Most companies entering Korea treat this as an open choice between three options. Under Korean law it usually is not. Here is what is actually available to you, what it costs in tax, and which deadlines start running the day your people arrive.
If you are setting up in Korea for the first time, you have probably been given three options: a representative office to start small, a branch, or a subsidiary. In practice the first is often unavailable, the second and third are closer in tax than people expect, and the decision is frequently settled by something other than tax — how long you will be here, and how you intend to leave.
Korean foreign exchange regulation divides a non-resident’s Korean establishment into exactly two categories: a branch, which carries on revenue-generating business in Korea, and an office, which carries on no revenue-generating business and performs only non-business functions — liaison, market research, R&D.
That second category is narrower than the phrase “representative office” suggests in other jurisdictions. Supervising construction or installation, commissioning equipment, delivering services to a Korean customer, negotiating and concluding contracts — none of these fit. If your people are going to do any of them, the office form is not open to you.
Registering as an office anyway is the worst available outcome, not a cautious one.
The tax analysis does not follow the label. A domestic place of business arises from the activity itself, whatever you registered as — so you acquire the full Korean tax obligations. Meanwhile the foreign exchange registration you chose does not permit you to bring in operating funds or to remit profits out. You get the liabilities of a branch with none of its capabilities.
The common assumption is that incorporating a Korean company draws a line under the parent’s exposure. It does not, by itself. A domestic place of business attaches to the activity and to the people performing it, not to a legal form. Setting up a company while the work continues to be done by the parent’s staff, under the parent’s contracts, at the parent’s cost, changes nothing about the parent’s position.
For a subsidiary to genuinely take the place of the parent’s presence, the following have to move with it:
Where that transfer really happens, the parent’s domestic place of business ends and the subsidiary becomes the single Korean taxpayer. Where it does not — contracts and people left with the parent, a company merely placed alongside — the place of business survives and Korea now has two of your taxpayers, with a transfer pricing relationship between them. That is not one of the options. It is the state to avoid, and it is why the sequence of a conversion matters as much as the choice of form.
The comparison below assumes the transfer described above has actually been completed, so that the two are genuinely alternatives.
| Branch | Subsidiary | |
|---|---|---|
| Corporate income tax | The same for both — progressive rates by tax base, plus a separate local income tax charged on the same base at roughly one tenth of those rates. | |
| Tax when profit leaves Korea | Branch profits tax, but only where the applicable tax treaty permits it. The rate is set by that treaty. | Dividend withholding tax, at the domestic rate as reduced by the applicable treaty and by the parent’s shareholding. |
| When that charge arises | Calculated on after-tax income less amounts recognised as reinvested — so it is not a pure remittance tax. | Only when a dividend is actually paid. It can be deferred. |
| Head office cost allocation | Deductible where reasonably attributable to the Korean operation — but royalties, interest and fees paid to the head office are specifically not deductible under treaty rules. | Arm’s length principle applies; requires proper intercompany agreements. |
| Thin capitalisation | Applies to both. The rule expressly covers a foreign corporation’s Korean place of business, not only Korean companies. | |
| Liability | Unlimited — it is the head office. | Limited to capital contributed. |
| Setting up | Foreign exchange filing with a designated bank, then registration, then business registration. | Foreign investment notification, capital payment, incorporation registration — longer. |
| Local hiring and social insurance | Possible for both, once the Korean establishment is registered. | |
| Closing it down | A closure filing and a tax clearance certificate. | A formal liquidation — substantially longer and more expensive. |
| Getting profit out | Through the designated bank, with tax clearance; above certain thresholds an independent accountant’s audit certificate is required. | Dividend resolution and withholding. |
Assume full distribution of profit and a Korean tax base in the middle band. Corporate income tax and local income tax are identical for both forms. The entire difference sits in the final layer — branch profits tax on one side, dividend withholding on the other — and on typical treaty rates the two land within a couple of percentage points of each other.
Two things move that result more than the choice of form does. First, the branch charge is computed after deducting amounts treated as reinvested, and the calculation behind that deduction is the subject of a considerable body of Korean tax authority rulings — it should be modelled, not assumed. Second, local income tax is not a surcharge on the corporate tax figure; it is a separate local tax on the same base, and local governments may adjust the standard rate within a statutory range by ordinance. The rate therefore depends on where you locate.
The decision is usually made by duration and exit, not by rate. If your Korean activity is tied to projects that will end, the closing cost dominates: a branch closes with a filing, a company closes with a liquidation. If Korea is becoming a permanent regional base — procurement, engineering, contracting in its own name, or anywhere limited liability genuinely matters — that is when the subsidiary starts to earn its overhead.
These obligations follow from the tax position, not from your registration. They begin on the date the activity physically begins — which is frequently earlier than entrants assume, and is a question of fact established from records such as personnel movement, not from intentions.
| Obligation | Deadline |
|---|---|
| Report of a domestic place of business, with a balance sheet as at the date of establishment | Within two months of the date you come to have one |
| Report of changes to that filing | Within 15 days |
| Business registration — for each place of business | Within 20 days of commencing business (application may be made before commencement) |
| Foreign exchange filing for a branch, with the designated bank | Before the branch is established |
| Corporate income tax return | Within three months of financial year end, with an interim return at the half year |
Input VAT charged to you by Korean suppliers is only recoverable if you applied for business registration in time. The cut-off runs from the end of the half-year VAT period in which the supplier issued the tax invoice — you have 20 days after that period ends. Suppliers usually start invoicing well before anyone turns their mind to registration, which means the recoverable VAT from your first months in Korea is often the first thing quietly lost. It is worth checking the date before anything else.
The order matters. Establish first, from records, whether a domestic place of business already exists and from what date — because if it does, registering is not creating a Korean tax exposure but aligning your registration with an exposure that is already there. Only then does the choice of form become a real question, and by that point it usually answers itself.
We handle this work in English end to end, and report in your group’s format. If you are at the stage of deciding, the useful first conversation is a short one about dates and headcount, not about structures.
Basis. This note reflects the Corporate Income Tax Act (domestic place of business, corporate tax rates, branch profits tax, reporting of a place of business), the Value-Added Tax Act (business registration and input tax), the Local Tax Act (local income tax), the Act on International Tax Adjustment (thin capitalisation) and the Foreign Exchange Transactions Regulation (branch and office categories, establishment filing, operating funds, profit remittance and closure), together with the applicable tax treaty in each case. It is general information as at September 2026, not advice on a specific situation — treaty positions in particular vary by country and by shareholding. Please take advice before acting.
Usually not, if anyone will be doing revenue-related work. Korean foreign exchange regulation recognises only two forms of a non-resident’s Korean establishment: a branch, which carries on revenue-generating business, and an office, which performs only non-business functions such as liaison, market research and R&D. Supervision, commissioning, installation and delivery work do not fit the second category. Registering as an office anyway produces the worst available outcome: a domestic place of business still arises under the Corporate Income Tax Act regardless of what you called it, while the foreign exchange registration does not let you bring in operating funds or remit profits.
Not by itself. A domestic place of business attaches to the activity and to the people performing it, not to a legal form. If the contracts, the staff and the cost stay with the parent and a company is simply set up alongside, the parent’s place of business continues to exist and Korea now has two taxpayers with a transfer pricing relationship between them. That is not a structure anyone chooses; it is a state to avoid. For the subsidiary to replace the parent’s exposure, the employment, the cost, the reporting line, the contractual position and the supplier payments all have to move with it.
They are closer than most people expect, and the difference is rarely what decides it. Both pay the same corporate income tax and the same local income tax. The difference is at the point profit leaves Korea: a branch may face branch profits tax where the applicable treaty allows it, while a subsidiary faces dividend withholding tax. The branch charge is calculated after deducting amounts recognised as reinvested, so it is not a pure remittance tax; the subsidiary charge only arises when a dividend is actually paid, so it can be deferred. Which is better depends on the treaty and on whether you intend to leave profit in Korea.
Immediately, and earlier than most entrants assume. The report of a domestic place of business is due within two months of the date you come to have one — and that date is when the activity physically begins, not when you registered. Business registration is due within 20 days of starting business. The foreign exchange filing for a branch has to be made before the branch is established, not after.
It usually points towards a branch. Projects end, and the two forms end very differently. Closing a branch is a filing plus a tax clearance certificate. Winding up a company is a formal liquidation that takes months and costs considerably more. If Korea later becomes a permanent regional base rather than the place where one project happens, that is the point to revisit the subsidiary question — and to model it before the decision, not after, because the conversion itself carries tax consequences.
The two filings that fall due immediately, the monthly and quarterly cycle, and the three deadlines entrants most often discover after they have passed.
Read the guideIf you are an individual starting a consultancy or practice in Korea rather than a group establishing a subsidiary, the question is a different one — and the health insurance difference usually decides it.
Read the guideThin capitalisation reaches bank debt supported by a parent guarantee, and the charge on a capital increase triples in designated areas. Both are fixed when the money moves.
Read the guideTell us how long your people have been here, or when they are arriving. That single fact settles most of the analysis, and it is the one worth establishing before you register anything.