Corporation Establishment-Establishment of a Foreign Company's Domestic Branch
||The establishment of a local corporation and private business registration are recognized as foreign investment under the Foreign Investment Promotion Act. However, the establishment of a domestic branch is not recognized as a foreign investment, and regulated by the Foreign Exchange Transactions Act.
1.Types of a Foreign Company's Domestic Branch
There are two types of domestic branches: a branch and a liaison office. A branch undertakes sales activities in Korea to generate profits. Meanwhile, a liaison office does not conduct sales activities to create profits, but instead carries out non-sales functions such as business contacts, market research, R&D, etc. Liaison offices can carry out quality control, market surveys, advertisements, and other incidental and supportive roles. However, they are limited in their scope of activities, since they are not allowed to sell products directly, or to stock inventory for sale on behalf of the headquarters.
2. Procedures to Establish of a Foreign Company's Domestic Branch
-Branch Establishment Report
In order for a foreign company to establish a domestic branch, report shall be made to the head of a designated foreign exchange bank.
-Report form of the establishment of a foreign company's domestic branch
-Article of association (Notarization of the location of the headquarters is required)
-Corporation: Article of association of headquarters
-Private business: Financial statements, which have been audited by a certified public accountant
-Letter of appointment for the head of a domestic branch, or a minute of the headquarters' board of directors on the matter
-Power of attorney where the establishment of a domestic branch is commissioned to another person (Notarization of the location of the headquarters is required)
-A certified copy of registration or operation permission of headquarters (Notarization of the location of the headquarters is required when a copy is submitted)
Both a branch and an office shall make a report to the Minister of Strategy and Finance in any of the following cases:
-Financial businesses other than banking business, including fund loans, brokering and arranging overseas finance, cards, installment financing, etc.
-Businesses related to securities and insurances
-Businesses, which are not permitted under the Foreign Investment Promotion Act or other laws
-Businesses that are against Korea's morals and customs
-Branch Establishment Registration
Under the Commercial Act, the establishment and registration of a business office is required, where a foreign company carries out business in Korea. An office under the Foreign Exchange Transactions Act is not allowed to conduct sales activities but information exchange, etc. Therefore, only branches can be registered as a business office.
-Closure of Branch and Retrieval of Liquidation Funds
A report to the head of the designated foreign exchange bank has to be made, where a person who has acquired the establishment permission etc. under relevant regulations intends to close the domestic branch; liquidate assets, he/she has held in Korea; and retrieve the fund from liquidation. In such cases, the amount of retrieved funds shall not exceed the sum of funds brought in for the operation of the domestic office, retained earnings and other reserves of the domestic branch. (Losses are deducted.)
*Required Documents for Retrieval of Funds
-Application form: Apply under the name of liquidator when assigning the applicant
-Statement of reasons for application
-Liquidation report, which has been audited by a certified public accountant (including balance sheet and income statement on the date of closure and the date when liquidation is completed)
-Certificate of the full payment of taxes (national & local tax)
Specifications of funds brought in for operations, retained earnings and other reserves
-Certificate of bank balance (It shall be identical to the amount that can be remitted in the liquidation report)
Certified copy of liquidation completion registration (for a sales operation branch)
-In cases where a certified copy of liquidation completion registration cannot be submitted, the following documents shall be submitted:
-Certificate of fact for closure report (issued by a jurisdictional tax office)
-Documents certifying the appointment of a liquidator
-Documents certifying the fact for peremptory notice for bonds (copy of newspaper notice)
-Certificate of whether there are payments in arrears to Korean workers (issued by the head of a jurisdictional labor office)
-Original report form of the closure of a foreign company's domestic branch
It is quoted from http://www.investkorea.org/