[Korean Law Insights] Expanding Business into Korea
K-Law Consulting_Administration- Feb 10
- 3 min read
Updated: Apr 29
[Published on January 21, 2025 edition of the "Korean Law Insights" column in the Korea Daily’s Economic Expert Section]
Save Time and Costs Through Branches and Offices
Establish a Company at the Appropriate Time
In a previous column, we discussed the different types of companies that foreign investors can establish when doing business in Korea. Today, we will cover the characteristics of branches and liaison offices, which foreign investors may consider as alternatives to setting up a company.
When it comes to the establishment process, setting up a company involves procedures such as foreign investment notification or securities acquisition reporting, capital remittance, office leasing, corporate registration, business registration, and so on. In contrast, establishing a branch requires only branch establishment notification, corporate registration, and business registration under the Foreign Exchange Transactions Act. A liaison office has an even simpler process, requiring only branch establishment notification and obtaining a unique identification number.
From a legal standpoint, a company operates as a separate legal entity from its parent company (the foreign investor), whereas a branch or liaison office is considered an extension of the foreign investor rather than a distinct legal entity.
Therefore, one of the most significant differences is legal liability. The legal responsibility of a Korean subsidiary is, in principle, limited to that entity itself and does not extend to the foreign investor. However, in the case of a branch or liaison office, any legal liabilities directly affect the parent company.
Another major distinction is the scope of business activities. A company can engage in unrestricted business activities, while a branch is limited to conducting the same business activities as its parent company. A liaison office is prohibited from engaging in revenue-generating business activities and is restricted to non-commercial liaison functions. Additionally, while a company can freely choose its trade name within legal limits, a branch or liaison office must use the same name as its parent company.
A company established by a foreign investor in Korea operates like any other Korean company and must maintain accounting records in accordance with Korean Generally Accepted Accounting Principles (GAAP). Similarly, a branch, as it engages in business activities in Korea, is also required to maintain records under Korean accounting standards.
In contrast, a liaison office, which does not conduct business activities, is exempt from these accounting obligations. As a result, companies and branches are subject to corporate tax, whereas liaison offices are not.
As discussed above, setting up a branch or liaison office involves fewer procedures than establishing a company, leading to lower costs and faster setup. Additionally, since they are not separate legal entities in Korea, they may avoid certain local regulations, which can make them an attractive option for some foreign investors. However, branches and liaison offices face significant operational restrictions, legal liabilities extend to the parent company, and securing business loans from local banks is nearly impossible.
For investors looking to conduct serious business in Korea, ultimately, establishing a company is necessary. However, if a concrete business plan is not yet in place, starting with a branch or liaison office can be a viable option. That said, operating outside the permitted scope of business activities could expose the parent company to legal liabilities. Therefore, at an appropriate time, establishing a company in Korea is the most prudent course of action.
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Jin Hee Lee/K-Law Consulting Korean Attorney
[Reference (in original Korean): The Korea Daily]
[Reference (video above): LinkedIn]
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