A foreign corporation is able to enter into a domestic business by establishing a local corporation (foreign-invested company) or branch office.
Of these, entry through the establishment of a local corporation is subject to the Foreign Investment Promotion Act, and entry through the establishment of a domestic branch office is subject to the Foreign Exchange Transactions Act.
1. Local Corporation (a foreign-invested company)
Investment through the establishment of local cooperation from foreigners shall be governed by the provisions of the Foreign investment promotion activities and the commercial activity. Therefore, there is an obligation to pay taxes on all domestic and overseas income. In order to establish a corporation in which a foreigner can register as a foreign-invested enterprise, the investment amount must be at least 100 million won. (Article 2 of the Enforcement Decree of the Foreign Investment Promotion Act)
A foreign-invested company may be subject to tax exemption if there is an engagement in a business related to the Tax exemption under the Foreign investment promotion Act.
In the case of a foreign-invested company, when a borrowing transaction occurred from an overseas controlling shareholder (your headquarters) the company may be subject to an insufficient capital tax system if it meets the requirements of the international Tax adjustment Act. (You will not be able to receive the related interest payment as a deficit).
Also, if you are trading outside of the normal price range with overseas controlling shareholders, you will be required to recalculate the taxable income amount based on the normal price, so you should consider transfer pricing taxation.
2. Foriegn Branch Office
When a foreign company conducts normal business activities in Korea, it is necessary to appoint a representative of a domestic branch, follow the procedures under the Foreign Exchange Transactions Act, and register a court needed. The branch is recognized as a permanent establishment under the treaty because it engages in business activities that generate profits in Korea, and the same corporate tax rate applies to incomes generated in business conducted in Korea.
If a foreign-invested Local company becomes the branch office of your HeadQuarter, you will be obliged to pay Corporation Tax in the Republic of Korea for the domestic source income stipulated in article 93 of the Corporate Tax Law. Professional, Scientific, and technical service industries are taxed as business income among domestic source income. In addition to business income, if income falls in the category below, it will be taxed with related domestic source income.
Method of taxation on domestic source income of domestic branches of foreign companies
Comparison of foreign-invested companies and domestic branches of foreign companies