
11. Non-resident individuals are only liable to personal income tax on income derived in South Korea.
12. To attract foreign direct investment (FDI), the Korean government provides tax incentives for small and medium-sized enterprises (SME) such as i) a SME investing in industrial equipment or advanced office equipment may enjoy a 5% tax credit of the invested amount ii) the tax credit for developing technology and manpower increased from 10% to 15%.
13. South Korea boasts 54 double taxation treaties, materially reduce local withholding tax on payments to non-residents.
14. A corporation must file an interim tax return with the Korean Government, comprising i) balance sheet ii) income statement and iii) a trial balance.
Over the coming 5 years, South Korea will invite tenders from foreign construction companies to help develop infrastructure spending of US$300bn on airports, roads and railway by 2020. Therefore, the country will attract more global investors in the near future.
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