Unlike the case that the establishment of a local corporation and private business registration are recognized as a foreign investment under the Foreign Investment Promotion Act (FIPA), the establishment of a domestic branch is not recognized as a foreign investment, and is thus subject to the Foreign Exchange Trade Act.
There are 2 types of domestic branches: branch and liaison office. While a branch undertakes sales activities in Korea for profit, a liaison office does not conduct sales activities to create profits, but instead carries out a non-sales function such as business contacts, market research, R&D etc. Liaison offices can carry out quality management, 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 directly, or hold shares to sell on their headquarters' behalf.
Branch Establishment Notification
In order for a foreign company to establish a domestic branch, notification shall be made to the head of the designated foreign exchange bank.
 Required Documents· Foreign company domestic branch establishment notification form · Article of association (verification from the location of the headquarters is required) - Corporation: Article of association from headquarters - Private business: Financial statement prepared by a certified public accountant· Letter of appointment for the head of the domestic branch, or an act of the headquarters' board of directors on the matter · Letter of attorney when commissioning the branch establishment work to another person (verification from company headquarters is required) · Certified copy of registration or operation permit from headquarters (verification from company headquarters is required when submitting the copy) |
However, both the branch and the office shall notify to the Minister of Strategy and Finance for the following cases:
- Financial operations other than bank operations, including fund loans, brokering and arranging overseas finance, credit cards etc.
- Operations related to securities and insurances
- Operations not permitted under the Foreign Investment Promotion Act (FIPA) or other laws
- Operations that could harm Korea's existing social morals and customs
Branch Establishment Registration
According to commercial laws, if a foreign company is looking to operate domestically without being classified as either a branch or an office, then that company has the responsibility to establish a sales office and register it. According to the foreign exchange management regulations, an office cannot display sales activities, hence it cannot be registered as a sales office. Only branches can be registered for sales office establishment.
Closure of Branch and Retrieval of Liquidated Funds
A notification to the head of the designated foreign exchange bank has to be made when a person who has acquired the appropriate establishment permits etc. according to regulations wishes to close the domestic branch or to close and dispose of assets held domestically by remitting them to the foreign country. In such cases, the amount that can be retrieved is limited to the sum of funds brought for local operations, profit surplus and other surpluses of the local branch (minus any losses).
| Required Documents for Retrieval of Funds · Application form: Apply under the name of liquidator when assigning the applicant · Application cause form · Liquidation report prepared by a certified public accountant (including balance sheet and income statement of the closing date and the current liquidation conclusion date) · Tax paid-in-full payment certificate (national & local tax) · Itemized account of funds imported for operations, profit surplus and other surpluses · Account balance certificate (shall be identical to the remittable amount in the liquidation report) · Certified copy of liquidation conclusion registration for a sales operation branch · If a certified copy of liquidation conclusion registration cannot be submitted, the following documents may be substituted: - Closure notification certificate (issued by the district tax office) - Documentary evidence of liquidator assignment - Documentary evidence of bond notice (copy of newspaper notice) - Certificate of outstanding money and other valuables to Korean workers (issued by the head of the district labor office)· Original of foreign company domestic branch closure notification form |
