In just a few generations, South Korea earned its place next to one of the most developed, high-income countries. This economic growth is described by most as the Miracle on the Han River and has brought it to the ranks of the elite countries in the OECD and the G-20. Since the rise, its economy has seen a constant inflow of new small businesses opening, and the majority of them being operated by non- Koreans. The government has been trying to do whatever it can to reduce barriers to entry. Even with the government offering free classes, office space, and money to selected ventures, all businesses and business owners face some central issues.
The country’s capital is Seoul, the official language is Korean, and the currency used is Korean Republic won (KRW - ₩).
Disclaimer: Be aware that this article is not a substitute for legal advice. Please always check official websites or seek legal advice before you take action.
Visa requirements to start a business in South Korea
If you want to start a business or invest in South Korea, you are required to have one of the following:
- an F (F-2, F-4, F-5, and F-6) visa
- a D-8–4 Startup (Oasis) visa
- a D-8 (Corporate Investment) visa
At least KRW 100 million must be invested if an individual wants to get a D-8. If you don’t have a Korean visa, you have to contact a lawyer to set up a company on your behalf.
You can apply for a visa on the government website here.
Business structure in South Korea
From a legal perspective, it is necessary to determine the structure of your business. The most common business structures are:
- Sole proprietorship or Private Business (사업자 or “sa-eob-ja”)
- Partnership Companies (합명회사 or “hab-myeong hwe-sa”)
- Limited Partnership Companies (합자회사 or “hab-ja hwe-sa”)
- LTD or Corporation or Stock Companies (주식회사 or “joo-shik hwe-sa”)
- LLC or Limited Companies (유한회사 or “yu-han hwe-sa”)
Which one is used usually depends on the ownership and management structure and also tax consequences of the business. A sole proprietorship is owned by one individual who is in charge of operating the business.
The owner has all its capital and is entitled to all its profits. All obligations and liabilities of the sole proprietorship are the personal responsibility of the proprietor. A sole proprietorship is not a legal entity in South Korea. It is the most suitable form for a small business.
Sole proprietor registration process
To register a sole proprietor in South Korea, all you need to do is go to the tax office with your Alien Registration Card (foreign national card), Office Lease Agreement, Passport, and any other pre-requisite documents for your particular industry. Before seeing the government official, complete the business registration form. After your appointment is over, you will be given a receipt by the government official. That receipt will confirm that the application has been received. To receive your company registration document (business license), you must visit the tax office again when you get notified.
If your landlord agrees, you can register your company at your house. Also, it is possible to register more than one person at a sole proprietorship. If you have revenue of 50,000 USD or more, the tax rate can be quite high for a private business.
Business bank account setup
After you have completed your business registration, the next step is to set up your business bank account. The documents that you need in order to do that are:
- Passport
- ARC Card
- Office lease agreement
- House contract
- Job contract or business/sales agreement with a client
- Your home country tax number, like SSN, tax file number, etc.
After preparing all of the necessary documents, you will be able to visit a bank of your choice.
The banking teller is going to provide you with the following:
- Passbook for your company bank account
- Security code card (a paper or electronic card with one-time password OTP numbers on the bank or button to generate an OTP).
Taxes for sole proprietors in South Korea
Whether your business is profitable or not, you need to be tax compliant. There are at least two types of taxes that you will need to pay:
- Value-added tax (VAT)
- Income tax
Some businesses are VAT-exempt, so what purpose you pursue can affect how much of your income you keep. This also includes translations.
VAT filing is done every six months for sole proprietorships. The standard VAT rate in South Korea is 10%.
Yearly income tax returns are done due May 31st for sole proprietors.
The tax rate depends on the income:
- Up to KRW 14 million - 6%;
- From KRW 14 to 50 million - 15%;
- From KRW 50 to 88 million - 24%;
- From KRW 88 to 150 million - 35%;
- From KRW 150 to 300 million - 38%;
- From KRW 300 to 500 million - 40%;
- From KRW 500 to 1000 million - 42%.
- Over KRW 1000 million -45%
