Why do business in South Korea?
When entrepreneurs consider Asian business powerhouses, thoughts invariably turn to China and Japan. Do not sleep on the potential of South Korea, though. This nation has a thriving economy and boasts a talented, sophisticated talent pool of employees to draw from.
South Korea is a country on the up, making an ever-increasing contribution to the global economy. With a thriving industry – especially in the technology, steel and automobile sectors – it’s looking increasingly likely that South Korea will eventually obtain superpower status. There has never been a better opportunity to invest in the infrastructure of this exciting nation.
World Bank Ease of Doing Business Ranking (1-190)
Tax rates 2020
How to set up payroll in South Korea
While there are undeniable rewards to doing business in South Korea, you’ll need to be patient to start seeing them. It could be up to 12 weeks before your business is up and running and you’re ready to make your first hire.
Once you’re ready to start making hires, you’ll have a wide array of talented – and, more importantly, dedicated – employees to choose from. South Koreans will often expect to work long hours, and attendance is considered very important. You’ll rarely need to worry about employees taking unsanctioned sick days.
Naturally, you will need to manage the tax considerations of your employees. Typical income tax rates in South Korea operate on a sliding scale, from 8 – 35%. These taxes should be withheld from salaries and filed with the National Tax Service (NTS) by the 10th day of the following month.
If you employ less than 20 people your business can apply to file these payments twice a year rather than monthly to cut down on administration, but they’ll still need to be withheld from every payroll run.
South Korean employment law & HR considerations
South Korean employment law is governed by the Ministry of Employment and Labour. Employees in South Korea are extremely well protected, so think carefully before making a new hire. It can be extremely difficult to terminate a contract for anything but the most egregious of misconduct, so get your recruitment policy right.
Employees do not pay social security taxes in South Korea, but employers do. As a business, you will pay an additional 8.98% of an employee’s salary into a social security fund. This payment covers:
- National Pension (NP) – many employers also offer a supplementary private pension as a benefit
- National Health Insurance (NHI)
- Employment Insurance (EI)
- Worker’s Compensation Insurance (WCI)
In South Korea, a minimum of 90 days of maternity leave is mandatory. At least 60 of these days must be paid by the employer, with the national government picking up the tab for the remainder. This time away can be split before or after the birth, though at least 50% of the leave must be taken after the birth.
South Korean employees with at least one year of service are entitled to 15 days of paid vacation every year. In the first year of working, an employee is entitled to one holiday day for every month of work completed with perfect attendance, to a maximum of 11. After four years of service, employees are entitled to an extra day of paid vacation for every year completed until they reach the cap of 25 days.
If you hire more than 30 employees, you will also need to pay employees for 12 public holidays per year. As of January 2022, this rule will extend to any business that hires more than 5 employees.
Setting up a subsidiary entity in South Korea
Your business will be welcome to open a branch or liaison office in South Korea. This can be a lengthy process and is subject to approval from the Korea Trade-Investment Promotion Agency (KOTRA).
Many overseas entrepreneurs instead choose to open a limited liability company, known as a Yuhan Hoesa, or if you plan to float your business on the stock exchange, a Jusik Hoesa (stock company).
The tax implications for an LLC, public company or branch are all identical – all entities in South Korea pay a flat rate of 25% in corporation tax. There may be discounts available for businesses that qualify under the Foreign Investment Promotion Act (FIPA).
To qualify for FIPA perks, you’ll need to invest at least KRW100,000,000 into the business. If you do not have this lump sum, don’t worry – there is no minimum capital required to open a Yuhan Hoesa. You just will not qualify for FIPA benefits.
If you’re looking to set up a subsidiary business in South Korea, you’ll need a minimum of two directors and at least one local representative. For a small company, this second director can be your first hire, as long as they are based in South Korea.
This is an advisable recruit as early as possible, as somebody with local knowledge can help you negotiate the bureaucracy of the country. Setting up a bank account, for example, can be a lengthy, complex and arduous process.
Local knowledge will also help you negotiate some of the quirks and foibles of business etiquette in South Korea. If you only know one thing going into a business dealing, make it this – hierarchy is hugely important.
Citizens of South Korea take social and business status very seriously. In South Korea, most people will prefer to deal with people of comparable age, education and rung of the corporate ladder. Always exchange business cards – and study any you receive – before commencing a business meeting. These cards will be used to determine status, so ensure yours is suitably impressive!
You must also ensure you address South Korean counterparts appropriately. The naming structure will involve a single-syllable family name followed by a two-syllable given name. For example, Seo-yeon Kim should be addressed as Mr. (or Doctor, Professor, Chairman, etc) Kim unless you are expressly invited to use forenames. Dress well but conservatively. A dark suit and a white shirt are typical corporate attire. Keep jewellery to a minimum. While a nice watch will be considered a sign of status, anything else beyond a wedding band will be considered gaudy.
Greet Korean counterparts with a bow as standard, as opposed to a handshake. You will not need to bow as low you would in Japan, but always bow to the most senior person in a room first, then the eldest. If a handshake is offered, accept it – but also bow. Be aware that many South Koreans shake with both hands rather than just one. Do not be alarmed if you find your hand clasped.
Business negotiation in South Korea can be a tightrope. Retain your dignity and do not push to an immediate answer, but equally, do not cave in too easily. South Koreans admire persistence and an understanding of personal value, and it’s easy to lose respect if you are considered a weak negotiator. Never openly insult, criticise or patronise anybody in a business setting, regardless of their status, and expect many negotiations to take place over dinner. Declining a dinner invitation in South Korea is often considered insulting and untrustworthy, so always make yourself available for such meetings.
Setting up in South Korea FAQs
An overseas business looking to do business in South Korea has three primary options:
• Opening a branch of an existing parent company
• Setting up a new subsidiary company
• Opening a liaison office for exploratory purposes and not active trading
Of these options, a limited liability company – known as a Yuhan Hoesa – is the cheapest, easiest and most popular choice.
Expect to wait between 12 – 14 weeks before your business in South Korea is ready to trade. You will be able to make your first hire within this same timeframe.
On average, you should be prepared to pay up to 1.1 times an employee’s annual salary to make a new hire in South Korea.
There is no minimum share capital required to set up a limited company, or Yuhan Hoesa, in South Korea. However, if you plan to take advantage of any tax breaks and grants provided by the Foreign Investment Promotion Act, you’ll need to invest at least KRW100,000,000 into a business.
Yes, any looking to trade in South Korea will need a local bank account. This is not always a simple process, so allow plenty of time and consider bringing in local assistance.
Officially, the working week in South Korea is 40 hours. 12 hours of weekday overtime and 16 hours of additional working time over the weekend is also permitted. In reality, however, some industries are essentially 24/7 – South Korea is often described as having the longest working hours of any first world country.
Although South Korean employees pay into the National Pension Service (NPS), an ageing population and low birth rates mean that this fund is dwindling. As a result, an additional, private pension scheme is a popular supplementary benefit in the country.
Other benefits that may make an employer include transport allowances (public transport is popular in South Korea), funding for private tuition, subsided meals and health and fitness benefits.
Workers’ rights are very well protected by the Korean Labour Standards Act. Employees cannot be terminated at will. Written notice, along with a justifiable explanation for the termination, must be provided.
Under South Korean law, justifiable reasons include theft, excessive absence and criminal activity. If you need to terminate an employee in South Korea, it is highly advisable to bring in professional attorney services to ensure you are operating legally.
Redundancy is a possibility but will again need to be justified. The Ministry of Employment and Labour will demand proof that a business is unable to continue operation without this action, and that all alternative options have been explored and exhausted. A trade union must also be consulted with no less than 50 days of notice.
South Korean holiday entitlement is linked to an employee’s tenure of service. An employee in their first year of employment, or who has served for longer but has an attendance rate below 80%, is entirely one day of paid leave for every month of employment with perfect attendance, capped at 11 days.
After a year of employment, employees are entitled to 15 days of paid leave. Once an employee completes 4 years of service, this increases by a day for each year, eventually capped at 25. Businesses that employ more than 30 staff (more than 5 staff as of January 2022) must also provide paid leave for 12 public holidays per year.
Under Foreign Exchange Transaction Law, you can open a branch of an existing business in South Korea. Any profits generated in the country will be taxed at the standard rate of 25%. The UK and South Korea have a double-taxation treaty in place, so you will not also be charged in the UK for any profits made by your branch.
If you wish to work in South Korea, you will need a working visa. We will discuss the many and varied types of visa available below. To qualify for a working visa, however, you will need the following:
• A letter of recommendation and confirmation of good character
• A copy of an employment contract (if moving for a job with an existing business)
• Proof of any educational qualifications and professional accreditation
• Details of any criminal convictions (a criminal record may lead to refusal of a work visa)
There are 7 core types of working visa available to foreign nationals looking to trade in South Korea.
• E-1 professor visa – exclusively for educators at university level and above. Valid for one year at a time and renewed annually
• E-2 foreign language instructor visa – for overseas nationals looking to teach a foreign language. Valid for 24 months at a time and renewed bi-annually
• E-3 research visa – for employees in the STEM field, invited to work for an existing organisation. Valid for one year at a time and renewed annually
• E-4 technological guidance visa – similar to the above, but for the creme de la creme of scientists and researchers. Valid for one year at a time and renewed annually
• E-5 special profession visa – covers many licensed roles that would be considered to benefit South Korea, such as medical professionals, architects and accountants. Valid for one year at a time and renewed annually
• E-6 culture and art visa – as per the name, applicable to anybody that works in the arts. Valid for one year at a time and renewed annually
• E-7 specially designed activities visa – the likeliest application for entrepreneurs. This visa must be awarded by the Korean Ministry of Justice and may require particular activities and community services. Valid for anywhere from 12 – 36 months, varying on a case-by-case basis
A single-entry working visa in South Korea is typically priced at around GBP£45 or US$60. While this is a very reasonable flat rate fee, do be prepared for additional charges.