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NAVIGATING LEGAL COMPLIENCE AND TAXATION FOR FOREIGN-INVESTED ENTERPRISES IN KOREA

NAVIGATING LEGAL COMPLIENCE AND TAXATION FOR FOREIGN-INVESTED ENTERPRISES IN KOREA

by Andrew Baek

( by Andrew Baek, January 13, 2025 )

 

The incorporation of a foreign-invested enterprise, as well as any subsequent changes to its capital resulting from additional investments, must be registered with the court registry. During this registration process, the foreign-invested enterprise is required to pay the applicable local taxes and provide proof of payment to the registry.

While taxes fall outside the scope of legal services provided by Inpyeong Law, I would like to offer some basic introductory information on the topic, as it frequently draws significant attention from our foreign clients.

NAVIGATING LEGAL COMPLIENCE AND TAXATION FOR FOREIGN-INVESTED ENTERPRISES IN KOREA
NAVIGATING LEGAL COMPLIENCE AND TAXATION FOR FOREIGN-INVESTED ENTERPRISES IN KOREA

Corporate registrations in Korea are subject to taxation under the Local Tax Act, with primary taxes applied being the Registration and License Tax and the Local Education Tax, the rates of which vary depending on the item being registered.

The term Local Education Tax might prompt foreign investors to question its relevance to corporate registration. This tax is a supplementary tax applied in conjunction with other taxes, in this case, the Registration and License Tax. The Local Education Tax is calculated as 20% of the Registration and License Tax. This is somewhat comparable to practices in certain U.S.

localities, where portions of property tax revenues are allocated to local school districts to support education.

The Registration and License Tax, in the context of foreign investment, is set at 0.4% of the capital increase or investment subject to registration. However, if the principal office of the foreign-invested enterprise is located within an “over-concentration control region”, such as Seoul, the tax rate triples to 1.2%. While a 0.8% difference may appear insignificant, for investments amounting to millions in USD, the difference amount alone can reach tens of thousands of dollars, posing a considerable financial burden on the foreign-invested enterprise.

The legal structuring of the relationship between the foreign investor and the foreign-invested enterprise, as well as the methods used to facilitate the investment, can significantly impact the overall financial and operational expenses born by the enterprise. While our primary focus is on ensuring compliance with legal requirements for filings and registrations, thoughtful structuring may also yield additional benefits, such as reducing tax liabilities (e.g., avoiding tiple taxation through legitimate strategies) or enhancing operational efficiency. Given the complexities and potential financial implications, it is strongly recommended to engage in thorough discussions and seek professional advice tailored to the specific investment scenario. A well-informed approach ensures not only compliance but also optimization of the investment’s value and sustainability in the Korean market.

For further legal consultation on this subject, please feel free to contact us at inpyeong@inpyeonglaw.com or by phone at +82 2038 2339.

Ends.

[ NAVIGATING LEGAL COMPLIENCE AND TAXATION FOR FOREIGN-INVESTED ENTERPRISES IN KOREA – Inquiries ] 

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법률사무소 인평의 칼럼은 일반적인 법률 정보를 고객에게 제공되고 있으며, 이에 수록된 내용은 법률사무소 인평의 공식적인 견해나 구체적인 사안에 관한 법적인 효력을 지닌 법률자문이 아닙니다. 구체적인 사안에 대한 법률의견이 필요하신 분들은 법률사무소 인평의 변호사에게 공식 자문을 요청해주시면 감사하겠습니다. 본 게시물의 저작권은 작성자에게 있으며, 무단전재 및 재배포를 금지합니다.

관련 구성원
조윤상 대표변호사 ・ 변리사

02-2038-2339 / yscho@inpyeonglaw.com

선바로 파트너변호사

02-2038-2339 / brseon@inpyeonglaw.com

Andrew Baek 외국변호사

02-2038-2339 / abaek@inpyeonglaw.com

박미래 한국변호사

02-2038-2339 / mrpark@inpyeonglaw.com

Michael Baak 외국변호사

02-2038-2339 / Mbaak@inpyeonglaw.com

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