South Korea - Market Entry & Business Opportunities

South Korea is a country located in East Asia on the southern half of the Korean Peninsula. With Seoul as its capital, the official language is Korean, and the population of approximately 51.3 million is primarily composed of ethnic Koreans, with small numbers of foreign nationals and ethnic minorities.

Economic Overview

South Korea is a prominent Asian economy known for its export-driven industries, including electronics, automobile manufacturing, shipbuilding, and steel production. South Korea's Gross Domestic Product (GDP) in 2021 amounted to approximately 0.81 percent of the global economy, based on official data from the World Bank. It is a leading producer of technology products and has invested significantly in education and research. However, the country faces challenges such as an aging population, high household debt, and geopolitical tensions with North Korea. Despite these challenges, South Korea maintains its position as a major economic power in the Asia-Pacific region.

Market Overview

South Korea has achieved impressive economic growth, maintaining an average annual GDP growth rate of 6.0% from 1982 to 2021. It is the 10th largest economy globally, driven by exports of electronic goods and telecommunications equipment. Despite a contraction in 2020 due to the pandemic, the economy rebounded with 4.1% growth in 2021. However, future growth is expected to be moderate, with risks including rising household debt and global semiconductor demand. The IMF projects a 2.6% growth rate for South Korea in 2022.

Bilateral Relations Between India-South Korea

• On January 26, 2010, during the Republic Day celebrations, the President of Korea, Lee Myung-bak, made a significant visit to India, which led to the elevation of bilateral ties between the two countries to the level of Strategic Partnership.
• From March 24 to 27, 2012, Prime Minister Manmohan Singh visited Seoul for an official trip related to Nuclear Security Summits. This visit played a significant role in strengthening the bilateral strategic partnership that was established during the State visit of President Lee Myung-bak to India.
• In July 2018, the President of South Korea, Moon Jae-in, and the Prime Minister of India, Narendra Modi, jointly inaugurated the world's largest smartphone assembly factory of Samsung Electronics in Noida.
• The India-Korea Start-up Hub was inaugurated in 2019 by Narendra Modi to boost cooperation in research, innovation, and entrepreneurship. Additionally, six MOUs were signed between the two countries.
• India and the South Korea agreed upon a Roadmap for Defence Industries Cooperation in the year 2020.
• The first Indo-Korean Friendship Park was inaugurated in Delhi in March 2021 by Mr Suh Wook, the Minister of Nation Defence from South Korea; and Rajnath Singh, the Defence Minister of India.

Taxation in South Korea

South Korea has a complex tax system governed by the National Tax Service and the Ministry of Economy and Finance. Individuals are subject to Individual Income Tax rates ranging from 6% to 42%, while corporations face a standard income tax rate of 25% on taxable income exceeding KRW 300 million. However, there are reduced rates and tax incentives available for specific businesses and industries. Value Added Tax (VAT) of 10% is levied on most goods and services, with some exemptions and a reduced rate of 5%. Businesses meeting certain turnover thresholds must register for VAT, file regular returns, and pay collected VAT to the tax authorities. Foreign tourists may also be eligible for VAT refunds under the Korea Tourist Refund Scheme. It is crucial for taxpayers to stay informed about the evolving tax regulations and take advantage of available incentives and support programs.

Subsidies and Incentives Offered by South Korea

South Korea offers a range of subsidies and incentives to support businesses and industries in the country. These incentives include:

• Investment Incentives - Foreign investors in certain industries, such as IT, biotech, and renewable energy, can receive tax breaks and other financial incentives.
• Employment Incentives - The government provides various incentives to companies that create jobs in the country.
• Regional Incentives - The government provides subsidies and tax incentives to companies that invest in underdeveloped regions in the country.
• R&D Incentives - The South Korean government offers tax credits for R&D expenditures in certain industries.
• Environmental Incentives - The government offers various subsidies and tax incentives to companies that invest in environmental technologies and energy-saving measures.
• Export Incentives - The South Korean government provides support to companies that export products to other countries.
• Energy Subsidies - The government provides various subsidies and incentives for companies that invest in renewable energy projects, such as wind and solar power.

Financing Business in South Korea

In South Korea, businesses have various options for financing their operations:

• Commercial Banks such as KEB Hana Bank, Shinhan Bank, KB Kookmin Bank, and Industrial Bank of Korea offer loans and credit facilities, requiring a solid business plan and collateral.
• Government Agencies like the Small and Medium Business Administration (SMBA) and Korea Technology Finance Corporation (KOTEC) provide financial support through loans, grants, and guarantee to new companies.
• Venture Capital firms like Korea Investment Partners, SoftBank Ventures Asia, and BonAngels Venture Partners invest in start-ups and high-growth businesses.
• Private Equity firms like MBK Partners, STIC Investments, and IMM Private Equity invest in established businesses with growth potential.
• Export Import Banks like the Korea Eximbank provides services like export credit insurance and project financing to facilitate international trade.

Top 10 Companies in South Korea – 2022

Rank	Company	Industry	Revenue in 2022 (USD)
1	Samsung	Technology	$ 233.13 B
2	Hyundai	Automobile	$ 109.60 B
3	SK Group	Information-Technology	$ 103.98 B
4	Kia	Automobile	$ 66.53 B
5	Posco	Steel Manufacturing	$ 65.36 B
6	LG Electronics	Technology	$ 64.53 B
7	SK Innovation	Energy	$ 59.81 B
8	Korea Electric Power	Energy	$ 54.82 B
9	Korea Gas	Oil and Gas	$ 40.25 B
10	Hyundai Mobis	Automobile	$ 39.98 B

Most Popular E-Commerce Companies in South Korea – 2022

RANK	COMPANY	Headquarter
1	Coupang	South Korea
2	Naver Shopping	South Korea
3	11st	South Korea
4	Gmarket	South Korea
5	Auction.co.kr	South Korea
6	Danawa	South Korea
7	LotteOn	South Korea
8	SSG	South Korea
9	Inter Park	South Korea
10	Tmon.co.kr	South Korea

Top 5 Start-Ups in South Korea – 2022

RANK	COMPANY	INDUSTRY	FOUNDED IN
1	Rezi	Artificial Intelligence	2015
2	Bemyfriends	Media	2021
3	Energy X	Energy	2019
4	Onda	Software	2016
5	Recon Labs	Technology	2019

Business Clusters in South Korea

South Korea has established several business clusters in different regions of the country, each focusing on specific industries or sectors-

• Gyeonggi Innovation Cluster: High-tech industries, innovation, and technology commercialization.
• Busan-Jinhae Free Economic Zone: Marine, logistics, and tourism industries.
• Daedeok Science Town: Research and development hub in biotechnology, pharmaceuticals, IT, and nanotechnology.
• Changwon Economic Innovation Centre: Advanced manufacturing in machinery, automobile, shipbuilding, and aerospace.
• Seoul Digital Media City: Digital media and content industry, including animation, gaming, and film production.
• Incheon Free Economic Zone: Logistics, high-tech manufacturing, and international business services.
• Miryang Bio Cluster: Biotechnology and pharmaceutical industries, research institutes, and healthcare solutions.

How to Set Up Business in South Korea?

 
The process of setting up a corporate entity in South Korea involves multiple steps and requires legal documents like shareholder agreements, bylaws, and employment agreements. Systems and processes should be established for compliance. Even for sole shareholders, thorough preparations are advised for a smooth business establishment in South Korea. Following are the major steps to be undertaken while setting up business in South Korea:

• Choose the right legal structure.
• Register the trademark or service mark.
• Draft the Articles of Incorporation that covers important aspects of a company.
• Register the business with the Korean Commercial Registry
• Obtain a company seal and get it registered.
• Based on the nature of business, obtain necessary approvals & business permits.
• Tax registration and business license
• Register for social insurance.
• Open a bank account for business transactions.
• Lease or buy an office space.

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Best Locations to Set Up Business in South Korea

South Korea offers several favourable locations for setting up businesses, each with its own unique advantages.

• Seoul, the capital city, stands out due to its central location, excellent infrastructure, and access to a skilled workforce.
• Incheon, adjacent to Seoul, is a prominent transport and logistics hub with a major international airport and seaport.
• Busan, the second-largest city, is known for its thriving manufacturing and logistics sectors, supported by a well-developed port.
• Daejeon, often referred to as the Silicon Valley of South Korea, is a technology and research hub with numerous universities and research institutes.
• Gyeonggi Province, adjacent to Seoul, hosts various industrial parks and special economic zones, attracting manufacturing and technology companies.
• Jeju Island's well-developed hospitality industry makes it an ideal location.
• Daegu is a major centre for textile and fashion industries, along with research and development facilities and universities.

Visa and Immigration

Following are the common types of visas that are granted to those who wish to carry out business activity in South Korea:

• D-8-1 Foreign Investment Company Visa – This visa is for foreign individuals investing or establishing a business in the country. It allows them to engage in business activities related to their investment. Eligibility requires being a major shareholder or executive of a foreign-invested company in South Korea.
• D-8-3 Unincorporated Enterprise Visa- This visa is for foreign individuals engaging in business activities as self-employed entrepreneurs. This visa allows them to operate their own business without establishing a separate legal entity. Eligibility criteria must be met, including demonstrating sufficient financial resources to support the business operations. Investment requirements may vary based on the nature of the business.
• D-8-2 Business Venture Visa- This visa is for foreign individuals who want to establish or invest in a business venture in the country. This visa is intended for those with a solid business plan and can be used for starting a new business or investing in an existing one. Eligibility criteria must be met as set by South Korean immigration authorities. It is suitable for foreign nationals interested in establishing a business or making investments in South Korea.
• D-8-4 Technology and Business Start-up Visa- This visa is for foreign entrepreneurs and start-up founders aiming to establish a technology-based business in the country. This visa category supports the growth of innovative start-ups and technology ventures in South Korea. To qualify for the D-8-4 visa, you must meet the criteria set by South Korean immigration authorities. It is suitable for foreign nationals with a promising technology-based business idea or innovative start-up concept that contributes to the technological advancement of South Korea. Endorsements or support from designated organizations or institutions can enhance your visa application.

To conclude, South Korea offers a very favourable business environment with opportunities across sectors. The country has a strong & stable economy, skilled workforce, well-developed infrastructure, and advance technology that makes it an attractive destination for domestic and international investors. Key sectors such as automotive, ICT, renewable energy, and financial services offer significant potential for growth. Understanding the local market, cultural nuances, and regulations is essential. Building relationships and networks is crucial as personal connections are highly valued in Korean business culture. With careful planning and appropriate strategy, entering the South Korean market could result in substantial returns and long-term success.

We are part of various international business, legal and tax networks and has formed strategic alliances with some of the prominent law firms and advisors that enable us to serve our client from any part of the world. In South Korea we work closely with various well-established law firms and experienced professionals who specialize in wide range of business and legal matters.

If you are a South Korea national or a company seeking legal assistance in India or an Indian planning to expand to the South Korea market, our firm can provide the necessary guidance and support you require.


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