Comparison by forms | Outsourced Accounting, Bookkeeping and Payroll Services in Korea

Comparison by forms

Comparison by forms
With years of experience with business registration, we can help your organization in choosing the best structure for your business endeavors.

COMPARISON: LIAISON OFFICE VS. BRANCH OFFICE VS. SUBSIDIARY

ITEM	LIAISON OFFICE	BRANCH	SUBSIDIARY
Major Governing Law	Foreign Currency Transaction Law	Foreign Currency Transaction Law	Commercial Code
Capitalization requirements	N/A	N/A	Minimum capital amount of KRW 100 To be qualified as foreign invested company, capital amount of KRW 100 million with 10% ownership at the least required (can still be incorporated with lesser amount but will not be registered as a foreing invested company)
Legal Liability	N/A. Cannot conduct a profit generating business.	Extended to the Head Office	Limited only to the subsidiary
Independence	Subject to the control of the Head Office.	Subject to the control of the Head Office.	Independently operated
Local Financing	N/A	Very limited	Access to local financing is based on its own credit and collateral, or guarantee of the parent company.
Formation procedures	Must appoint representative and establish office. Must obtain approval from the designated foreign exchange bank, together with tax office registration. It would take 5 or 6 working days to complete entire set-up procedures, inclduing bank account open (could take extra days where tax office investigates the physical office place and intended activities in Korea)	Must appoint representative and establish office. Must obtain approval from the designated foreign exchange bank, together with court and tax office registration. Various documents should be prepared by foreign head office, which are also required to be notarised and apostileld. It would take 7 to 9 working days complete entire procedures, inclduing bank account open, if all the documents are made ready to us. all the documents are made ready to us.	Formed by at least 1 person (not necessarily Korean citizens) subscribing their names to the memorandum and articles of incorporation (which must be notarized and apostilled) Various documents regarding the proposed corporation must be applied for and approved by the commercial register’s office, the Ministry of Finance and Economy (or foreign exchange bank) and the appropriate tax office It would take 7~10 working days or so to complete entire procedures, inclduing bank account open, if all the documents are made ready to us.
Legal reserve	None	None	A legal reserve would be required to be set aside in an amount equal to 10% or more of cash dividends until the legal reserve equals 50% of paid-in capital of the company. Dividends may not be paid from this reserve
Accounting and Auditing	Accounting records is not required. However, it may be maintained depending upon the head office request	Accounting records shall be maintained as required by Korean tax law. In general, no statutory, audit requirement. However, a branch desiring remittance of profits to head office would be required to submit the audited financial statements to the designated foreign exchange bank	Accounting records shall be maintained as required by Korean tax law and Korean GAAP. A listed company or corporation meeting certain criteria must be audited by statutary auditor.
Income tax rates & Korean tax consideration	Liaison office is non taxable as its profit generating business is not allowed. Nonetheless, payroll tax & social security taxes must be withheld and reported to the authorities.	For the first KRW 0.2 billion: 9.9% (with 10% surtax) For KRW 0.2B to KRW 20B: 20.9% (including resident surtax 10%) For the KRW 20B to KR 300B: 23.1% (including resident surtax 10%) For the excess of KRW 300B: 26.4% (including resident surtax 10%) Branch is taxable only on income generated from a trade carried on in Korea. Branch can deduct head office charges, which are incurred solely and exclusively for the benefit of Korean trade. However, a branch is required to submit a report detailing the allocation computation of head office charges. Net operating losses can be carried forward for the next fifteen(15) years	For the first KRW 0.2 billion: 9.9% (with 10% surtax) For KRW 0.2B to KRW 20B: 20.9% (including resident surtax 10%) For the KRW 20B to KR 300B: 23.1% (including resident surtax 10%) For the excess of KRW 300B: 26.4% (including resident surtax 10%) Subsidiary is taxable on worldwide income. Double taxation of non-Korean source income can be avoided through tax treaties and/or foreign tax credit mechanism Management fees allocated to Korean subsidiary by the parent company may be allowed as a tax deduction if Korean subsidiary can prove that the service were rendered for the benefit for subsidiary and the amount of the service fee is at arm’s length. Net operating losses can be carried forward for the next fifteen(15) years
Tax Incentives	N/A	Limited	Various types of tax incentives that are granted to qualified domestic corporations may also be granted to qualified foreign-invested corporations.
Withholding taxes on payment to foreign affiliates	N/A	Not necessary to withhold taxes on branch profit remittances unless branch profits tax applies.	Withholding taxes are applied to dividends to a parent company. The tax rate varies pursuant to the related tax treaty between Korea and the parent company’s resident country. At the liquidation, the difference between the distributed amount and the original acquisition cost of the shares in the subsidiary will be deemed as the dividend income and the same withholding tax requirement as the actual dividend< will be applied.
Value-added (VAT)	N/A	10%, but zero VAT is applied on exports and certain VAT tax exempted business	10%, but zero VAT is applied on exports and certain VAT tax exempted business
Restriction on remittance	N/A	Generally, there is no limitation on remittance of profit if made through the designated foreign exchange bank after the fiscal year-end (requires special purposes audit report)	Remittance of dividend is guaranteed under the Commercial Code. Practically, the remittance is made with report to the designated foreign exchange bank.