Doing Business in KOREA

Thomas Park, CPA

Korea Facts and Figures

South Korea in Figures Land Area 99,275 sq km Population: 48m Population density: 483 sq km Life expectancy: Men 74yrs Women 82 yrs Adult literacy: 98% Average per household 2.8 Divorces per1,000 : 3.5 The Economy Currency: Won GDP: US$680bn GDP per heads: US$14,160 Employment (% of total):Agriculture 8% Industry 28% Services 64% Unemployed 4% Main Exports:Type: Electronic products Motor Vehicles Machinery Chemicals Metal Goods Destinations: (% total) USA 17% Japan 9% China 20% Hong Kong 7% Taiwan 4% Main Imports:Type: Electrical machinery Crude petroleum Machinery & equipment Semi conductors Consumer Durables Main countries of origin: Japan 20% USA 13% China 13% Saudi Arabia 5% Australia 4%

Korea picked as 15th best country in world

South Korea has been ranked the worlds 15th best country by U.S. magazine Newsweek By category, the nation received 96.72 points in education, the second highest in the world, thanks to its 99-percent literacy rate and average 16.2 years of schooling. In economic dynamism, it ranked third (73.02 points) for strong gross domestic product (GDP) growth, an improvement in productivity and the ease of doing business. But Korea performed relatively poorly in advancing its political environment, public health and quality of life. It ranked 19th in political environment, with its public health and quality of life standing at 23rd and 29th, respectively.

Background to business in Korea

Korea is probably more heavily influenced by Confucian values than any other business culture (including China). Confucian ethics permeate all aspects of working life, from management systems to interpersonal relations and although both Western and Japanese influences are becoming stronger, there is a deep well of conservatism within Korean society which makes change difficult, slow and somewhat painful. Confucian ethics emphasise the value of collective group harmony, respect for authority (and therefore management), as well as the all embracing importance of family, clan and friendship. Thus, as in countries like Japan and China, the quality of the relationships developed are the real key to business success at both a personal and a corporate level. A Korean saying highlights the all-important nature of networking and relationships - 'make a friend first and a client second.' The key to creating good relationships lies in one's ability to play the Confucian game. It is important to appear to be an honourable, trustworthy and respectable person. The recent economic downturn experienced in South Korea (as well as many other Asian countries) has precipitated a period of great introspection which has resulted in many traditional beliefs and approaches being challenged both internally and externally. Thus, South Korea is a business culture at a significant crossroads with a great need to find an accommodation between traditional values and modern management practice.

Successful Entertaining in Korea

A great deal of important business relationship building takes place in the bars and restaurants of South Korea. If invited out for dinner, it is advisable to accept as these are often the occasions where your South Korean contacts will really decide if you are a trustworthy honorable person and consequently whether or not they wish to do business with you. It is customary for the host to order the food, which all arrives at the same time. Korean food can be extremely spicy but milder dishes are also available. Wait until the host invites you to start. Do not leave chopsticks sticking into the rice bowl place them by the side of your place setting on the chopstick rests when not in use. When passing food items around the table, use only the right hand - this is considered to be much more polite. Korea has one of the highest per capita alcohol consumption rates in the world - so many business dinners are accompanied by some fairly heavy drinking. You do not, of course, have to drink a lot if you dont want to, but the Koreans will enjoy your company all the more if you join in with the general atmosphere of revelry. (It is not unusual to move on from the restaurant to a Karaoke bar where more drinking will take place and you will probably be asked to sing.) Tipping is not customary in South Korea although many restaurants add a service charge to the bill.

Law and Procedure

1. Investment money
In order for FDI to comply with the Foreign Investment Promotion Act (FIPA), both the amount of the foreign investment and the stock ratio must be satisfied as prescribed in the Act.

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Minimum Foreign Investment Amount: 100 million won (For investor visa) Minimum Foreign Investment Amount: 50 million won (For business registeration) Foreign Investment Ratio: 10% or more of the voting stocks or total invested capital

If the relevant investors are 2 or more, each shall meet the same conditions as above. The foreign investment ratio is equal to the ratio upon the completion of the foreign investment. However, when a foreign investor from a registered foreign-invested company makes an additional investment, the above ratio limit does not apply. Although there are no exceptions in regard to the amount invested, exceptions may be allowed for the foreign investment ratio. That is, even if the foreign investment ratio is less than 10% with the amount of the foreign investment being 50 million won or more, the investment may be qualified as FDI exceptionally in one of the following cases:

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A contract that allows dispatch or assignment of executives; A contract for the delivery or purchase of raw materials or products for a minimum of 1 year; or, A contract for provision or import of technologies, or joint R&D

2. FDI Procedure
The procedures to establish a foreign investment consist of foreign investment notification, remittance of the investment capital, registration of incorporation & business registration, and FDI company registration. The procedures applied to foreigners are basically the same as for Koreans except for the two additional steps which are foreign investment notification and FDI company registration. However, in the case of registration as a private business, the step of 'registration of incorporation' is not required.

3. Required documentation
Two copies of the foreign investment notification form per investment type (new shares, existing shares, long-term loans etc.) Proof of foreign nationality Business registration application form Copy of business permit certificate etc. Copy of lease contract (when renting a place of business), or certified copy of building registration Taxpayer setup notification form Contract of partnership for a joint business (notarized)

 Copy of foreign investment notification form Copy of foreign exchange purchase, deposit certificate Present original of alien registration certificate (or passport) and submit a copy

Ten Commandments for doing business in Korea

1. Thou shalt always have a formal introduction. ( 2. Thou shalt not be without calling cards. ( .) 3. Thou shalt not assume that everything you say in English is completely understood. ( .) 4. Thou shalt not push your position too hard. ( q 5. Thou shalt build human relationships. ( u .)

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6. Thou shalt not corner your partner, but praise him instead. ( , 7. Thou shalt entertain and be entertained. ( 8. Thou shalt try to know your counterpart. ( 9. Yhour shalt not apply western logic. ( .) 10. Thou shalt be aware and know what's going on. ( .)

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11. Gifts are important. Always take a supply of small, suitable gifts to distribute to key contacts. Always wrap gifts. 12. Balance out the seniority of the two delegations. Senior people should be met by people of similar rank and standing. 13. Always show respect to senior people. Your trustworthiness and standing will, in part, be judged by your ability to create the right type of harmonious atmosphere. 14. The quality of relationship is of primary significance when working with Koreans. Do not jeopardise a relationship through impatience or making a key contact lose face. 15. Confucian respect for authority dictates that managers will be respected simply because they are the manager.

Websites to get info on doing business in Korea

1. Invest Korea (http://www.investkorea.org/) 2. Trade Korea Trade-Investment Promotion Agency (http://www.kotra.or.kr/eng/) Korea International Trade Association (http://www.kita.or.kr) Austrade Korea (http://www.ktnet.co.kr) 3. Commerce Korea Chamber of Commerce & Industy (http://www.kcci.or.kr) 4. Authorities Invest Korea (http://www.investkorea.org/) Seoul Help Center for Foreigners[doing business, living] (http://shc.seoul.go.kr/ National Tax Service (http://www.nts.go.kr) Supreme court (http://www.scourt.go.kr) Registry (http://www.iros.go.kr)

You can Always contact me

Thomas Park, CPA, CTA Foreign Investment, Tax, Business consulting, Accounting, M&A, Trade (Second-hand car, shipping) 010-9998-1442