When foreign companies wish to build local presence in Korea, and, when building such presence rather on a small scale, they prefer to set up a branch office in Korea and then move on to establishing a local subsidiary if the Korean operations could expand on a larger scale. The below questions are frequent questions asked by foreign investors desiring to establish a branch office here in Korea.
- Is there any approval requirement for setting up a branch? What are the procedures?
Response: Under the Foreign Exchange Transaction Act of Korea, a foreign entity desiring to establish a branch office would be required to file a report on branch establishment with a designated foreign exchange bank (any Korean bank which handles foreign exchange business or a Korean branch of a foreign bank) in Korea. After the report of the branch establishment report is accepted by the foreign exchange bank, the next step for setting up a branch office is registration of the branch office with a court registry office. After the foregoing registration, the final step is registration with the competent tax office for obtaining a business identification number. From filing of the report with a designated foreign exchange bank to registration with a tax office, the process should take 2 to 3 weeks’ time, assuming that all required documents for filing report and registration are prepared in a timely manner.
- What are the foreign exchange control regulations (e.g., for inward remittance of capital, outward remittance of earning, or offshore procurement)?
Response: The Foreign Exchange Transaction Act of Korea (FETA) regulates foreign exchange transactions that occur within Korea and between a foreign nation and Korea, and also regulate transactions occurring outside of Korea but having effects within Korea. Under FETA, any working capital of the branch needs to come into Korea through the foreign exchange bank with which the report on branch establishment was filed. And the foreign exchange bank is required to report to the Bank of Korea in regard to the amounts of working capital remitted to the branch from the head office on a yearly basis. The remittance of any profits to the head office also need to go out of the same foreign exchange bank, and at the time of such remittance, such documents as the branch’s balance sheet, income statement, tax payment certificate and audit report (under certain circumstances) need to be submitted to the foreign exchange bank.
- Who may represent the branch? Whether there is any requirement for the head office to appoint a separate representative in Korea?
Response: Any individual appointed by the head office pursuant to a board resolution may represent the branch. Because a branch representative is required to be registered at the time of the initial branch registration with the court registry office, there is a separate need for the head office to appoint a separate representative in Korea (of course, CEO of the head office could be appointed as the branch representative, provided that a board resolution evidencing such appointment is submitted to the court registry office). There may be more than one individual representing the branch, provided that it needs to be notified to the court registry office as to whether the co-representatives would represent the branch on a separate basis or a joint basis.
- What are the responsibilities and liabilities of the representative of the branch or the head office? Whether they would be held personally liable for the operation or conduct of the branch?
Response: The branch representative would be responsible for administration of day-to-day affairs of the branch. Certain administrative regulations (especially environment-related) and labor regulations provide that in the case of a branch’s breach of such regulations, both the branch and the representative be fined up to a certain amount. However, barring the circumstances where the branch representative directly led the branch’s breach, the branch representative will not be subject to any imprisonment.
- Any work permit requirement for hiring foreign employees? What is the application procedure?
Response: Any foreign national to be dispatched to the branch office would be required to obtain a work permit (D-7), provided that he or she has worked in the head office, a subsidiary or branch office, or any other operational office at least for a period of a year, and that the person would be dispatched as a key personnel to the branch office. An application therefor would need to be submitted to the relevant immigration bureau.
- If any of the employees becomes injured when working in the workplace, will the representative or any other individual be held personally liable?
Response: If an employee is injured at workplace because the employer has not taken necessary measures for prevention of work accidents from machinery, electricity, or inflammable or dangerous substances, etc., then the employer may be subject to an imprisonment of up to 5 years or a fine of up to 50 Million Korean Won (usually, a fine is imposed). In most cases, an officer in charge of personnel affairs would be held criminally responsible, but branch representative could also be held criminally responsible if the work injury cause is attributable to the representative director. For civil claims, as the law requires every company to obtain the industry accident compensation insurance, the insurer would pay for any civil compensation; provided that if any damage claim amount exceeds the insurance proceeds, then the aggrieved employee could bring an action against the employer for the remainder of the damages that have not been compensated by the insurer.
- What is the process of dissolution and liquidation? What is the responsibility of the foreign head office under the process of dissolution and liquidation?
Response: In case of a branch, no specific dissolution proceedings are required other than filing of the report on the close down of the branch with the relevant court registry office. Any responsibilities or liabilities of the branch after the close-down will remain with the head office.