Business practicalities in South Korea

Land and property rights

South Korea has a dual registration system for land and buildings. Ownership interests in land and buildings must be registered at the appropriate registries. Foreign individuals, companies and permanent residents are permitted to purchase property in South Korea, but are required to notify various government departments about their acquisition. These requirements are governed by legislation including The Foreigner’s Land Acquisition Act, The Foreign Exchange Transactions Act and The Foreign Investment Promotion Act. Since 2023, foreigners without a permanent residence in South Korea seeking to invest in real estate must hire a local entrusted manager. Long term residents or foreign investors residing more than 90 days in the country must submit documents with local residential details.

Cybersecurity

South Korea revised its National Cybersecurity Strategy in 2024 to protect against cyber threats and to enhance its cybersecurity capabilities. The strategy proposes steps for public-private cooperation in the development of source and code technologies, training specialised personnel and intelligence sharing on cyber threats. In May 2024, Australia and South Korea agreed to further their cooperation in areas like quantum technologies, AI and telecommunications technologies.

Intellectual property (IP)

South Korea has a strong legal structure for protecting Intellectual Property Rights (IPR). It is a signatory to the Berne Convention, Paris Convention, WIPO Convention, Hague Agreement, the Madrid Protocol, Nice Agreement, the Patent Cooperation Treaty and the Marrakesh Treaty. The Korean Intellectual Property Office (KIPO) oversees systems, policies and enforcement of IP related laws. The Korean Intellectual Property Trial and Appeal Board conducts trials involving IPR and renders decisions.

Violation of IP and enforcement options:

Despite a relatively strong IP protection framework, violations persist. Businesses seeking to enforce IP rights in South Korea have remedies available such as civil action, criminal prosecution and mediation.

In 2024, amendments were made to strengthen penalties for infringement of technology rights and introduced corrective orders from the KIPO.

IPs may also be registered with the Korean Customs Service. Doing so allows the customs office to examine and intercept infringing goods. In addition to the protection granted to IP, The Unfair Competition Prevention and Trade Secrets Protection Act provides protection for rights owners. This involves unfair practices such as cybersquatting and infringements connected to dead copies of designs.

Import duties and tariffs 

South Korea is a member of the WTO offering a simple average Most Favoured-Nation (MFN) tariff rate of 13.4 per cent for imports, 6.5 per cent for non-agricultural products and 57 per cent for agricultural products. The Korea-Australia Free Trade Agreement (KAFTA) exempts almost all Australian exports from tariffs. The exemptions apply only to goods originating from Australia and not to goods routed through Australia. To find the tariff rate for specific goods from Australia, visit the Department of Foreign Affairs and Trade’s FTA portal at ftaportal.dfat.gov.au.

Calculations and payments 

South Korea imposes a Customs Duty and Value Added Tax (VAT) on all imports. The minimum value threshold is USD 150 (AUD 231 ,KRW 209,550) and all imported goods above the threshold value are subject to customs duty and VAT.

The amount of customs duty varies based on the type of goods. The average rate of customs duty is 8 per cent excluding agricultural products. Imported goods above the minimum value threshold are subject to a 10 per cent VAT rate. An excise tax between 10 per cent to 20 per cent is applied to luxury goods and durable goods.

Other taxes and charges

VAT is imposed at a rate of 10 per cent on the supply of goods and services. Certain goods and services are considered zero-rated VAT including exports, international shipping and air freight and some services provided to non-residents. Basic life necessities such as unprocessed food and agricultural products, medical and health services, finance and insurance are exempt from VAT.

Export duties

Exports from South Korea do not face any restrictions. Taxes are not levied on exports. Exports are exempt from consumption tax. Exporters are required to make accurate customs declaration as per the Customs Act and Foreign Trade Act.

Import and export regulations

The Korea Customs Services (KCS) imposes import duties and internal taxes on imported goods. It also conducts surveillance of breaches of the Foreign Trade Act to control smuggling. The Korea Trade Commission determines the impact of imports on local Korean industries. Health, safety related products, pharmaceuticals and medicines require testing or certifications by relevant authorities before obtaining clearance from customs. Exporters of medical devices and pharmaceuticals must register products with the Ministry of Food and Drug Safety (MFDS). Imports of agricultural products must be cleared by the KCS, MFDS, National Quarantine Office, and the Animal and Plant Quarantine Agency.

The National Tax Service (NTS) is responsible for the assessment and collection of taxes. Taxes such as corporate income tax, personal income tax and indirect taxes are imposed on businesses in South Korea.

This section provides an overview of the taxes Australian businesses can expect to face when operating in South Korea. Not all applicable taxes are covered in this guide and the information provided is of a general nature. Businesses should seek professional tax advice for understanding the taxes specific to their activities.

Table 1: Overview of South Korea’s taxes for businesses

Corporate Income Tax (CIT)

Non-resident corporations with a permanent establishment in South Korea pay taxes at regular CIT rates only to the extent of their Korean-sourced income. Resident corporations are taxed at regular CIT rates on their global income. The following table details the CIT rates applicable:

* Local income tax is a separate income tax. It has its own tax base, tax credits, exemptions and tax rates. The local income tax rate for corporations is progressive and in the range of 0.9 to 2.4 per cent.

Personal income tax 

Tax liability is determined by residence status in South Korea. A resident pays income tax on income derived in South Korea and from offshore sources. Foreign residents residing in South Korea for more than five of the past 10 years pay taxes on their global income. Whereas foreign nationals residing in South Korea for less than five years only pay taxes on income sourced inside the country. Foreign income is reportable only where it is paid by a South Korean entity or transferred to South Korea.

South Korea has income tax treaties with several countries including Australia.

The following table outlines the basic global income tax applicable:

* The National Tax Service also collects a local income tax assessed at 10 per cent of the personal income tax rate. The local income tax is paid to the city or province of the domicile of the tax payer.

An alternative minimum tax (AMT) is applied to the business income of a resident individual and South Korean-sourced business income of a non-resident individual. However, it is not applied to employment income. The AMT is calculated on the greater of 45 per cent of income tax liability (35 per cent applied to income tax liabilities of up to KRW 30 million (AUD 33,081)) before exemption or actual tax after exemptions.

Indirect taxes

Value-added tax: All individuals and corporations supplying goods or services are subject to 10 per cent VAT. VAT is also levied on the Import of goods into South Korea. Some commodities such as farm products, health services and government transactions are exempt from VAT. Exported goods are zero-rated. 

Property tax: An annual tax ranging from 0.07 per cent to 5 per cent is payable on the statutory value of land, houses, building, aircrafts and vessels. Manufacturing facilities constructed or expanded in Seoul metropolitan within five years of a relevant registration date are subject to five times the property tax.

Acquisition tax: Acquisition tax is imposed on motor vehicles, real estate, construction equipment and vessels whose cost exceeds AUD 550 (KRW 500,000). The rate of acquisition tax ranges from 1 per cent to 12 per cent. A weighted rate acquisition tax is applied on luxury items in the Seoul metropolitan area.

Luxury and consumption taxes: The individual consumption tax (ICT) applies to individuals, entities and businesses specified in the ICT law.

Auditing and accountancy play a vital role in enhancing transparency and accountability in a business, especially one engaged in a foreign market. It increases business performance by identifying risks and highlighting areas for improvement.

Accounting standards

South Korea has adopted the IFRS Standards for all listed and some unlisted companies. Foreign listed companies are permitted to report against IFRS Standards, IFRS Standards as adopted in South Korea or US GAAP. The Korean Institute of Certified Public Accountants (KICPA) is responsible for the quality and assurance, ethics, investigation and discipline of the accounting profession. Individuals in the profession must be a certified public accountant and a member of the KICPA.

Directors of companies must prepare financial statements and business reports for approval by the board of directors each fiscal year. Financial statements and business reports are to be submitted to the company’s statutory auditor within the stipulated period. The board is required to submit individual financial statements to the external auditor.

Australian businesses in South Korea should review the differences between the two jurisdictions to ensure their records are compliant with both countries’ accounting requirements.

Statutory audits

Companies of certain types are required to prepare financial statements and undergo an audit by an external auditor. The types of companies include a stock listed corporation, a company intending to be stock-listed and any other company meeting requirements in assets, liabilities, sales and employee numbers. The statutory auditor is required to submit a report to the board of directors within four weeks of receipt of documents.

Books and records

Companies may report their financial statements in either Korean Won or foreign currency. Where foreign currency is used, the figures are translated using the announced foreign exchange rate as of year-end or average foreign exchange rates for a year.

The South Korean fiscal year begins on January 1 and ends on December 31. All companies must retain financial records for a period of 10 years while receipts and vouchers must be retained for 5 years.

Quality control

The Securities and Futures Commission is responsible for quality assurance, reviews of audits and conduct of auditors. It has delegated the responsibility of quality audit reviews to the Financial Supervisory Service (FSS) and KICPA. All auditors and audit firms are subject to mandatory quality assurance reviews. 

The FSS has established a quality audit review program to inspect financial statements of listed companies, audit firms auditing listed companies and firms under joint supervision with foreign regulators. KICPA’s Audit Quality Control Review Committee is responsible for conducting quality audit reviews of unlisted companies and other audit firms which are not under the oversight of the FSS.

Doing business in South Korea will often require employing local and foreign workers. Understanding South Korea’s labour market regulations, recruitment methods and country-specific management styles is critical to building and supporting an effective team.

Labour market

Skill level: Tertiary education is increasing among South Korea’s working-age young population: in 2023 about 63 % of men and 77 % of women aged 25-34 had a tertiary qualification, placing Korea among the highest in the OECD. South Korea enjoys a strong labour force participation rate of 65 per cent with 70.2 per cent working in the services sector. A low unemployment at 2.5 per cent, significantly below the OECD average of 4.9 per cent, makes labour market conditions in South Korea tight. To address labour shortages and workforce ageing, the Korean government increased the retirement age and relaxed regulations making it easier to employ foreign workers.

Employment contracts: The Labour Standards Act governs essential areas of employment law, labour contracts, wages and working conditions. There are three types of labour contracts in South Korea.

Minimum wage: The Minimum Wage Act applies to all employees defined in the Labour Standard Act. The hourly minimum wage is KRW 10,030 (AUD 11). Failure to pay minimum wage attracts a penalty of imprisonment for 3 years and or a fine of not more than KRW 20 million (AUD 22,054).

Human resources and employment law: The Labour Standards Act outlines standards for working hours, leave, holidays, wages and working conditions. The Ministry of Employment and Labour protects the rights and interests of workers by fostering a respectful environment and a workplace free from discrimination.

Working hours: The maximum hours to be worked each week is set at 52 hours. Employers must grant a daily rest period of at least 11 hours.

Holidays: In South Korea, holiday and leave rules are governed by the Labor Standards Act. Under the act, employers are mandated to grant employees 15 days paid leave if they have worked 80 per cent of a year. The number of paid days leave increases with tenure of service. Employees who have worked less than 80 per cent of a year will earn one day of paid leave for each month the employee has continuously worked. In addition to the 15 days annual leave, employees who have served for three years are granted a day’s paid leave for every two continuous working years excluding the first year, up to a maximum of 25 days. Additionally, there are 12 public holidays each year that employers are required to pay their employees for.

Overtime: A regular working day in South Korea is eight hours, unless agreed otherwise between an employer and employee. However, maximum working hours cannot exceed 12 hours per day. The Labour Standards Act requires employers to pay employees for overtime work. Overtime pay is calculated as follows:

Sick leave: Employees usually use their annual paid leave for sick leave. Employers in South Korea are not required to grant paid leave for non-work-related illness. However some employers provide paid sick leave to employees as a supplementary benefit.

Social, health and unemployment insurance contributions: The four major insurances are industrial compensation insurance, employment insurance, national pension and national health insurance. The contribution for each of these from the employer and employees are as follows:

The insurance premium for long-term healthcare is 10.25. This is collected with national health insurance.

Ending employment: Employees may be dismissed for disciplinary reasons or for urgent managerial requirements. Employers are required to provide a dismissal notice of at least 30 days in advance or pay 30 days of ordinary wages to the employee. A dismissal is effective only upon providing written notice detailing the reasons and time of dismissal. Employees who are temporarily absent due to occupational injury or disease may not be dismissed for a period of 30 days thereafter.

Severance pay: Workplaces with more than five employees are required to provide severance pay to employees as per the Employment Retirement Benefit Security Act. Severance pay is 30 days or more of the employees’ average wage for each year of consecutive service.

Recruiting staff

Online advertising: Major job portals include:

• Job Korea – Free to register
• Saramin – A job portal displaying vacancies across organisations and free to register
• Incruit – A job board which provides recruitment information and employment related services locally and globally
• Findjob.co.kr – A job board which offers a range of recruitment service

Executive search: For a more tailored search, particularly for senior executives or individuals with technical skills, a recruitment or executive search firm can prove helpful. International firms such as Robert Walters, Stanton Chase, Korn Ferry and Keller International, among others, have a presence in South Korea.

Work permits: South Korea offers a range of visas for foreign businesses and workers, such as:

Foreign businesses establishing a presence in South Korea must open a corporate bank account at a foreign exchange bank to conduct business. The documents required include the incorporation registration certificate, copy of business license, certificate of corporate seal impression, corporate seal, copy of a representative’s passport, shareholders’ list of headquarters, shareholder’s list and a copy of agent’s identity

Financial institutions in South Korea

Australian banks in South Korea

ANZ and Macquarie have branches and representative offices in South Korea. They offer a range of financial services such as corporate banking, institutional banking as well as foreign currency services for individuals, corporate and institutional customers.

Foreign exchange controls

Under the Foreign Exchange Transaction Act, most foreign exchange transactions do not require approval in South Korea. Receiving foreign exchange from other countries is freely permitted. Payments to foreign companies for non-capital transactions are not regulated. Restrictions on foreign currency transactions between South Korean companies and foreign nationals have been removed. The government continues monitoring certain flows of foreign currency to minimise speculative currency and reducing capital outflows.

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