How to close a Korean company: dissolution, liquidation and deregistration

Foreign owners close Korean companies for ordinary reasons: the market did not work out, the group restructured, the founder left Korea, the business moved to a branch or was sold. The tempting option is to stop paying the accountant and let the company fade. In Korea that is the expensive option. Returns not filed generate penalties; unregistered director changes generate fines on the representative director; unpaid taxes can pass to the controlling shareholder; and immigration looks at the history of companies a foreigner has run.

This guide explains the alternatives to liquidation, then the formal process step by step, the tax side, what happens to the money, how branches and liaison offices close, timelines and costs. The checklist tells you whether you are ready to start.

Before liquidating: the alternatives

• Sell the company. A buyer takes the shares, the business, the liabilities and the history. Often the cleanest exit if the company has customers, licences or a brand. See buying an existing Korean company for what a buyer will check.
• Sell the business, keep the shell. Assets and contracts are sold; the company is then liquidated with cash only, which simplifies the process.
• Merge it into another Korean group company under the Commercial Act’s merger provisions, where the group stays in Korea.
• Suspend it. A company that will be needed again can file a suspension report (휴업신고, hyueop singo) with the tax office. It must still keep its registrations current and file returns; suspension pauses the business, not the obligations.
• Insolvency. A company that cannot pay its debts in full cannot use ordinary liquidation; it goes through bankruptcy or rehabilitation under the Debtor Rehabilitation and Bankruptcy Act. This guide covers solvent closures only.

Stage one: dissolution

A Jusik Hoesa is dissolved, among other grounds listed in Article 517 of the Commercial Act, by a resolution of the shareholders’ meeting. The resolution is a special resolution (특별결의, teukbyeol gyeorui) under Article 518 — two-thirds of the votes of the shareholders present and at least one-third of all issued shares. For a company with a single foreign shareholder, that is one signed resolution, with the shareholder’s signature notarised and apostilled abroad or given through a Korean attorney under a power of attorney.

The same meeting usually appoints the liquidator (청산인, cheongsanin) under Article 531. If none is appointed, the directors become liquidators by default. A foreign owner often appoints a Korean professional or keeps the existing representative director if he or she will remain reachable for the months the process takes.

Dissolution and the liquidator’s appointment are registered with the court within two weeks. From that moment the company exists only to wind up: it cannot start new business, and its name carries the status of a company in liquidation.

Stage two: liquidation

The liquidator takes over from the board and does five things.

Inventory. Without delay after appointment, the liquidator prepares an inventory of assets and a balance sheet, submits them to the shareholders’ meeting for approval and reports them to the court under Article 533.

Creditor notice. Within two months of appointment, the liquidator publishes a notice at least twice calling on creditors to file their claims within a period of at least two months, and notifies known creditors individually, under Article 535. Known creditors cannot be excluded even if they do not respond. During the period, debts are generally not paid except as the court permits, so that creditors are treated equally.

Realisation. The liquidator collects receivables, sells stock and equipment, ends the lease and other contracts, and pays the company’s debts — including final salaries, severance, taxes and social insurance.

Distribution. Only after all debts are paid or secured may the remaining assets be distributed to shareholders in proportion to their shares under Article 538. Distributing early makes the liquidator personally liable.

Final accounts and completion. The liquidator prepares the final accounts, which the shareholders’ meeting approves under Article 540, and registers the completion of liquidation (청산종결, cheongsan jonggyeol). The company then ceases to exist. Books and important documents are kept for ten years after completion, by a person the liquidator or court designates.

Dissolution decides to close. Liquidation actually closes. The registry only believes the second.

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The tax side

Tax runs alongside the corporate process, and the tax office’s view of the company does not end with the registry’s.

VAT. When the company stops business it files a closure report (폐업신고, pyeeop singo) with the tax office and a final VAT return by the 25th of the month after the month of closure, under Article 49 of the VAT Act. Stock and assets remaining at closure on which input VAT was reclaimed are treated as supplied to the company itself, and VAT is due on them; selling them before closure is usually better.

Payroll. Final salaries, unused leave and severance (퇴직금, toejikgeum) are due within 14 days of each employee leaving. Withholding is filed and paid, and employees are deregistered from the four social insurance schemes. Unpaid wages are a criminal matter in Korea; settle them first.

Corporate tax. The ordinary return for the period up to dissolution is filed as usual. The company then files a liquidation income (청산소득, cheongsan sodeuk) return under Article 79 of the Corporate Tax Act, within three months of the date on which the residual assets are determined. Liquidation income is broadly the value of the residual assets less paid-in capital and retained earnings already taxed; for a company that simply returns its cash, there is often little or none.

Clearance. Before distributing, obtain a tax payment certificate (납세증명서, napse jeungmyeongseo) confirming that national and local taxes are paid. The bank remitting funds abroad will ask for it.

What the foreign shareholder receives

The final distribution is first a return of capital and then, to the extent it exceeds the capital paid in, a deemed dividend (의제배당, uije baedang) under the Corporate Tax Act. For a foreign shareholder, the deemed dividend bears Korean withholding at 22%, reduced by the applicable tax treaty — 5% to 15% for most investor countries — if the limited tax rate application (제한세율 적용신청서, jehan seyul jeogyong sincheongseo) and a residence certificate are filed before payment under Article 98-6. Our guide to dividend withholding covers the procedure.

The return of capital is not taxed in Korea. In the shareholder’s home country, both the capital return and any loss on the investment follow home rules — a loss on liquidating a subsidiary may be deductible, so keep the evidence.

Foreign investment, bank and visas

A company registered as a foreign investment has its foreign investment registration cancelled when it is liquidated, under the Foreign Investment Promotion Act. The remittance of the final distribution abroad goes through the company’s foreign exchange bank, which will want the liquidation documents, the tax payment certificate and evidence of withholding. Article 3 of the Act guarantees the remittance of liquidation proceeds for registered foreign investments.

A founder on a D-8 visa (기업투자 비자, gieop tuja bija) holds it because of the company. When the company is dissolved, the basis for the visa ends; the founder should change status or leave within the period immigration allows. Plan the timing with the liquidation, not after it. A clean closure also matters for the future: immigration and banks look at the history of Korean companies a foreigner has run.

Branches and liaison offices

A branch of a foreign company does not liquidate as a Korean company does, because it is not one. The foreign company resolves to close the branch, the closure is registered with the court, the branch files its closure report and final VAT and corporate tax returns, settles its employees and Korean debts, reports the closure to its foreign exchange bank and remits the remaining funds to head office. Korean creditors can still pursue the foreign company itself. See branch or subsidiary.

A liaison office closes more simply: a closure report to the designated foreign exchange bank, closure of its unique number with the tax office, final payroll and severance, deregistration from social insurance, and remittance of any remaining funds. See liaison offices.

What happens if you just walk away

A company that is abandoned does not close. Its VAT and corporate tax returns go unfiled and penalties accrue under the Framework Act on National Taxes. Director terms expire and the representative director faces registry fines under Article 635 of the Commercial Act. Unpaid company taxes can be collected from a controlling shareholder (과점주주, gwajeom juju) — one who, with related parties, holds more than half the shares — under the secondary tax liability rule in Article 39 of the Framework Act on National Taxes, if the company’s assets do not cover them.

Eventually the court treats the company as dormant. Under Article 520-2 of the Commercial Act, a stock company that has registered nothing for five years is notified and, if it does not respond, deemed dissolved; three years later it is deemed fully liquidated. But deemed dissolution is not a clean liquidation: debts and tax liabilities are not settled by it, and the company’s history remains. Our guide to annual compliance sets out what an inactive company must still do while it exists.

Timeline and cost

A typical solvent liquidation of a small foreign-owned Jusik Hoesa.

Costs are mainly professional fees — legal, accounting and registry work — plus registration fees, newspaper notices and translation of the foreign shareholder’s documents. For a small company with no disputes, closing costs are of the same order as setting up; a company with staff, stock, receivables or tax issues costs more. Our fixed quote follows a short review of the company’s position.

Choosing the liquidator

The liquidator runs the company from dissolution to completion, signs the registry filings, deals with creditors and the tax office, and is personally liable for breaches of duty — distributing before debts are paid, for instance — under the Commercial Act’s provisions on liquidators. For a foreign-owned company the choice is usually between the existing representative director, if he or she will remain reachable in Korea for the next months, and a Korean professional — an accountant, lawyer or corporate service provider — appointed for the purpose.

A founder who is leaving Korea should not appoint himself and then depart: registry filings, bank visits and tax office queries need someone on the ground. Appointing a professional liquidator costs more but removes the risk of the process stalling halfway, which is the worst outcome of all: a company that is dissolved but never completed, with its bank account frozen and its tax affairs open.

Employees in a closure

Closing the business is generally a valid reason to end employment, but the procedural rules still apply. Under Article 26 of the Labour Standards Act, the employer gives at least 30 days’ notice or pays 30 days’ wages in lieu, and under Article 27 gives the notice in writing with the reason and date. The redundancy procedure for business reasons in Article 24 is designed for continuing businesses that cut staff; a genuine, complete closure is treated differently, but a ‘closure’ that is followed by the same business continuing elsewhere invites unfair-dismissal claims.

All final payments — wages, unused annual leave, severance (퇴직금, toejikgeum) and any bonuses due — must be paid within 14 days of departure under Article 36, unless the employee agrees to an extension. Employees who are owed wages can claim through the labour office, and representatives of an employer who fails to pay face criminal liability. Settle employees before anything else.

Money you may be owed

Liquidation is not only about paying debts. A closing company often has assets it has forgotten:

• The lease deposit (보증금), often several months’ rent, returned by the landlord on handing back the premises — after deductions for restoring them to their original condition.
• VAT refunds where input tax on final costs exceeds output tax.
• Corporate tax refunds from interim prepayments or withholding on interest.
• Social insurance overpayments recalculated on final wages.
• Customer receivables and supplier credit notes.
• Equipment, stock and vehicles, better sold before closure than counted as deemed supplies for VAT.

Keep the company’s bank account open until the last of these has arrived and the final taxes have been paid; the account is closed as one of the last steps before completion is registered.

A worked example

A Dutch company formed a Seoul Jusik Hoesa three years ago to sell its software to Korean customers. Sales did not justify the cost, and the group decides to serve Korea from Amsterdam. In month one, the Korean company gives its two employees written notice, pays their final wages, leave and severance, assigns its customer contracts to the Dutch parent with the customers’ consent, ends the office lease and recovers the deposit. In month two the Dutch parent, as sole shareholder, passes the dissolution resolution through a power of attorney; a Korean professional is appointed liquidator and the dissolution is registered. Creditor notices are published twice and known suppliers notified. The closure report and final VAT return are filed. In month four, with the claim period over and the last supplier paid, the liquidator files the liquidation income return, obtains a tax payment certificate, and distributes the remaining KRW 60 million — KRW 50 million of capital returned free of Korean tax and KRW 10 million treated as a deemed dividend, withheld at the treaty rate with the Dutch residence certificate on file. In month five the shareholders approve the final accounts, completion is registered, the FDI registration is cancelled and the bank account closed.

Mistakes we see

1. Walking away and letting penalties and fines accumulate.
2. Distributing cash before the creditor period ends, making the liquidator personally liable.
3. Forgetting severance or unused leave for employees.
4. Keeping stock on hand at closure and paying VAT on it as a deemed supply.
5. No treaty forms for the final distribution, so 22% is withheld on the deemed dividend.
6. A D-8 founder who has not planned his or her own status.
7. Closing the bank account first, leaving nowhere to receive refunds or pay final taxes.

Korean 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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