South Korea is ideally located between China and Japan, two of the world’s biggest economies. International trade between these economies is seamless and thus, it is a strategic location to incorporate a company.
The Korean economy continues to go from strength to strength with the size of the economy ranking 15th in the world by GDP.
A huge exporter of goods as well as a massive importer, South Korea is a great place to do business, but the Korean saying – make a friend first, and do business second – tells you much about the need to understand Korean business culture.
Opportunities to do business in Korea exist across the spectrum, with the energy market, education, the creative industries, and luxury brands all successful to varying degrees with foreign companies starting a business in Korea.
1. South Korea taxes on corporate income are 10% on the first 200 million won of income, 20% for income between US$180,000 and US$20m, and 22% for income in excess of that.
2. VAT in South Korea amounts to 10% on sales and transfers of goods and services. Electronic VAT invoicing is compulsory, and failure to report electronically may result in penalties.
3. South Korea non-resident companies without permanent establishments (PEs) in South Korea are subject to a withholding tax on each income item.
4. Resident foreigners are taxed on their worldwide income if they have stayed in South Korea for more than 5 years out of a 10-year period. Those who have stayed for a shorter period are only taxed on their locally sourced income and foreign-sourced income.
5. There is a special concession for foreigners working in South Korea, where foreign expatriates and employees can apply for a flat tax rate of 16.5% on their income employment.
6. Quarterly VAT filing is compulsory even though the company is dormant.
7. Annual tax returns must be filed to the National Tax Service of South Korea after setting up a business in South Korea.
8. There are no export duties in South Korea.
9. Following South Korean company formation, annual external audits must be conducted if a company has more than US$1 million total assets.
10. All goods being imported to Korea from foreign countries must have their customs duties prepaid. The tax amount is dependent on the type of imported goods and quantity.
11. Non-resident individuals are only liable to personal income tax on income derived in South Korea.
12. To attract foreign direct investment (FDI), the Korean government provides tax incentives for small and medium-sized enterprises (SME) such as i) a SME investing in industrial equipment or advanced office equipment may enjoy a 5% tax credit of the invested amount ii) the tax credit for developing technology and manpower increased from 10% to 15%.
13. South Korea boasts 54 double taxation treaties, materially reduce local withholding tax on payments to non-residents.
14. A corporation must file an interim tax return with the Korean Government, comprising i)balance sheet ii) income statement and iii) a trial balance.
Over the coming 5 years, South Korea will invite tenders from foreign construction companies to help develop infrastructure spending of US$300bn on airports, roads and railway by 2020. Therefore, the country will attract more global investors in the near future.