Guide to starting a business in South Korea for Hong Kong entrepreneurs: popular industries, requirements, and taxation

As a pivotal hub in East Asia and a key logistics gateway, South Korea has signed free trade agreements with nearly 60 countries. It is also the sixth-largest trading partner of Hong Kong. The country’s government has actively introduced policies to attract foreign investment and encourage entrepreneurship. This guide covers the company structures, requirements, and tax matters for Hong Kong business owners looking to establish a presence in South Korea. 

Why start a business in South Korea?

South Korea is renowned for its global competitiveness in semiconductors, artificial intelligence, and biotechnology. According to the country’s Ministry of SMEs and Startups, total investment in deep tech reached 3.6 trillion South Korean won in 2024, marking a five-year high. Meanwhile, South Korea’s eCommerce sector is developing rapidly, currently accounting for the second-largest share of retail shares globally, with per capita spending ranked third across the globe. Key categories include food and beverages, catering services, home appliances, and electronics – demonstrating a mature eCommerce ecosystem that can attract overseas businesses.

The South Korean government has introduced a suite of supportive policies to encourage foreign direct investment (FDI). These include streamlined merger and acquisition procedures, asset transfer facilitation, permission to establish holding companies and acquire land, and support for research and development. Eligible companies can also apply for tax incentives and further assistance, such as employment support and financial grants, etc. 

Popular sectors and market trends for startups in South Korea

Besides tech innovation, South Korea’s developing sectors also include healthcare, cultural entertainment, and speciality shops. South Korea is one of the world’s largest health and wellness markets. According to the Korea Health Supplements Association, over 84% of local consumers choose Korea-made health supplements. These sectors align with global trends and local consumer demand, making them attractive entry points for Hong Kong entrepreneurs seeking to establish a presence in South Korea’s market.

Types of business entities in South Korea: corporation, limited company, and joint venture

Foreign investors can choose from several company types in South Korea, including general partnership, joint venture, limited liability company (LLC), limited company, and corporation (stock company), etc. Most foreign-invested businesses opt for either an LLC or a corporation. LLCs are suitable for small and medium-sized enterprises or startups with lower sales volumes and fewer shareholders, while corporations are more suitable for larger businesses with relatively complex management structures.

Requirements for setting up a business in South Korea

Hong Kong entities or individuals looking to establish a company in South Korea must meet the following requirements:

1. If you are opting for the Foreign Direct Investment (FDI) stream, you must participate in the management of a South Korean company and invest over 100 million South Korean won (approximately HK$560,000), with a shareholding of more than 10%. In this case, your company will be recognised as a South Korean entity. Launching a business with investments below 100 million South Korean won is also possible, but in this case, your company will not be recognised as FDI and will be regulated under the Foreign Exchange Transactions Act, which requires declaration of remittance purpose and amount for transactions exceeding US$50,000.

2. If you are setting up a branch or liaison office in South Korea, your company does not count as FDI and will be subject to the Foreign Exchange Transactions Act. Branches can conduct commercial activities, while liaison offices are limited to market research and promotion work.

Step-by-step tutorial: setting up a company in South Korea

To launch a business in South Korea, the first step is to select the appropriate business entity and determine your capital contribution. Then, conduct a company name search to ensure your desired name is available. After securing a company name, submit a registration application to the country’s court registry. Once completed, open a business bank account and register for tax. Lastly, apply for an entrepreneur visa and residence permit to ensure your business can operate legally.

Below is a detailed breakdown of the steps mentioned above:

1. File a foreign investment declaration with KOTRA or a foreign exchange bank

2. Transfer your investment funds via a foreign exchange bank or declare cash at customs

3. Register your company as a legal entity and obtain the necessary approvals

4. Submit the corporate establishment declaration and apply for a business licence at any tax office within the South Korean jurisdiction

5. Open a corporate bank account

6. Register the foreign-invested enterprise with the original declaration authority (KOTRA or the foreign exchange bank)

7. Apply for an entrepreneur visa

Taxation for companies in South Korea

South Korea’s tax system is categorised into national taxes and local taxes. National taxes include corporate or income tax, value-added tax (VAT), customs duties, and securities transaction taxes. Local taxes cover acquisition tax, registration licence tax, property tax, and car tax.

While enjoying tax incentives that may be available under the Special Taxation Restriction Act, foreign-invested enterprises should be aware of transfer pricing rules and thin capitalisation regulations. Branches are subject to tax without any incentives, while liaison offices are exempt from both bookkeeping and taxation.

Additionally, most businesses in South Korea supplying goods or services must pay VAT at 10% on sales revenue.

Costs, capital requirements, and setup timeline

The minimum investment for foreign companies is 100 million South Korean won. Additional costs include registration, legal, and account fees, typically around 2 million South Korean won (approximately HK$10,000). The entire application and registration process usually takes about two weeks, depending on document completeness and processing speed.

Leverage Airwallex to streamline your global business finances

Whether you’re launching or scaling your business internationally, a cost-effective and fast transfer solution is always essential. With Airwallex, Hong Kong businesses can transfer to South Korea through a single integrated platform. Register for a free Business Account online and get it approved in as fast as 48 hours. Enjoy competitive FX conversions as low as 0.2% above the interbank rate, with 95% of transfers arriving on the same day.

Additionally, Airwallex also integrates seamlessly with accounting software like Xero, QuickBooks, and NetSuite, as well as eCommerce platforms such as Amazon and eBay. Businesses can easily manage their multi-currency revenue and issue free virtual Visa cards that offer 0% foreign card transaction fees for their employees to better control team expenses and boost financial efficiency.

Frequently asked questions

1. How much does it cost to set up a company in Korea?

Costs vary by company type and scale. Those who opt for the Foreign Direct Investment (FDI) stream have to fulfil a minimum investment of 100 million South Korean won (approximately HK$560,000) and a shareholding of over 10% to apply for an investment visa. Additional fees for registration and professional services also apply. 

Meanwhile, investments below 100 million South Korean won are regulated under the Foreign Exchange Transactions Act, which requires a declaration for remittances over US$50,000.

2. Is it easy for Hong Kong entrepreneurs to start a business in Korea?

There are certain thresholds to meet, including investment amount and visa requirements. However, the South Korean government offers supportive policies for foreign investors. With the right preparation and understanding of procedures, the process can be smooth.

3. What taxes do companies in South Korea need to pay?

Foreign-invested enterprises are generally subject to corporate income tax at rates ranging from 9% to 24%, depending on the income amount. Companies should be aware of transfer pricing rules and thin capitalisation regulations. Tax incentives may be available under the Special Taxation Restriction Act.