Today, we will explore the procedures and required documents when a foreign company establishes a domestic branch (branch or liaison office).
First, the establishment of a domestic branch (branch or liaison office) by foreigners is not recognized as foreign investment, unlike the application of the Foreign Investment Promotion Act for corporate establishment or individual business registration. Instead, it falls under the scope of the Foreign Exchange Management Act.
There are two types of domestic branches: Branches and Liaison Offices. A branch engages in revenue-generating business activities in the domestic market, whereas a liaison office cannot engage in revenue-generating business activities in the domestic market. Instead, it is limited to non-business functions such as business liaison, market research, and research and development. Furthermore, while a liaison office can perform activities like quality management, market research, and advertising, it is not allowed to maintain product inventory for direct sales or sales representation for the head office, which sets a limitation on its scope of operations compared to a branch.
Now, let's explore the procedures and required documents for establishment.
Declaration of Establishment of a Foreign Company's Domestic Branch
◆ To establish a branch of a foreign company in South Korea, the first step is to submit a declaration of establishment of a domestic branch to a designated foreign exchange bank.
A foreign exchange bank refers to a commercial bank that handles foreign exchange transactions (e.g., Woori Bank, KEB Hana Bank, etc.). The required documents for submission are as follows
<Required Documents>
① Declaration of Establishment of a Foreign Company's Domestic Branch
- Prescribed format is available.
② Power of Attorney: Requires Notarization (Issued in English)
- Since it is often difficult for a representative from the foreign corporation to come to Korea in person to apply, this document delegates the branch establishment declaration process to a representative (agent).
- The power of attorney should state the delegation of all matters related to establishment and needs to be notarized. This document is also necessary for business registration, so it should encompass all matters related to establishment and be notarized.
③ Certificate of the Resolution of the Board of Directors of the Foreign Corporation: Requires Notarization (Usually in English)
- This certificate needs to be notarized and should state that the foreign corporation, at its headquarters, convened a board of directors (or shareholders' meeting) to establish a branch in Korea and appointed OOO as the representative of the Korean branch.
④ Certificate of Corporate Nationality (Equivalent to Certificate of Incorporation): Issued by a foreign government agency
- While it is equivalent to a certificate of incorporation or business registration certificate in Korea, the name varies by country.
⑤ Business Plan
- A comprehensive business plan that persuasively outlines the business to be conducted in Korea and details of the branch to be established is sufficient.
※ However, in cases where the following conditions apply, a report to the Minister of Economy and Finance is required for both branches and liaison offices.
- Financial activities other than banking, such as lending, arranging or brokering overseas finance, card business, installment financing, etc.
- Activities related to securities and insurance businesses
- Activities not permitted under other laws, such as the Foreign Investment Promotion Act
Registration of Domestic Branch (Business Office)
◆ According to the Commercial Act, in cases where a foreign company conducts business activities within South Korea, there is an obligation to establish and register a business office, without differentiating between branches and liaison offices. As per the regulations of foreign exchange management, a liaison office can only engage in non-business activities such as routine information exchange, and therefore cannot be registered through business office establishment. In practice, registration of business offices is applicable only to branches.
◆ For a foreign company to conduct business activities in South Korea, it must appoint a representative in South Korea, establish a business office within South Korea, or have at least one representative with an address in South Korea. The application for registration of a foreign company's business office must include the following documents
<Required Documents>
① Power of Attorney: Requires Notarization
② Certificate of the Resolution of the Board of Directors of the Foreign Corporation:
- Requires Notarization (Usually in English)
③ Certificate of Registration of the Foreign Corporation: Requires Notarization
④ Acceptance of Appointment Letter for the Korean Representative (Notarized) and Copy of Passport
⑤ Seal Impression Certificate: Requires Notarization
⑥ Articles of Incorporation: Requires Notarization
⑦ Declaration of Establishment of Foreign Corporation's Domestic Branch
<Notes>
- The acceptance of appointment letter (notarized) is to be prepared by the representative of the Korean branch. For Koreans, a seal impression is sufficient, while for foreigners, a signature along with notarization from their residing country is required.
- For passport copies, prepare them for both the representative of the foreign corporation (head office) and the representative of the Korean branch.
- The seal impression certificate (notarized) is necessary for registering a signature for foreigners, as they use a signature instead of a seal impression. Foreign representative directors need to obtain notarization from their residing country for their signature.
- Articles of Incorporation refer to the foreign corporation's articles of incorporation.
- The Declaration of Establishment of Foreign Company's Domestic Branch refers to the declared document submitted to the foreign exchange bank..
※ For documents issued overseas among the above-mentioned documents, apostille or embassy certification is mandatory. This ensures the documents are legally effective within the country. In apostille treaty countries, apostille certification is required; for non-apostille treaty countries, embassy certification is needed. Generally, most Southeast Asian countries, except Canada, China, and the Philippines, require embassy certification, while countries like the United States, Europe, and Japan usually require apostille certification.
Application for Business Registration and Issuance of Business Registration Certificate
◆ This procedure involves applying for business registration and obtaining a business registration certificate from the tax office in charge of the location of the Korean branch. The required documents for business registration application are as follows
<Required Documents>
① Domestic Business Establishment Report (Business Registration Application)
② Copy of Articles of Incorporation
③ Foreign Corporation Certificate (Certificate of Business Registration)
④ Business Plan and Current Balance Sheet at the Time of Branch Establishment
⑤ Copy of Lease Agreement for the Korean Branch
⑥ Copy of License (if required) for businesses that need licensing