[Editor’s note: The below article was originally written by Mr. Young H. Noh who is the founder of Korealaw.com and a US immigration law practitioner, and is re-produced here for the foreign individuals intending to stay in Korea for work purposes.]
Let’s assume you (a non-Korean) need to work for a company in Korea, what visa is appropriate for you? There are working visas in Korea that are similar to H-1B, L-1 and other temporary working visas that are available under the United States immigration law. You may consider retaining services of a Korean law firm experienced in handling this type of work. Basically, you can apply for visas abroad at the Korean Embassy or Consulate or if you are in Korea, apply to the Immigration Administrative Office within the Ministry of Justice, after the approval of which you must leave Korea and then obtain visas.
The following are a brief overview of the five (5) types of available visas in Korea that are issued to foreign employees of commercial businesses: C-2 D-7, D-8, E-4 and E-7. Other employment-type visas that are not covered in this memo are: E-1 (for professors and other academicians), E-2 (foreign language conversation teachers) and E-3 (for researchers).
In addition, if you are born in Korea and are either green card holder or citizens of another country should note that there is a resident visa called F-4 (passed into law in 1999) which allows one to reside in Korea indefinitely and work at almost any other jobs. This F-4 visa is very convenient, and in order to apply for one, you need the proof of your green card or citizen status in another country and your Family Census Register. Especially if you are a citizen of another country, then you should seriously consider applying for F-4 visa instead of any of the visas described below, because F-4 visa is much more convenient in that the Korean employer does not have any power over your visa status in Korea, you can work for almost any employer in Korea and it is a relatively simple process.
1. C-2 Short-Term Business Visa
If you do not qualify for any long-term temporary working visas, you can always apply for C-2 visa (equivalent to B-1 visa under the U.S. immigration law) that allows you to engage in business activities in Korea up to 90 days). You must, however, re-apply for another 90-day C-2 visa at a Korean Embassy or Consulate, after the expiration of the 90-day period, or be subject to a substantial fine. This is why you often see many U.S. citizens leave Korea and return within one or two days to renew their C-2 visas, so they can stay in Korea for another 90 days.
2. D-7 Commercial Residence Visa
If you are a foreign employee of a branch or liaison office of a foreign parent company who need to be dispatched to Korea by the foreign parent company, D-7 visa is for you. You as the foreign employee must have 1 year or more of working experience at the parent company’s headquarters, branch or other offices.
The common documents that must be submitted are:
a. applicant’s passport;
b. completed application form with passport-size photograph;
c. letter of invitation from the local company in Korea confirming the purpose of the applicant’s visit to Korea;
d. a dispatch order or certificate of employment from the local company in Korea;
e. copy of permission to establish the local office;
f. certified copy of company registration or copy of business entity certification of the local office;
g. copy of certificate of remittance of operating capital for the local office or business plan thereof;
h. affidavit of support from the local office duly notarized by a notary public in Korea; and
i. resume or personal work history of applicant.
3. D-8 Corporate Investment Visa
If you are a foreign employee of a foreign-invested corporation, whether a wholly-owned subsidiary or a joint-venture company, under the provisions of the Foreign Capital Inducement Act, then D-8 visa is for you. You as a foreign employee must have some expertise and should be employed in a position related to the management, administration, production and/or technological aspects of the local company.
The documents that must be submitted are:
a. passport of applicant;
b. completed application form with passport-sized photograph;
c. letter of invitation from the local company confirming the purpose of the applicant’s employment in Korea;
d. dispatch order or certificate of employment from the local company;
e. certified copy of company registration or copy of business entity certification of the local company;
f. copy of the approval letter for foreign investment or certificate of foreign-invested company;
g. affidavit of support from the local company duly notarized by a notary public in Korea; and
h. resume or personal work history.
4. E-4 Technical Training Visa
If you are a foreign technician who has been invited to Korea by a public or private Korean organization for the specific purpose of providing professional knowledge in the natural sciences or technology with respect to a specialized industrial field, then E-4 visa is for you. Such foreign technician is frequently invited to Korea for the purpose of providing technical assistance or training pursuant to a technical licensing agreement or other agreements of such type.
The documents that must be submitted are:
a. applicant’s passport;
b. completed application form with passport-sized photograph;
c. letter of invitation from the local company confirming the purpose of the applicant’s visit to Korea;
d. dispatch order or certificate of employment from the local company;
e. copy of diploma or certificate of qualification of applicant;
f. approval report for the technical license agreement or confirmation of service transaction or designation as a defense industry;
g. documents related to the establishment of the public or private organization of the local company, including a certified copy of company registration or business entity certificate, etc.
h. affidavit of support from the local company duly notarized by a notary public in Korea; and
i. resume or personal work history of applicant.
5. E-7 Special Activity Visa
This E-7 visa is similar to E-4 except this is reserved for all other special activities that are specially designated by the Ministry of Justice. Therefore, if you are going to be working for a domestic, Korean company and you possess certain skills or knowledge that are unavailable in the Korean domestic market, such as foreign attorneys and tax accountants, then this E-7 visa is probably for you. It should be noted that E-7 visa is generally granted for only those positions that are difficult to fill with domestic Korean employees due to the shortage of Korean workers.
The documents that must be submitted are:
a. applicant’s passport;
b. completed application form with passport-sized photograph;
c. letter of invitation from the local company confirming the purpose of the applicant’s employment in Korea;
d. copy of diploma or certificate of qualification of applicant;
e. employment reference by the Minister of the relevant Ministry;
f. employment contract;
g. documents relating to the establishment of public or private organizations, including a certified copy of the company registration or business entity certificate, etc. of the local company;
h. affidavit of support from the local company duly notarized by a Notary Public of Korea; and
i. resume or personal work history of applicant.
The matters pertaining to a foreign individual or entity wising to make a direct foreign investment in Korea are primarily prescribed by the Foreign Investment Promotion Act (“FIPA”) and the Commercial Code of Korea. This document attempts to give an overview of procedure for foreign investment.
Brief introduction of FIPA
Investing in Korea has been facilitated by FIPA, which was enacted in November of 1998. The foundation of this Act involves two main points: 1) foreign investors will have access to invest in virtually all types of business in Korea, and 2) potential foreign investors only have to 'notify' the relevant government authorities rather than to 'seek' consent. Currently, out of a total classified 1,148 industrial sectors, only 31 sectors remain closed (13 permanently and 18 partially) to foreign investment. In short, this law attempts to treat the foreign investors equally as it does Korean investors.
A “direct foreign investment” under FIPA means a foreign investor’s acquisition of at least 10% of total issued shares of a domestic corporation, or a foreign investor’s acquisition of less than 10% of total issued shares of a domestic corporation accompanied by (i) a secondment of an executive to the domestic corporation or a contract granting such secondment right to the foreign investor, (ii) execution of a supply contract for raw materials or other products for a period of at least a year or more, or (iii) execution of a technology license contract or joint development agreement.
A foreign invested enterprise established under FIPA is also eligible to receive certain tax incentives provided by the Special Tax Treatment Control Act of Korea (“STTCA”) in calculation of corporate income tax, if it meets the requirements prescribed by the STTCA.
Example: Establishment of a foreign invested enterprise under FIPA
The procedures for establishment of a foreign invested enterprise (in the form of a joint-stock company called “Chusik Hoesa” in Korean) under FIPA would consist of three procedures: (1) filing of a report on foreign investment with a foreign exchange bank; (2) incorporation and registration with the court registry office; and (3) registration with the competent tax office.
1. Report on Foreign Investment with Foreign Exchange Bank under FIPA
For this filing purpose, you may choose any Korean bank which handles foreign exchange business, such as Korea Exchange Bank, or a Korean Branch of foreign banks (such as Citibank, HSBC, Chase, etc.). .
In order to file a report with a foreign exchange bank, we need the following documents:
a. A notarized Power of Attorney, authorizing us to prepare and file the report and to take necessary steps for establishment of the foreign invested enterprise in Korea; and
b. A notarized certificate of board resolution to establish the foreign invested enterprise.
It is noted that the minimum amount of foreign investment required by FIPA is 50 Million Korean Won. If there is more than 1 foreign investor, then such minimum capital requirement would be applicable to each foreign investor.
To prepare a report on foreign investment, we also need to have the following information: exact corporate name, address and nationality of the foreign investors and the corporate name and the address of the head office of the foreign invested enterprise and the line of business in which the foreign invested enterprise would be engaged in. You may provide us with a copy of certificate of incorporation, or certificate of good standing to slow that the foreign investor is duly incorporated and existing under the laws of its incorporation.
2. Incorporation and Registration with the Court Registry Office.
After the report of the foreign investment is accepted by the foreign exchange bank, steps may be taken to establish the foreign invested enterprise. The following documents are required to incorporate and register the foreign invested enterprise with the court registry office which has jurisdiction over the location where the foreign invested enterprise is to be located:
a. Articles of incorporation of the foreign invested enterprise
b. Names, addresses, date of birth and nationality of the directors of the foreign invested enterprise and the copies of their passports.
c. Name, address, date of birth and nationality of the representative director of the foreign invested enterprise (from among the directors). The representative director is the person who is authorized by Korean law and the Articles of Incorporation to represent the company. If there will be more than one representative directors, please identify such directors and whether they will be acting only jointly or separately.
d. Name, addresses, date of birth and nationally of the statutory auditor of the foreign invested enterprise and the copy of the passport. There must be at least one statutory auditor for a chushik hoesa (who must be a natural person and an accounting firm may not serve as a statutory auditor). The statutory auditor performs certain statutory supervisory functions, separately from independent auditors (who are usually accountants). There is no restriction regarding nationality of the statutory auditor.
e. Notarized acceptance letters to be signed by each of the directors (and representative director) and the statutory auditor (if required) and the report on seal impression by the representative director(s) of the foreign invested enterprise.
With the above information and documents, an inaugural meeting of the foreign invested enterprise will be held, where the directors, representative director(s) and the statutory auditor (if required) will be appointed. Since a certificate of full payment of capital contribution issued by the foreign exchange bank is one of the documents necessary for court registration, the foreign investor must remit the investment funds after the report on the foreign investment is accepted by the bank and before the court registration is to be effected.
3. Registration with the Tax office
The foreign invested enterprise must be registered with the local tax office to obtain a business ID number. This can be completed within 1-2 weeks after court registration of the foreign invested enterprise. The tax office registration requires a copy of a lease agreement evidencing the foreign invested enterprise’ actual presence in Korea.
General
Prior to April 1, 1999, investments in Korean securities by non-residents and issuance of securities outside of Korea by Korean companies had been regulated by the Foreign Exchange Management Act and the Presidential Decree and regulations thereunder (collectively the Foreign Exchange Management Laws). As of April 1, 1999, the Foreign Exchange Management Laws were abolished and the Foreign Exchange Transaction Act and the presidential Decree and regulations thereunder (collectively, the Foreign Exchange Transaction Laws) were enacted. Under the Foreign Exchange Transaction Laws, many restrictions on foreign exchange transactions have been deregulated and many currency and capital transactions have been liberalized.
However, Korean government has instituted certain measures to curb capital flight and international money laundering which may result from liberalization of capital transfers.
Under the Foreign Exchange Transaction Laws, if the Korean government deems that certain emergency circumstances, including, but not limited to, sudden fluctuations in interest rates or exchange rates, extreme difficulty in stabilizing the balance of payments or a substantial disturbance in the Korean financial and capital markets, are likely to occur, it may impose any necessary restrictions such as requiring foreign investors to obtain prior approval from the Minister of Finance and Economy (MOFE) for the acquisition of Korean securities or for the repatriation of interest, dividends or sales proceeds arising from Korean securities or from disposition of such securities, provided, however, that certain foreign investments made under the Foreign Investment Promotion Act shall not be subject to the foregoing restrictions.
The Securities Exchange Act, which regulates issuance and exchange of securities publicly traded in Korea, was amended several times from April 1997 to internationalize the system for issuing and distributing securities and the systems for mergers and acquisitions of businesses, to enhance the autonomy of the securities industry through deregulations and to strengthen the independence of auditors and the protection of minority shareholders. For instance, the amendments made the tender offer requirements more specific by requiring a tender offer where the purchaser and the persons who have a special relationship with the purchaser will hold 5% or more of the total issued and outstanding shares concerned as a result of the purchase of the shares outside the Korea Stock Exchange or KOSDAQ from a certain number of persons, enhanced the rights of minority shareholders, required inclusion of outside directors in the board of directors for improvement of corporate governance, repealed the limitation for the acquisition of its own shares by a listed company, and permitted the payment of interim dividends by companies listed on the Korea Stock Exchange or registered with the KOSDAQ if provided for in their articles if incorporation.
Under the Securities Exchange Act, when an investor acquires 5% or more of total issued shares of a listed corporation, the investor is required to file a report to the Financial Supervisory Commission and Korea Stock Exchange on the share acquisition status within 5 days of the acquisition. In addition, if, after the acquisition, the investor changes its shareholding and the changed shareholding is at least 1% or more of total issued shares of the listed corporation, the investor is required to file a report to the Financial Supervisory Commission and Korea Stock Exchange within 5 days of the occurrence of the changed shareholding.
Acquisition of Shares by Foreigners
Under the Foreign Exchange Transaction Laws, the Securities Exchange Act, and regulations of the Financial Supervisory Commission (collectively the Securities-Related Laws), foreigners are permitted to invest, with certain exceptions and subject to certain procedural requirements, in all shares of Korean companies unless prohibited by specific laws. Foreign investors may trade shares listed on the Korea Stock Exchange or registered on the Korea Securities Dealers Association Automated Quotation system (KOSDAQ) only through the Korea Stock Exchange or through the KOSDAQ except in limited circumstances, including share acquisition under the Foreign Investment Promotion Act, acquisition of shares by exercise of warrants, conversion right under convertible bonds or withdrawal right under depositary receipts issued outside of Korea by a Korean company, acquisition of shares as a result of exercising applicable conversion rights attached to certain eligible domestic convertible bonds issued by listed companies, acquisition of shares as a result of inheritance, donation, bequest or exercise of shareholder rights (including preemptive rights or rights to participate in free distributions and receive dividends).
The Securities-Related Laws require a foreign investor who wishes to invest in shares on the Korea Stock Exchange or the KOSDAQ to register its identity with the Financial Supervisory Service prior to making any such investment. Upon registration, the Financial Supervisory Service will issue to the foreign investor an Investment Registration Card which must be presented each time the foreign investor opens a brokerage account with a securities company. Foreigners eligible to obtain an Investment Registration Card include foreign nationals who are individuals, foreign governments, foreign municipal authorities, foreign public institution, international financial institutions or similar international organizations, corporations incorporated under foreign laws and any person in any additional category designated by the decree of the MOFE.
Upon a foreign investor’s purchase of shares through the Korea Stock Exchange or the KOSDAQ, no separate report by the investor is required because the Investment Registration Card system is designed to control and oversee foreign investment through a computer system.
One question that is frequently asked by foreign companies intending to build business presence in Korea is the scope of activities that a liaison office could undertake and the legal requirements for setting up such an office.
Obviously, as the term “liaison office” denotes, a liaison office cannot be involved in any revenue generating activities (e.g., direct sales, or any sales or after-sales activities engaged on behalf of the headquarters) and can thus only undertake the preliminary and auxiliary activities such as propaganda, collection and supply of market information and market survey.
If a liaison office undertakes any sales activities, it could be deemed as being involved in the essential and important parts of the activities of the head office and could thus be regarded as permanent establishment in Korea of the foreign company. Then, such liaison office could be subject to Korean taxation (based on Korean sourced income/profit) under the Corporate Income Tax Act of Korea.
Setting up a liaison office is rather a simple process. It does not require any entity registration or initial equity. But the foreign company establishing a liaison office is required to file a report to a designated foreign exchange bank for such establishment, which is done primarily for the purpose of funds transfer between the head office and the liaison office. (It should also obtain an identification number from the relevant tax office that is equivalent to a business entity registration number.)
The documents required for submission to the bank (at the time of filing the above report) are as follows:
(i) Certificate of incorporation of the head office
(ii) Board resolution for setting up a liaison office
(iii) Personnel information concerning the head of liaison office
(iv) Power of attorney (if a law firm is acting on the foreign company’s behalf)
It should be lastly noted that should a foreign company desire to engage in any revenue-generating activities, it should set up a branch office (or a corporate subsidiary) instead of a liaison office, though establishing a branch office requires registration with a court registry office.
In the 19th free economic zone committee meeting held Aug. 17, presided over by the Minister of Finance and Economy (Mr. Kwon O-kyu), Korean government decided to extend a tax exemption period on some large-scale foreign-invested companies in the country's free economic zones, a move aimed at attracting more foreign investment. (The foregoing committee presently consists of 16 ministers from various ministries within the government and 8 members from private sector.)
Currently, foreign-invested enterprises within the free economic zones are exempted from corporate income tax and income tax for a period of 5 years (100% for 3 years followed by 50% for the last 2 years). And import tariff is exempted 100% for 3 years with regard to importing capital goods.
The above tax-exemption is presently applied to the foreign investment of at least USD 10 million in manufacturing and tourism business and also the foreign investment of at least USD 5 million in logistics and medical fields.
If the tax benefit increase is effected (expected in late this year), the tax exemption period will be increased from 5 years to 7 years (100% for 5 years and 50% for 2 years), provided that such benefit will be applied to the manufacturing business of USD 30 million or more, tourism business of USD 20 million or more and logistics business of USD 10 million or more.
In addition, value added taxes will be exempted in regard to import of capital goods for 3 years.
The government also plans to add research and development businesses as beneficiaries of the tax exemption and reduction to attract more research centers. The government also indicated that it could offer more tax incentives to world-class multinational corporations if such incentives would be deemed necessary to attract foreign companies in strategically important areas (e.g., bio- and IT-related).
In addition, the government plans to select two to three more regions as new free economic zones within this year. Currently, Incheon, Pusan, Jinhae, and Kwangyang-man areas are designated as the free economic zones.