Opening a Korean branch of a Chinese company

Why Chinese companies choose a branch

Korea and China have traded on preferential terms since the Korea–China Free Trade Agreement (한중 FTA, hanjung FTA) entered into force on 20 December 2015, and both are members of RCEP; negotiations on a second stage covering services and investment have continued since. China is Korea’s largest trading partner, with two-way trade of more than USD 200 billion a year, and Chinese companies are active in Korea in batteries and battery materials, electric vehicles, electronics, e-commerce, shipping, logistics, construction equipment and finance. Most large ones form a subsidiary — see our main guide for Chinese companies — but a branch is the traditional form for some businesses.

Chinese banks in Seoul — Bank of China, ICBC, China Construction Bank and others — are licensed branches of their head offices. Chinese airlines and shipping lines sell tickets and freight through Korean branches. Engineering firms register branches for Korean projects, and component makers use them to keep Korean sales on the parent’s books. The common thread is that the Chinese company is the real counterparty, the Korean business is an extension of it, and the parent is content to stand behind Korean obligations.

What a Korean branch is

A branch is not a Korean company. It is the Chinese company itself, registered to do business in Korea under Article 614 of the Commercial Act, which requires a foreign company that wants to trade in Korea to appoint a representative in Korea and either have one of its representatives domiciled in Korea or set up a business office (영업소, yeongeopso). In everyday Korean the result is called a branch (지점, jijeom) or domestic branch of a foreign company (외국기업 국내지사, oeguk gieop gungnae jisa). It has no share capital, no board and no shareholders of its own; it is registered at the court registry as an establishment of the foreign company, with the head office’s name, its governing law, its capital and its directors appearing on the Korean register. Contracts the branch signs bind the head office, and Korean creditors can pursue the head office and its assets for branch debts.

Until registration is complete the foreign company may not carry on business in Korea on a continuing basis: Article 616 of the Commercial Act makes the person who trades for it before registration jointly liable with the company. A one-off sale signed from abroad is not the problem; a Seoul office that negotiates, invoices and employs before registration is.

A branch differs from a liaison office (연락사무소, yeollak samuso) in what it may do. A liaison office supports the head office — research, sourcing, quality control, marketing support — and must not earn Korean income; a branch may sell, invoice, perform services and employ, and pays Korean tax on what it earns. It differs from a subsidiary in liability and in status: a branch’s operating fund is not foreign direct investment under the Foreign Investment Promotion Act, so it brings no foreign-invested-company registration, none of the incentives tied to it and no D-8 investor visa. In exchange it is quicker, needs no minimum capital, and lets the parent use Korean losses in its own home-country return in some systems. Our branch or subsidiary comparison sets the two side by side; the liaison office guide covers the lighter option.

Head-office documents from China

The Korean bank and registry want evidence that the Chinese company exists, who represents it, what its capital and directors are, and that its competent body decided to open the Korean branch. Chinese corporate documents do not map neatly onto Korean expectations: the business licence (营业执照) shows the unified social credit code, legal representative, registered capital and scope, but not the full board, so a registration extract from the market regulation bureau usually accompanies it.

All with Korean translations; the Korean registry and bank do not accept documents in Chinese alone.

Notarisation is done by a Chinese notary office (公证处), which issues a notarial certificate in Chinese, usually with an English translation attached. Since China joined the Apostille Convention on 7 November 2023, the certificate is apostilled by the Ministry of Foreign Affairs or an authorised provincial foreign affairs office, instead of being legalised at the Korean embassy or a consulate — a saving of one to three weeks. Hong Kong and Macau have issued apostilles for decades and follow their own procedures. See apostille for Korea.

Three details catch Chinese applicants. The resolution must be passed by the body the articles empower — a board resolution where the articles reserve the decision to shareholders is rejected. The Korean name of the company must be chosen and used consistently: Korean registries transliterate Chinese names phonetically from the Chinese reading, or translate them, and the choice is fixed at registration. And the Chinese company seal on the documents does not replace signatures in Korea: the Korean representative files a seal report and uses a Korean registered seal (인감, ingam) or signature from then on.

Opening the branch, step by step

1. Prepare the head-office documents. A board resolution to open the Korean branch and appoint its representative, the company’s registration certificate and articles, and a power of attorney for the people filing in Korea — notarised, apostilled and translated into Korean.
2. Report the branch to a designated foreign exchange bank. Under the Foreign Exchange Transactions Act and Chapter 9 of the Foreign Exchange Transaction Regulations the branch is reported to the Korean bank that will handle its money, on the prescribed report of establishment of a domestic branch of a foreign company (외국기업 국내지사 설치신고서, jisa seolchi singoseo), with the head-office papers and a short business plan. Banks usually accept it within one or two business days. Branches in finance — lending, securities, insurance and similar regulated businesses — report to the Ministry of Economy and Finance instead and need their sector licence. Korean branches of Chinese banks, such as Bank of China or ICBC in Seoul, can act as designated banks and make the report easier for a Chinese parent with an existing relationship; any Korean bank with a foreign exchange licence can do it.
3. Bring in the operating fund. The head office remits the operating fund (영업기금, yeongeop gigeum) through the designated bank, which records it against the branch report. Its confirmation is later evidence for remittances and visas.
4. Register the branch at the court registry. Within three weeks of setting up the office, the representative registers the business office (영업소, yeongeopso) at the district court registry for its address. The filing adds the representative’s notarised acceptance of appointment, passport and seal report, and the accepted bank report. Registration licence tax is modest — roughly KRW 48,000 per registration, about three times that inside the Seoul metropolitan overcrowding control zone — and a judicial scrivener typically charges KRW 0.8–1.2 million. The registry takes three or four business days.
5. Register with the tax office. The branch obtains its business registration number (사업자등록번호, saeopja deungnok beonho) within 20 days of starting business, filing the registry extract, an opening balance sheet and a lease in the branch’s name. See the business registration number.
6. Open the operating account, hire and invoice. With the registration number the branch opens its won account, enrols in the four social insurances when it hires, issues electronic tax invoices and begins filing VAT. See opening a Korean business account.

A well-prepared branch is usually trading three to four weeks after the documents arrive in Korea.

Two things slow most branches: a lease the tax office will accept — often solved with a serviced office; see commercial leases and virtual and serviced offices — and inconsistent names, addresses or directors across the apostilled documents, the bank report and the registry application.

Chinese outbound rules for funding a branch

China regulates outbound investment through three filings: the NDRC (国家发展和改革委员会) for the overseas project under NDRC Order No. 11 of 2017, with projects of USD 300 million or more filed centrally and smaller non-sensitive ones with the provincial commission; the commerce department (商务主管部门), which issues the enterprise overseas investment certificate under the 2014 Measures, filed with the provincial department for local non-sensitive projects; and the foreign exchange registration (外汇登记) for direct investment, which SAFE has delegated to banks. Korea is not a sensitive country and ordinary commerce is not a sensitive sector, so for most Chinese companies these are filings rather than approvals.

Whether a branch needs the full set is the question to settle first with Chinese counsel and the Chinese bank, because the Chinese bank, not the Korean one, controls whether the operating fund leaves China. In practice banks expect either the ODI documents or an accepted basis for treating the remittance otherwise, and the answer depends on the amount, the province and the bank. Pre-investment expenses — feasibility, legal fees, the deposit on an office — can be remitted before the filings within a cap of USD 3 million and 15% of the total Chinese investment. Afterwards, the annual overseas investment equity registration is due by 30 September.

The operating fund

There is no minimum operating fund for a branch in general commerce. The amount is a business decision: enough to pay the deposit on the lease, salaries and running costs until Korean revenue covers them, and enough to make a credible case to immigration if staff will be seconded from head office. It comes in through the designated bank and is recorded as the branch’s capital; more can follow the same way. Money sent outside that channel causes problems later, because remittances are checked against what was properly brought in.

Korea does not accept internal interest charged by a non-financial head office on a “loan” to its own branch as a deductible cost. If the branch needs more money, send more operating fund. A branch that borrows from a Korean bank pays deductible interest in the ordinary way, usually with a head-office guarantee.

How the branch is taxed in Korea

A Korean branch is a domestic place of business (국내사업장, gungnae saeopjang) of a foreign corporation and pays corporate tax on the Korean-source income attributable to it under Article 91 of the Corporate Tax Act, at the same rates as a Korean company: 10% on the first KRW 200 million, 20% to KRW 20 billion, 22% to KRW 300 billion and 25% above, plus local income tax at a tenth of the corporate tax — 11%, 22%, 24.2% and 27.5% in total. The return is due three months after the year end. Head-office charges incurred solely for the Korean branch are deductible, and a reasonable share of common head-office costs — management, IT, regional overheads — may be allocated, but the branch must file a report of the allocation computation with its return, and the allocation must follow an allocation key that holds up under the Adjustment of International Taxes Act.

The branch charges and files VAT at 10% like any Korean business, withholds income tax and social insurance on salaries, and issues electronic tax invoices. Its accounts follow Korean accounting standards and are kept in won; it does not need a statutory audit unless a bank or the tax office asks for audited statements, which happens mainly around profit remittance. Korea can charge a branch profits tax on top of corporate tax only where the treaty with the head office’s country allows it, under Article 96 of the Corporate Tax Act. The 1994 Korea–China treaty is not among the treaties usually cited as allowing it, so a Chinese company’s branch normally pays corporate tax and local income tax only — confirm against the treaty text and any protocol before you rely on it. See Korean corporate tax rates and VAT for foreign companies.

Sending profits home

A branch does not pay dividends. After its corporate tax return, it remits after-tax profit to the head office through the designated bank, reporting the remittance under the foreign exchange rules with the tax return, proof of tax paid and the financial statements. Korea does not withhold tax on the remittance itself. Where the remittance is large — practitioners cite remittances above about KRW 100 million, or net profit at or above 100% of the operating fund — the bank can ask for audited financial statements, so branches that plan to send serious money home usually budget for an audit from the first full year. Remittances of the operating fund itself, rather than profit, are a return of capital and are handled on closure or reduction of the fund.

Closing a branch

A branch is closed by a head-office resolution, deregistration of the business office at the court registry, closure of the business registration with a final VAT and corporate tax return, a report to the designated bank and remittance of the remaining fund. Employees are owed severance, unused leave and notice under Korean labour law, and the lease must be surrendered on its terms. Unlike a Korean company there is no liquidation procedure for the branch itself — the head office remains liable for whatever is left — which makes closure faster but means that unresolved Korean claims follow the parent home. See closing a business in Korea.

Chinese tax on the branch’s profit

A Chinese resident enterprise is taxed on its worldwide income, so the Korean branch’s profit is included in the Chinese company’s taxable income each year, whether or not it is remitted, at the standard enterprise income tax rate of 25%. Korean corporate tax and local income tax paid by the branch are credited against Chinese tax on the same income, up to the Chinese tax attributable to it. Since 2017 a Chinese company can compute the credit limit country by country or on an overall basis for all foreign income, and unused credits carry forward five years. With Korean tax of 11% to 22% on most profits and Chinese tax at 25%, the usual result is a Chinese top-up on branch profit; a parent that is a High and New Technology Enterprise taxed at 15% may calculate the limit at 15%, which can leave Korean tax uncredited.

The trap is losses. Chinese rules do not allow losses of a foreign branch to reduce the Chinese company’s domestic profit; they can only be used against later profits from abroad. The advantage often claimed for branches — using start-up losses at home — is therefore not available to a Chinese parent. A Korean subsidiary’s dividends, in comparison, qualify for an indirect credit for the Korean corporate tax behind them where the Chinese company holds at least 20%, and Korea withholds 5% on dividends to a Chinese company holding at least 25% under the treaty, 10% otherwise. On a fully distributed profit, the branch and the subsidiary usually end close to 25% in total; the subsidiary defers Chinese tax until dividends are paid, the branch does not.

People, visas and social insurance

Chinese citizens need a visa to work in Korea, and usually for business visits; short business trips use the C-3 short-term visa, issued through the Korean consulates in China. A manager or specialist seconded from the Chinese head office to the Korean branch applies for the intra-company transferee visa (주재 비자 (D-7), jujae bija), which requires, broadly, at least a year of prior employment with the head office or its group and a branch that is actually operating; immigration looks at the operating fund brought in and the branch’s activity, and figures around USD 200,000 are commonly cited in practice for the fund — check the current guideline before you plan around it. Specialists hired directly by the branch use the E-7; see the E-7 guide. A branch cannot sponsor the D-8 investor visa, which belongs to foreign-invested companies.

The Korea–China Social Insurance Agreement (한중 사회보장협정, hanjung sahoe bojang hyeopjeong), in force since January 2013, lets an employee posted from China stay in the Chinese urban employees’ basic old-age insurance and unemployment insurance for up to five years, with extension up to a total of thirteen years by agreement, and be exempt from the Korean National Pension and employment insurance with a certificate of coverage. Korean national health insurance and industrial accident insurance still apply. Korean hires are employed under Korean labour law, with written contracts, the minimum wage, the four insurances and severance after a year; see Korean social insurance and hiring in Korea.

Data and technology

Korean customer and employee data sent from the branch to the head office in China is a transfer abroad under the Personal Information Protection Act, even inside one legal person: the branch needs consent, a contract or another lawful basis, must disclose the transfer and the recipient country, and must protect the data. The Personal Information Protection Commission has fined Chinese e-commerce platforms for undisclosed transfers of Korean data to China. See PIPA for foreign companies.

Technology is the other sensitive area. Korea protects designated national core technologies — in semiconductors, displays, batteries, shipbuilding and other industries — under the Industrial Technology Protection Act, and prosecutors have pursued engineers who took them to foreign competitors. A Chinese branch hiring Korean engineers should document that it will not use a former employer’s confidential information. Export controls on Korean-origin strategic items also apply to transfers from a Korean branch to China; see export controls for Korean traders.

Branch or subsidiary for a Chinese company

The two converge on tax; they differ on liability, status and flexibility.

For a Chinese parent the tax case for a branch is weaker than for some others, because Chinese rules ring-fence foreign branch losses and tax branch profit every year. The branch wins when speed and simplicity matter, when the business is the parent’s own contract or licence — a bank, an airline, a project — or when a Korean regulator or customer wants to deal with the parent directly. The subsidiary wins when the Korean business will hold Korean product approvals, take Korean investors or partners, employ a large team, or need the protection of limited liability.

A worked example

A Shenzhen maker of display driver components sells to two Korean manufacturers and wants its own sales and technical team in Korea. Its board passes a resolution to open a Seoul branch with an operating fund of KRW 300 million and to appoint its Korean sales director, a Chinese national employed by the group for six years, as representative. The papers are notarised in Shenzhen and apostilled, and the company completes the outbound filings its Chinese bank requires.

In Seoul, the branch report is accepted by a designated bank in two days, the fund arrives the following week, the court registry registers the business office within a week, and the tax office issues the registration number a few days later. The director moves on a D-7 visa and stays in the Chinese pension system under the 2013 agreement; two Korean engineers are hired with full Korean insurances.

In year two the branch earns KRW 600 million. Korean corporate tax is KRW 100 million — 10% on the first KRW 200 million and 20% on the rest — plus KRW 10 million of local income tax. In China, the branch profit is taxed at 25%, KRW 150 million, less a credit for the KRW 110 million paid in Korea, leaving KRW 40 million. The branch remits KRW 490 million with its tax return and audited statements; there is no Korean withholding. Had the company used a subsidiary and paid the same profit as a dividend, Korea would have withheld 5% — KRW 24.5 million — and China would have collected the difference up to 25% after indirect credit: the same KRW 150 million in total, collected later.

Mistakes we see

1. Filing in Korea before the Chinese bank agrees to release the operating fund.
2. Trading from a Seoul office before registration, in breach of Article 616.
3. A resolution by the wrong body, or without the representative’s full details.
4. Operating money sent to a personal account instead of through the designated bank.
5. Internal interest charged to the branch and deducted in Korea.
6. Common head-office costs allocated without the allocation report, or on an unexplained key.
7. Assuming Korean start-up losses reduce Chinese tax — they do not.
8. No certificate of coverage for posted staff, paying pension in both countries.
9. Korean customer data sent to China without disclosure or a lawful basis.

Korean and Chinese terms you will meet

Questions readers ask

About the author

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.

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