South Korea Flag on National Liberation Day of Korea
Located between China and Japan, and with one of Asia’s most developed economies in its own right, South Korea is popular with foreign investors establishing themselves in Asian markets. With a highly-skilled labour force and flourishing middle class, the Korean economy has much to offer.
The most common vehicle through which businesses choose to invest in the country is the Yuhan Hoesa, which is similar to the private limited company and LLC in other jurisdictions.
- Administrative & governance requirements for Yuhan Hoesas are low, with no need for a company secretary or board of directors.
- Starting and managing a Korean company is complicated for foreigners by the applicable law (the Commercial Act) being available only in Korean, while many other countries maintain English-language versions of similar documents. It is therefore a good idea to seek experienced advice on setting up and maintaining the company.
- As is the case for this class of company in many other countries, a sole shareholder can incorporate a Korean company, with a cap of 50 shareholders in a Yuhan Hoesa. Above this figure the company must convert to a joint stock company, which is known locally as a “Chusik Hoesa”.
- These companies require a minimum investment of 10m KRW, which at the time of writing is equivalent to around US$9,200. This capital can be used towards renting office space and other business expenses.
- Corporate income is taxed progressively in South Korea, with a rate of only 10% on the first 200m KRW of income (~US$180,000). Income between that amount and 20bn KRW is taxed at 20% and any income in excess of that figure is taxed at 22%.
- Foreign owners of Korean companies should be aware of the 22% withholding tax levied on dividends paid abroad and plan their corporate structure accordingly. This withholding tax can be reduced by using shareholders resident in a jurisdiction that has a double taxation avoidance treaty with South Korea. Fortunately, many major economies are represented on this list including the UK, the US, Ireland, Japan and Singapore.
- Shares in a Yuhan Hoesa have limited transferability, requiring approval of 75% of the existing shareholders in order to transfer or issue shares. As a result, a Chusik Hoesa/joint stock company is a better options for businesses that require more flexibility with regard to issuing and transferring shares.
In the majority of cases, the Yuhan Hoesa will be the right choice of vehicle for businesses looking to invest in Korea, but it’s not a one-size-fits-all solution.
Please don’t hesitate to email us at email[at]helayconsultants[dot]com or call us at +65 6735 0120 when you feel ready to start the incorporation process.