One of the strengths of South Korea’s economic policy is the facilitation of company formation by foreign investors. In recent decades, the relationship between Vietnam and South Korea has increasingly developed and strengthened. With open policies, many Vietnamese investors can proceed to invest through the process of establishing a company in South Korea. So what is the procedure for Vietnamese individuals and organizations to establish a company in South Korea?
Forms of Business Investment in South Korea
Vietnamese investors starting a business in South Korea can purchase new or existing shares or establish a company in South Korea by opening a branch or liaison office. Thus, there are two groups of forms of business investment in South Korea: Korean domestic companies with foreign investment and branches of foreign companies.
Korean Domestic Companies with Foreign Investment
Establishing an enterprise in South Korea through the type of domestic enterprise with foreign capital under the Korean Commercial Law. A local company in South Korea in which a foreigner has invested not less than 100 million won to participate in management and has acquired not less than 10% of new or existing voting shares is recognized as a company with foreign investment under the Foreign Investment Promotion Act. Therefore, it constitutes a domestic company established under the Korean Commercial Law. The forms of these companies include:
- Stock companies
- Limited liability companies
- Limited partnership companies
- Unlimited partnership companies
Among these, establishing an enterprise in South Korea in the form of a limited liability company and a stock company are the two most commonly established types of enterprises.
Branches of Foreign Companies
Branches/Sales Offices: A foreign enterprise/company conducting the business activities of the parent company. No minimum capital requirement. Liaison Offices: A foreign company that cannot conduct business activities but only conducts market research, marketing, etc. No minimum capital requirement. A branch office or liaison office of a foreign corporation will be classified depending on whether the office conducts business activities and will be regulated by the Foreign Exchange Transactions Act.
Documents and Procedures for Establishing a Company in South Korea
To invest in South Korea, the process includes three stages:
Stage 1: Initial Domestic Procedures
Step 1: Meet the conditions for new project approval (Article 60 of the Investment Law 2020):
- Not included in the list of industries banned from investment and meet the specific conditions of each conditional investment industry such as advertising, insurance, enforcement, etc.
- Self-implement or arrange foreign currency through a permitted credit institution according to a commitment.
- Have an investment decision in South Korea for Vietnamese investors (as per the Enterprise Law of the foreign investment decision-making agency into state enterprises).
- Have a document from the tax authority proving the investor’s tax obligations. The tax authority’s approval time is no later than 3 months from the date of project investment application submission.
Step 2: Apply for investment policy approval to invest in South Korea (if required):
- For projects requiring investment policy approval: projects with huge capital of 20 trillion VND or more, projects with special mechanisms that require National Assembly approval, or smaller projects with a capital of 800 billion VND or more, projects in conditional capital sectors of 400 billion VND or more.
- For projects not requiring investment policy approval: prepare 3 sets of documents, including 1 original set, to apply for the Investment Registration Certificate to South Korea.
Step 3: Prepare documents to apply for the Investment Registration Certificate (IRC):
- Investment registration application form (original)
- Identity card or passport (for individual investors; copy)
- Certificate of establishment or equivalent document confirming legal status for organizational investors: Investment license, Investment certificate, Investment registration certificate for foreign-invested enterprises in Vietnam, Business registration certificate, or decision to establish a company in South Korea.
- Decision to invest abroad
- Commitment letter to balance foreign currency or arrange foreign currency for the investor from a permitted credit institution
Step 4: Submit documents to apply for the Investment Registration Certificate to South Korea (IRC):
- For projects requiring investment policy approval: within 5 working days from the date of receiving the investment policy approval document and the decision to establish a company in South Korea, the competent authority will issue the IRC without the need to submit an application.
- For projects not requiring investment policy approval: within 15 days from the date of receiving valid documents, if the IRC is refused, the authority must notify the investor in writing and state the reason.
Fees: Currently, there are no specific regulations on the fee for issuing the overseas investment registration certificate, so this fee is free.
Stage 2: Procedures for Obtaining Approval for Investment Projects to Establish a Company in South Korea
After being issued the overseas investment registration certificate, depending on the type of investment to establish a company in South Korea, investors need to carry out various procedures. Generally, the procedures in South Korea include:
For companies with foreign investment (FDI):
- Duration: about 7 days
- Notify the foreign direct investment to the foreign exchange bank
- Transfer investment capital to South Korea
- Establish the company in South Korea and register the company establishment with the Korean Court
- Register the business with the Korean tax authority
- Open an investment capital transfer account
- Register the FDI company
For branches and liaison offices:
- Notify the foreign exchange bank or the Ministry of Economy and Finance
- Register the branch at the District Civil Court’s Commercial Registration Office
- Register the business with the Korean tax authority
- Open a bank account
Costs: Costs for completing procedures in South Korea will follow the specific regulations in each case, such as:
- Registration tax (4% of the investment capital). If establishing a business in restricted areas, the registration tax is tripled: 1,200,000 won
- Local education tax (20% of the registration tax): 240,000 won
- Notarization (company charter, except for companies with capital below 100,000,000 won): about 150,000 won
Stage 3: Subsequent Domestic Procedures
- Apply for a business license if required by Korean law.
- Open a bank account in the company’s name to store overseas investment capital at a permitted credit institution in Vietnam. This is the foreign currency account that investors need to open at a permitted credit institution in Vietnam and register to transfer foreign currency abroad.
- Register foreign exchange transactions at the State Bank
- Transfer investment capital to South Korea to conduct investment activities and establish a company
- Apply for visa status for company officers without Korean nationality (e.g., Director, employees)
- Notify the investment establishment of the company in South Korea to the Foreign Investment Department, the State Bank, the Vietnamese Embassy/Consulate General in South Korea.
In case you need more advice, you can contact MLT Lawyers at 02862727987 or 0919211048 or via email: [email protected]