TITLE : FAQ on FDI in Korea 2023 (Q66~Q72)
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■ FAQ on FDI in Korea 2023 (Q66~Q72)
Establishment of Corporation
Q66 Should a foreign-invested company attach its office lease contract when applying for registration of incorporation?
A66 Although the submission of a lease contract is not mandatory,a fixed address is required.
However, a lease contract shouldbe submitted when applying for business registration with thecompetent tax office after the registration of incorporation iscompleted with the registry office.
Q67 What are the precautions for a foreigner intending to establish a corporation by investing capital goods instead of cash?
A67 Since capital goods can be an object of investment in establishinga foreign-invested company, the foreigner should notify foreigninvestment to a delegated agency (a bank or KOTRA, etc.).
Theforeigner should prepare a written specification of the goods,etc.
to be introduced into Korea and apply for the examinationand confirmation thereof to the delegated agency before theirimport declarations are accepted by a competent customs office.Despite the related regulations of the Foreign Trade Act, a writtenspecification of the goods, etc.
to be introduced, which has beenexamined and confirmed by the delegated agency, shall be deemedan import approval
- After import declarations are accepted, the foreigner should receive acertificate of completion of investment in kind from the Commissionerof the Korea Customs Service (or a Korea Customs Service officerdispatched to KOTRA) by submitting a certificate (copy) of the completionof import declaration.
Despite Article 299 and 299-2 of the CommercialAct, a certificate of completion of investment in kind which certifies thatthe Commissioner of the Korea Customs Service (or a Korea CustomsService officer dispatched to KOTRA) has confirmed the execution ofthe investment in kind and the type, amount and price of the object ofinvestment shall be deemed an inspection report by inspector following theNon-Contentious Case Procedure Act and can be submitted for registrationof incorporation and for registration of foreign-invested company.
Q68 I am aware that 0.4% of the paid-in capital should be paid as registration license tax when establishing a foreign-invested company and the tax payable triples to 1.2% when the address of the head office is located in the Seoul Metropolitan over- concentration control region.
Is there a way to avoid such heavy taxation?
A68 According to Article 28 (2) of the Local Tax Act, the heavytaxation rate shall not apply to the types of business specified asthose for which it is unavoidable to establish business facilitiesin a large city, and an amount equal to 0.4% of the paid-in capitalshall be paid as license registration tax.
Around 30 businesstypes are subject to this exception, which are listed in Article 26(Exception from Heavy Taxation on Corporations in Large Cities)of the Enforcement Decree of the Local Tax Act
Q69 What is the cost of incorporating a stock company?
A69 The cost of incorporation includes the capital registration tax,local education tax, and fees for application for registration.
< Example of the incorporation cost (with capital of KRW 100 million, inan overconcentration control zone of the Seoul Metropolitan area) >
Tax/Fee | Description | Amount (KRW) |
Registration and license tax | 0.4% of the capital, tripled to 1.2% since the company is established in an over-concentration control zone | 1,200,000 |
Local education tax | 20% of the registration tax | 240,000 |
Supreme Court revenue stamp | Commission of registration application | 30,000 |
Notarization fee | Articles of association (Some documents are exempt from notarization in case of incorporation by promotion with capital of KRW 1 billion or less) | approx.1,000,000 |
Total | approx. 2,470,000 |
※ Legal fees are not included.
- Seoul Metropolitan Overconcentration Control Zones
- Seoul, Incheon, Uijeongbu-si, Guri-si, Namyangju-si, Hanam-si, Goyang-si,Suwon-si, Seongnam-si, Anyang-si, Bucheon-si, Gwangmyeong-si, Gwacheonsi, Uiwang-si, and Gunpo-si, Siheung-si – Enforcement Decree of the SeoulMetropolitan Area Readjustment and Planning Act [attached Table 1]
Q70 A foreign-invested company should pay registration license tax and associated costs before registering the incorporation of a company.
However, the funds deposited in a bank for the purpose of incorporation cannot be withdrawn before the corporation is registered.
What is the solution for this?
A70 There is a regulation that allows a foreign-invested company toreceive remittance from the parent company for incorporationcosts and repay the amount upon the corporation's registration,which is separate from the foreign investment fund.
Accordingto subparagraph 6 of Article 4-3 (1)-1 of the Foreign ExchangeTransactions Regulations, it is permitted to make the payment toreturn the expenses borne by non-residents to incorporate a foreigninvested company under the Foreign Investment Promotion Act.
- Once the company is registered, expenses spent prior to the incorporationshould be recorded in the book as business startup costs.
The amountreceived from the parent company can be transferred back via wiretransfer.
In this case, the parent company should have recorded theremittance to the subsidiary or branch for its establishment as a receivable.
For accounting purpose after incorporation, the initial expenditurereceived from the parent company should be spent under the name ofthe representative of the established corporation, and the supportingdocuments should be prepared.
Q71 What is the difference between the stock subscription payment method and the balance cer tificate method when establishing a corporation?
A71 When registering a company’s incorporation, a certificate ofdeposit for payment for stock subscription should be submitted to the court.
However, if the capital is less than KRW 1 billion, a balance certificate may be submitted instead
- Once the foreign investment is notified, a temporary account shouldbe opened at a designated foreign exchange bank under the foreigninvestor's name.
The temporary account serves to deposit foreign-currencyinvestment funds for stock subscription payment, and the designated bankcan issue a certificate of payment for stock subscription. - A balance certificate can be submitted for a stock company whose initialcapital is less than KRW 1 billion.
The investment fund should be depositedinto a foreign currency account under the investor's name, and the bank canissue the balance certificate.
The balance certificate is deemed to have thesame effect as the certificate of deposit for payment for stock subscriptionto be submitted to the court registry office.
Q72 When do the funds invested by a foreigner become available for withdrawal?
A72 Generally, in the event of an investment in a stock company,a foreigner can complete the registration of capital increase by submitting a certificate for custody of stock subscription payment received from the beneficiary bank (or a certificate of balance) and other required documents to the competent court.In this case, the domestic stock company can request a transfer of the funds in the bank’s custody to its corporate account.
Upon the completion of the transfer, the funds become available for withdrawal.
(In the case of the certificate of custody of stock subscription payment, withdrawal can be made after capital registration is completed; but in the case of the certificate of balance, withdrawal is possible for business purpose starting from the day after the date of certification.)