Today’s Joongang Daily has a couple of puff pieces written by Korea Exchange Bank (Nowhere nearly as puffy as this, how the heck did that get though Lou?). Both KEB authored pieces are in a Q&A format. There is a mundane, and more blatantly promotional, one about how to open a bank account. The more interesting one concerns Foreign Direct Investment in Korea (FDI).
I know that quite a few Hole readers are not English teachers and do something productive. I also know there are a few who have either set down this FDI road, or give advice on the process more practical than the KEB marketing department offers. So I thought it would be an interesting experiment to throw this question out to the “brain trust” that is Hole peanut gallery so as to give some advice.
Here, ladies and gentlemen, is the set up:
I’m a foreigner working as a consultant for a Korean company on a contract basis. When the contract expires, I will not extend it.
Instea [sic] I am planning to start my own consulting company. The estimated investment is $300,000 for the lease on the office, etc., of which $200,000 will be remitted from my home country. I have an amount in Korean won equal to the remaining $100,000, which is my income earned in Korea.
Please let me know if there’s any specific procedure for a foreigner becoming an individual proprietor and, if so, what to do and what to be careful of.
Let me get the ball rolling by saying what I would “not” do in this case. I would “not” forget the whole thing in this case. I “can” see why you would need a $300K physical presence in Korea for what is essentially a white collar service job that could be domiciled anywhere. I “can” understand why you would want to deal with Korean regulations and hire in a labor market that is improving, according to experts at the Korean Development Institute (I am sure this in today’s newspaper was a 20-25K person abnormality). I am “sure” any headaches that might arise in dealing with regulation, reporting, or labor will more than offset what ever return you will get off a $300K investment.
So what I would “not” suggest is keep the business offshore, fly in-and-out when needed, and be essentially visiting Korea on business. Considering, again, it’s a white collar consulting company wherein you likely are a key employee that does a majority of the work, I would “not” recommend you simply look into the business identity firms around Seoul, who can represent you when you and provide other services.
Alternatively or complementarily, I would “not” use the network of office professionals you likely know because your past experience it the company, and pay them quietly. Such by a foreigner on violates Korean labor and tax law likely, and we all know how “uncommon” irregular workers are in Korea . Also it is “difficult” to find a 40 year-old lady fluent in english, can balance books with the best of them, and deal with everything else in running an office. We all know how “strongly” women are retained in Korean businesses.
Why do I say all this? Because passively accepting these FDI laws is one of the obstacles in getting these things changed. As absurd as some of these regulations are, I find it equally absurd to meekly relent with the placebo of wishful thinking that it might change. The only vote we have is with our boots.
So that is my opinion in what “not” to do. Anyone have different thoughts, or something to add?
(Update/Correction: I hasten to note that the original article is quite informative, all be it glossing over some rather complicated and tedious aspects of the process. Indeed, the author himself readily admits the process is complicated in some stages.)
{ 29 comments… read them below or add one }
“I know that quite a few Hole readers are not English teachers and do something productive. ”
“I know that quite a few Hole readers are not English teachers and do something productive. ”
OUCH!
Boy could a person trained in discourse analysis have a field day with that.
“I know that quite a few Hole readers are not English teachers and do something productive. ”
As an English teacher, I would be a lot more productive if I didn’t spend so much time reading this blog!
I’ve done it, but as a partnership, not sole proprietor. As such, my Korean colleague handled much of the paperwork and hassle, so for me it was somewhat painless. I have a friend who did it solo, and he had a much more difficult and frustrating experience, although he was ultimately successful. I agree, this article sure makes it seem easy. Best of luck to this fellow.
“I know that quite a few Hole readers are not English teachers and do something productive.”
Jackass.
There is a very recent law change that could be relevant for consulting-type businesses.
From 1st Jan 2009, foreign residents who have been in Korea less than five years are not taxed on foreign earnings that are not remitted to Korea. This means that you can have your own company registered abroad pay your salary and legally pay no tax anywhere (this doesn’t apply to US Citizens as they are taxed based on citizenship regardless of whether they reside in the US, as I understand it — for most other countries, if you don’t work there then generally you don’t pay income tax there).
It is legal for a foreign company to directly pay employees in Korea, and the company does not need to withhold any taxes or register for anything. The individual in Korea submits a “voluntary” tax return instead for “Class B income”, and also pays into the health system directly.
The above is subject to various conditions. DYOR. Happy to provide links on request.
The process is indeed complicated, but not impossible. I had a Korean partner, but in actuality, I did not need one to handle most of the paperwork to be honest. But I am a Korean-speaking foreigner, so that certainly helped.
Go suck an egg, drammie.
I’d say sole proprietor is not too difficult to do on your own (I brought a Korean friend to the gu tax office to help, but otherwise did it on my own). I started at KOTRA and it took me about a week. KEB was quite helpful–the key is to go to one of their branches with a competent foreign desk. Itaewon and the Ulchi-ro HQ branch are good, as are others I’m sure.
However, forming a joint stock company (jushik huesa) is a bit more complicated, as you need articles of incorporation and board meeting minutes in Korean. It takes a good month and that was with the assistance of a law firm. I also used KEB and they were quite helpful throughout.
The cool thing about a D-8 under a consulting sole proprietorship is that it allows you to do a wide range of activities. You can also use the investor line at Immigration. However, for visa renewal, if you make under W50 mill., they’ll give you a 6-month visa extension, W50-100 mill. a one-year extension, and over W100 mill. a two-year extension. I’m not sure what it would take for them to say “hasta,” and I wouldn’t want to find out.
And $300,000 to set up a consulting business? Big spender.
This post has a lot of errors and a barely coherent, rambling prose.
Alarm bells rang when I heard the $300,000 too. I’ve been assisting my company set up a production facility in the …ahem.. “Detroit of Asean” in Rayong, Thailand. That sum has handled rents, wages and tooling equipment for almost a year.
I’d be very interested to see a business plan for a ‘one man led’ consultacncy that needs $300,000 of paid in capital at start up.
person43 @#6, i’d like to see the links, as I partially fall in this category.
Seriously, however, Tom Coyner’s job is to help people set up a business in Korea.
http://www.softlandingkorea.com/
@stumbler,
The change in the law I mentioned was explained in the Sep 08 Deloitte newsletter:
http://www.deloitte.com/dtt/e_.....84,00.html
The PwC guide has probably the best plain English explanation of both individual and company taxation in Korea:
http://www.pwc.com/extweb/pwcp.....9F00224DB6
The stuff about being paid by a foreign corporation is on page 19.
Hey Dram_man-
This very productive English teacher would be happy to school you in the proper use of punctuation, specifically the proper use of quotation marks, once the semester has finished.
I’d also be happy to teach you your way around the post editor in Wordpress for free. In fact, here’s all you need to know: for emphasis, just highlight whatever you think needs to be stressed and click the little button with the forward-leaning capital I.
USD300,000 is not required for a D-8. That figure was provided in the question, not the reply. As the article states, a minimum KWON50,000,000 investment is required in order to satisfy the requirement.
Dram_man makes me sleepy.
Would you, please.
If the man has US300k to open a consultancy, one wonders why he needed to work for another firm first. Seriously, that is way too much to open anything like a consultancy firm here.
I do hope Dram_Man will go back and clean up some of his sentences so that they are more legible.
It would be easy to spend W100 million on fit-out of an office for a professional-services firm. Don’t forget the lease deposit! In 2001 we leased an office in a Class “B” building on Cheonggye-cheon. A 40-pyong office required a lease deposit of W40,000,000 and we spent another W40,000,000 on construction alone. Now buy a few computers and office furniture.
more dramman drivel……..
Dramster, please take this advice from the Most Interesting Man in the World:
http://www.viddyou.com/viddstream?videoid=33667
@mjw You want me to take advice from a beer commercial? How is that Spuds Mackenzie muscle shirt treating you mjw?
I teach TESOL methodology to (mostly) Korean teachers .. am I being productive? Are my students?
This post has me so confused!
Is “dram man” the one who pretends to be a lawyer?
BC: That’s possible, but it’s also possible to plunk down a W10 mill. deposit, spend W3 mill. on furniture, ‘puters ‘n shite, and not remodel the office at all. Anyway, up to the owner. Anyone spending 300K on setting up a consulting office is setting himself up for a big fall.
BC I’d be inclined to agree with Wedge, yours is an established business, with perhaps a proven need for a continuing investment….otherwise you can start on the cheap..just the 50 million needed for a D-8.
If you need to have nice surroundings you can always start of in a business suite and once established and successful look for your own office. Even the big companies clients I’ve worked with do this when starting in korea.
There’s always the office-tels as well, monthly rent for say 6 months, not large deposit.
“This means that you can have your own company registered abroad pay your salary and legally pay no tax anywhere”
I would query this conclusion. If the money is remitted elsewhere then it may well be treated as income in that elsewhere. Dual taxation agreements normally provide that income “taxed” in another country is not taxed by the other country. In this case it is clearly income, but it has not been taxed in the source country so may well be a target for the country of domicile or to the country to which it has been remitted.
I would suggest that anyone considering this, not take it as read, and carefully check the rules of the country of domicile and/or country of remittance. Especially considering that taxation here is in my opinion fairly low, particularly given the 30% discount, or alternatively the 17% cap (soon to be further lowered), break already given to foreigners.
I also believe there’s a moral obligation to contribute to the services etc. provided by the host country. I surely didn’t appreciate the way many expat koreans I know abused the system, and accordingly my taxes, back home – and on the same basis I am happy to contribute here.
I would too. Because it’s ridiculous. Sounds like Wesley Snipes’ tax advisor has been giving seminars here.
There’s a gaping hole right there in the premise: If your offshore company “pays your salary”, isn’t it more useful to have that salary available to be spent in Korea? How is that salary to be available to the tax evader if not by remittance to Korea?
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