- A subsidiary is a separate Korean company, usually a Jusik Hoesa; a branch is the foreign company itself, registered under Article 614 of the Commercial Act.
- The subsidiary ring-fences liability in Korea; with a branch, the foreign parent answers for everything.
- Both pay Korean corporate tax on Korean profits at the same rates; profits go home as dividends from a subsidiary or remittances from a branch, which may attract branch profits tax.
- A branch is reported to a foreign exchange bank and registered with the court and tax office; a subsidiary is incorporated and, if funded with KRW 100 million+, registered under the FIPA.
- Staff go to a branch on D-7; investor-managers of a subsidiary use D-8-1.
For a group expanding into Korea, the question is rarely whether to set something up; it is what. A subsidiary and a branch can both sign contracts, hire staff, hold stock and invoice Korean customers. Day to day, a customer may not notice the difference. The difference is who stands behind them, how their profits are taxed on the way home, and how much corporate machinery they bring with them.
This guide compares the two on those points, with the provisions that decide each, and ends with a short decision quiz. A third option — the liaison office, which may not earn income in Korea at all — has its own guide.
What each one is in law
The subsidiary
A subsidiary is a Korean company owned by the foreign parent — almost always a stock company (주식회사, Jusik Hoesa) under the Commercial Act, sometimes a limited company (유한회사). It is a separate legal person: it owns its assets, owes its debts, has its own directors and files its own accounts. The parent is a shareholder, liable only for its capital contribution.
The branch
A branch is not a separate person. Under Article 614 of the Commercial Act, a foreign company (외국회사) that wishes to carry on business in Korea must appoint a representative in Korea (한국에서의 대표자), establish a place of business, and register in the same way as a Korean company of the most similar type. Until it is registered, Article 616 bars it from carrying on business continuously in Korea. The registered branch is the foreign company itself, acting in Korea through its representative.
A neighbouring provision is worth knowing. Under Article 617, a company incorporated abroad whose head office is in Korea, or whose main purpose is to carry on business in Korea, is subject to the same rules as a Korean company. A ‘foreign’ company set up abroad only to run a Korean business gains nothing by being foreign.
Both can sign, hire and invoice. They differ in who stands behind them.
Liability
This is the decisive difference for most groups. A subsidiary’s creditors look to the subsidiary. If the Korean business fails, the parent loses its investment and whatever it has lent or guaranteed — no more.
A branch’s creditors look to the foreign company, because the branch is the foreign company. A judgment against the branch is a judgment against the parent, and Korean creditors can pursue the parent’s other assets, subject to enforcement abroad. For a group with a strong balance sheet that is often acceptable; for a group entering a market with litigation, product or employment risk, it is usually not.
Setting up
The branch route
Before registration, a branch is reported to a foreign exchange bank (외국환은행) under the Foreign Exchange Transactions Act and the Foreign Exchange Transaction Regulations. It is then registered with the court registry, with the parent’s articles, certificate of incorporation, the board resolution establishing the branch and appointing the representative, and the representative’s acceptance — all apostilled and translated. The tax office issues a business registration certificate under Article 8 of the VAT Act. The parent funds the branch by remitting operating funds (영업기금, yeongeop gigeum) through the designated bank.
The subsidiary route
The parent resolves to invest, the investment is notified under Article 5 of the Foreign Investment Promotion Act if it is to be a foreign investment of KRW 100 million or more, the capital is wired, the company is incorporated, it registers for tax, and it is registered as a foreign-invested company (외국인투자기업) under Article 21. Registration licence tax on the capital applies under Article 28 of the Local Tax Act — tripled inside the Seoul overcrowding control region, which also reaches the establishment of a branch there.
Tax
Profits earned in Korea
Both pay Korean corporate tax on profits earned in Korea at the same rates under the Corporate Tax Act — from 2026, 10% on the first KRW 200 million of taxable income, 20%, 22% and 25% above, plus local income tax of 10% of the tax. The subsidiary is taxed as a domestic corporation; the branch as the domestic place of business (국내사업장) — the permanent establishment — of a foreign corporation, on income attributable to it under Articles 93 and 94 of the Corporate Tax Act. VAT applies equally to both.
Getting profits home
Here they diverge. A subsidiary pays dividends to its parent after tax; under Article 98 of the Corporate Tax Act Korea withholds tax on dividends to a foreign corporation — 22% including local tax domestically, reduced under the tax treaty if the beneficial-owner forms are filed.
A branch simply remits its after-tax profits to head office. Korea does not withhold on that remittance as such, but under Article 96 of the Corporate Tax Act it may levy a branch profits tax (지점세, jijeomse) on the remitted or deemed-remitted profits of a branch of a company resident in a country whose treaty with Korea permits it, at the rate the treaty allows. Whether the branch route is cheaper or dearer than dividends therefore depends on the treaty between Korea and the parent’s country.
Governance and paperwork
| Subsidiary | Branch | |
|---|---|---|
| Legal status | Separate Korean company | Part of the foreign parent |
| Liability | Limited to the subsidiary | Parent liable |
| People in Korea | Directors; one is enough below KRW 1 billion capital | Representative in Korea |
| Decisions | Shareholder and board resolutions in Korea | Parent’s own governance |
| Accounts | Korean statutory accounts | Korean accounts for the branch; parent’s accounts may be requested |
| Profits home | Dividends with treaty withholding | Remittance; branch profits tax if the treaty allows |
| Investors and joint ventures | Easy — issue shares | Not possible |
| Visa for managers | D-8-1 for investor-managers | D-7 intra-company transfer |
The subsidiary brings Korean corporate life: shareholder resolutions, director terms that end after at most three years under Article 383(2) of the Commercial Act, registration of changes within two weeks, statutory accounts. The branch avoids most of that — but every change at the parent that touches the registered particulars, from its name to its representative, has to be registered in Korea too, and the parent’s documents travel more often.
People and visas
Expatriates sent to a branch or a liaison office usually hold intra-company transfer (주재, D-7) status under the Immigration Act: they remain employees of the foreign company working in its Korean branch. A subsidiary can also host D-7 staff in some cases, but its natural route for an owner-manager is corporate investment (기업투자, D-8-1), which requires the subsidiary to be a foreign-invested company with at least KRW 100 million per foreign investor.
Korean employees are hired under Korean employment law by either entity — directly by the subsidiary, or by the foreign company through its branch — with the same payroll, social insurance and severance obligations.
Which one when
Choose a branch when
- The parent wants to contract in Korea under its own name and balance sheet — common for project, engineering and some financial businesses.
- The activity is limited in time or scope, and a separate company would be overhead.
- The tax treaty makes branch remittances efficient and the group can live with parent liability.
Choose a subsidiary when
- The group wants to ring-fence Korean risk.
- Local partners, investors or a joint venture are possible.
- Customers, banks or public buyers expect a Korean company.
- The managers need the D-8-1 route, or the group wants the remittance guarantee of a registered foreign investment.
Branch for presence under your own name. Subsidiary for a business that can stand on its own.
Three groups, three answers
The engineering contractor
A Norwegian offshore-engineering company wins a two-year contract with a Korean shipyard that wants to contract with the Norwegian entity itself. It registers a branch in Busan, sends its project manager on D-7 and closes the branch when the project ends.
The consumer brand
A French cosmetics brand plans Korean retail, e-commerce and eventually a local partner. It forms a Jusik Hoesa subsidiary with KRW 300 million, registered as a foreign investment, appoints a Korean country manager as director and keeps product liability in Korea.
The software group
A US software company sells subscriptions to Korean enterprises. Customers want a Korean counterparty for procurement; the group wants to cap liability. A subsidiary, with a service agreement to the parent priced at arm’s length.
Funding: operating funds versus share capital
A subsidiary is funded with paid-in capital (자본금, jabongeum). The money arrives as a foreign direct investment, is certified by the receiving bank and becomes the company’s equity on registration. If the investor wants foreign investment status, the Foreign Investment Promotion Act route applies, with KRW 100 million per investor as the practical floor. Equity is easy to put in and slow to take out: capital reductions under the Commercial Act need a shareholders’ resolution and a creditor-protection procedure, so groups usually inject what the business needs for its first year and lend the rest.
A branch has no share capital. It receives operating funds (영업자금, yeongeop jageum) from head office, reported to the designated foreign exchange bank under the Foreign Exchange Transactions Act. The funds sit in the branch’s Korean account and show on its books as an amount owed to head office. Because the branch and the head office are one legal person, there is no loan between them in civil law — which is why Korean tax law, rather than contract, decides how much of the head office’s interest cost the branch may deduct.
Lending to a subsidiary brings in thin-capitalisation rules. Under Article 22 of the Adjustment of International Taxes Act interest on borrowings from a controlling foreign shareholder that exceed twice the shareholder’s equity is not deductible and is treated as a dividend. A group that funds a subsidiary with KRW 100 million of capital and KRW 1 billion of loans will find most of its interest disallowed. Keep the debt-to-equity ratio within the safe harbour or be ready to prove the loan would have been made between independent parties.
Accounting, audit and transfer pricing
Both forms keep Korean-language books under Korean GAAP, file an annual corporate tax return (법인세 신고, beobinse singo) within three months of the financial year end under Article 60 of the Corporate Tax Act, and file VAT returns quarterly. The branch’s return covers only Korean-source income attributable to it; the subsidiary’s covers its worldwide income.
An external audit becomes compulsory for a subsidiary that crosses the thresholds of the Act on External Audit of Stock Companies — broadly two of: assets of KRW 12 billion, liabilities of KRW 7 billion, revenue of KRW 10 billion and 100 employees, or assets of KRW 50 billion on their own. Most new subsidiaries stay below these lines for years. Branches are outside that Act, though many parent auditors ask for a reviewed Korean trial balance at group year end anyway.
Transfer pricing applies to both. The subsidiary’s purchases from and services to its parent must be priced at arm’s length under the Adjustment of International Taxes Act, and a group with cross-border related-party transactions above KRW 50 billion a year files a local file. A branch is not a separate person, but the attribution of profit to it follows the same arm’s-length logic: head office charges for management, IT and know-how are deductible only to the extent they relate to the branch’s Korean business and are documented.
Running without either: the permanent establishment trap
Some groups try a third route: no Korean entity at all, a salesperson on the ground and contracts signed abroad. Korea treats a foreign company as having a domestic place of business (국내사업장, gungnae saeopjang) — the Korean term for a permanent establishment — when it has a fixed place through which it carries on business, or a dependent agent who habitually concludes or negotiates contracts for it, under Article 94 of the Corporate Tax Act.
Once a permanent establishment exists, the foreign company owes Korean corporate tax on the profits attributable to it, has to register for VAT and is exposed to penalties for the years it did not file. The tax office has no difficulty finding these cases: the employee’s income tax, the office lease and the Korean customers’ withholding all point to the same place. A registered branch is, in effect, a permanent establishment the company declares voluntarily — at which point it at least controls the paperwork.
A branch is a permanent establishment with its paperwork in order. An unregistered sales office is the same thing without the paperwork.
Voixa Korea
The person in charge in Korea
Every branch must register a representative in Korea (국내 대표자, gungnae daepyoja) under Article 614 of the Commercial Act. The representative has the same authority over the branch’s business as a representative director has over a company: they can sign contracts, open accounts and appear in court for the foreign company’s Korean business, and any internal limit on that authority cannot be used against a third party in good faith. Groups often underestimate this and give a local manager the role without a written mandate or reporting line.
A subsidiary has a representative director (대표이사, daepyo isa) or, in a company with less than KRW 1 billion of capital and one or two directors, a sole director who represents the company under Article 383 of the Commercial Act. Directors owe the company duties of care and loyalty and can be personally liable for losses caused by breach under Article 399. Neither role requires Korean nationality or residence, but the bank, the tax office and the landlord all prefer someone who can be reached in Korea during business hours.
Cost and timing side by side
| Branch | Subsidiary | |
|---|---|---|
| Typical timeline | 4–6 weeks | 4–6 weeks |
| Minimum funds | None set by law | Any amount; KRW 100m for FDI status |
| Registration tax | Fixed-amount registration tax | 0.4% of capital (×3 in metropolitan Seoul for new companies) |
| Documents from abroad | Parent’s certificate of incorporation, articles, board resolution, apostilled and translated | Investor’s passport or corporate papers, apostilled and translated |
| Annual compliance | Tax and VAT returns, FX reporting | Tax and VAT returns, AGM, director terms |
| Exit | Court deregistration and tax closure | Dissolution and liquidation under the Commercial Act |
Indicative; your quote confirms the figures for your case.
The comparison is closer than many expect. Setting up costs much the same; the difference lies in what the group carries afterwards — liability and head office paperwork for a branch, corporate housekeeping for a subsidiary.
Converting and closing
A branch cannot be turned into a subsidiary by a filing; the group forms a new Korean company and transfers the business — contracts, staff, assets — from the branch, then closes the branch. That transfer has tax consequences that should be planned, including VAT on the transfer of assets and the treatment of the branch’s final profits.
Closing a branch involves deregistration with the court, closure with the tax office and a report to the designated foreign exchange bank before the remaining funds are repatriated. Closing a subsidiary follows the Commercial Act’s dissolution and liquidation procedure, with creditor notices and a final registration — usually several months either way.
Mistakes we see
- Choosing a branch to ‘save admin’ and then exposing the parent to Korean product or employment claims.
- Forgetting Article 617 — a foreign shell set up to run a Korean business is treated as Korean.
- Ignoring the treaty when comparing dividend withholding with branch profits tax.
- No cost-allocation method for head-office charges to the branch.
- Planning a D-8 for a branch manager — branch staff use D-7.
- Not reporting parent changes to the Korean registry and bank.
Korean terms you will meet
Questions readers ask
What is the difference between a branch and a subsidiary in Korea?
A subsidiary is a separate Korean company with limited liability; a branch is the foreign company itself registered in Korea under Article 614 of the Commercial Act.
Are branches taxed differently?
Korean profits are taxed at the same corporate rates. Repatriation differs: dividends from a subsidiary bear withholding; branch remittances may bear branch profits tax if the treaty allows.
Can a branch hire staff and invoice?
Yes.
What visa do branch staff get?
Usually D-7, intra-company transfer.
Can I convert a branch into a subsidiary?
Not by a filing. You form a Korean company, transfer the business and close the branch.
Does a foreign shell avoid Korean rules?
No. Under Article 617 of the Commercial Act, a company formed abroad mainly to do business in Korea is treated like a Korean company.
Alexander Baranov
Founder of the BCA Group · cross-border corporate and tax adviser since 2008
Alexander advises foreign founders and groups on company formation, tax structuring and corporate law in more than 40 jurisdictions across Europe, the Gulf, Asia and Latin America. He is the author of nine books on international business and tax and writes regularly for professional finance and tax journals. He works in English, German, Spanish and Russian.
This guide is based on the Korean statutes cited in the text and on our own filings. It is reviewed when the law or official rates change.