Importing into Korea through your own Korean company: goods and services

The pattern is familiar. A European manufacturer has sold to Korea through an independent importer for years and wants the margin and the customer relationship. A Japanese or Chinese brand wants a Korean entity to hold product registrations. A US software company finds that Korean enterprises will only sign with a Korean counterparty. A foreign founder sources products at home and wants to sell them in Seoul on a D-8 visa. In each case the Korean company becomes the importer of record (수입화주, suip hwaju) — or, for services, the Korean contracting party — for products that come from abroad, often from its own shareholder.

This guide covers the structures for goods and services, customs value and related-party pricing, duty and FTA origin by partner country, VAT and import VAT, withholding on services and royalties, product liability and approvals, and the risks that make importers lose money. It goes deeper than our general guide to import-export companies, which covers set-up and customs registration.

Four structures for goods

1. Buy-sell distributor

The Korean company buys from the foreign supplier, imports in its own name, pays duty and import VAT, holds stock and sells to Korean customers. It carries the commercial risks — stock, credit, currency — and earns a margin for them. Korean tax authorities expect a distributor to make a stable profit consistent with those functions. This is the default for goods, and the only structure that lets the Korean company hold product approvals, deal with marketplaces and issue Korean tax invoices on its own sales.

2. Limited-risk distributor

A variant in which the foreign parent bears most of the market risk — stock obsolescence, bad debts, currency — and the Korean company earns a lower but guaranteed margin, often adjusted at year-end. It suits groups that want predictable Korean profits. Year-end adjustments, however, interact badly with customs value: an adjustment that raises the import price after clearance can mean additional duty, and one that lowers it is hard to recover. Agree the mechanism with customs in advance where volumes justify it.

3. Commission agent or consignment

The foreign supplier keeps title to the goods — held in a Korean warehouse on consignment (위탁판매, witak panmae) — and the Korean company sells them in the supplier’s name or on its behalf for a commission. The foreign company is then the importer and the seller. This is where the permanent establishment (국내사업장, gungnae saeopjang) risk sits: a Korean company that habitually concludes sales for the foreign supplier can create a Korean taxable presence for it under Article 94 of the Corporate Tax Act, and the supplier must register for VAT to sell from Korean stock. Commissionaire structures are rarely worth the complexity for small businesses.

4. Cross-border with local support

Goods are sold by the foreign company and shipped directly to Korean customers; the Korean company provides marketing, after-sales service or returns handling for a service fee. Customers clear goods as personal or business imports. Useful for testing demand or for low-volume, high-value goods; it limits marketplace access and makes product approvals harder. See e-commerce in Korea.

Customs value and the related-party price

Duty and import VAT are calculated on the customs value (과세가격, gwase gagyeok), normally the transaction value (거래가격, georae gagyeok) — the price actually paid or payable, adjusted — under Article 30 of the Customs Act. Korea uses CIF value: freight and insurance to the Korean port are included. Additions include buying commissions excluded, but selling commissions, containers, assists supplied by the buyer, and royalties and licence fees (권리사용료, gwolli sayongnyo) related to the goods and paid as a condition of their sale.

When buyer and seller are related, Korea Customs accepts the transaction value only if the relationship did not influence the price. The tax office, applying the Adjustment of International Taxes Act, wants the opposite assurance — that the Korean company did not pay too much and shift profit abroad. A price that satisfies one can fail the other. The practical answer is a documented transfer pricing policy that sets the import price to leave the Korean company an arm’s-length margin, presented to customs as evidence that the relationship did not influence the price, and, for larger importers, an advance customs valuation arrangement (과세가격 결정방법 사전심사, gwase gagyeok gyeoljeong bangbeop sajeon simsa) under Article 37.

Customs wants the import price higher. The tax office wants it lower. Your transfer pricing policy has to persuade both.

Voixa Korea

Duty and FTA origin by partner country

Korea has free trade agreements in force with most major economies, and the preferential rate is often zero. The rules of origin and the proof required differ by agreement. The importer claims preference under the FTA Customs Act and must hold the proof — and be ready for origin verification (원산지 검증, wonsanji geomjeung) years later under Article 17.

Main FTA partners for imports into Korea. Agreements are listed with the year they took effect.

Without a valid proof, the importer pays the general rate — often 8% for industrial goods, far higher for many agricultural products. Anti-dumping duties under Article 51 of the Customs Act apply on top to specific products from specific countries — steel, chemicals and some consumer goods — whatever the FTA says; check before quoting prices to Korean customers. Our guides for UK, Chinese, Italian and Spanish businesses cover their agreements in detail.

Import VAT, excise and cash flow

Korea Customs collects 10% import VAT (수입부가가치세, suip bugagachise) on the customs value plus duty under Article 50 of the VAT Act. The Korean company recovers it in its next VAT return, so it is a cost of time, not money: up to four months between clearance and refund. Some products also bear individual consumption tax (개별소비세, gaebyeol sobise) — certain luxury goods, cars, jewellery above set values — and alcohol bears liquor tax and education tax, all collected at import.

Plan working capital for duty and import VAT before the first container. Exporters and some manufacturers can defer import VAT under Article 50-2; pure distributors usually cannot. Korea Customs also offers monthly consolidated payment for importers with security and a compliance record, which smooths the cash flow.

Importing services, software and IP

Services follow different rules because there is no border to cross. Three Korean taxes decide the economics:

• VAT: a foreign supplier without a Korean presence does not charge Korean VAT to a Korean business. If the Korean buyer is fully taxable, nothing further happens. If it makes exempt supplies — banks, insurers, hospitals, schools — it must pay VAT itself under the proxy payment (대리납부, daeri nappu) rule of Article 52 of the VAT Act. Digital services sold to Korean consumers need simplified VAT registration under Article 53-2.
• Withholding: royalties for software licences, patents, trademarks and know-how paid to a foreign company bear Korean withholding at 22% under Article 98 of the Corporate Tax Act, reduced to 5–15% by most treaties if the forms are filed before payment. Fees for services performed entirely abroad are usually business profits and not subject to withholding; services performed in Korea, or know-how transferred under the label of a service, may be.
• Permanent establishment: a foreign company whose staff deliver services in Korea for long periods, or whose Korean affiliate concludes contracts for it, may have a Korean PE and owe corporate tax on attributable profits. Treaties set time thresholds for service PEs that vary by country.

For a foreign software or consulting group, the typical structure is a Korean company that contracts with Korean clients, delivers locally and pays the parent a licence fee or service charge. The Korean company earns a margin for its functions; the parent receives royalties with treaty withholding. The split must be supportable under transfer pricing rules, and the agreements should distinguish clearly between licence fees and services. Our guide to withholding by country lists treaty rates.

Product approvals and liability

The importer of record answers for the product in Korea. Depending on the category, it holds the approvals (인허가, inheoga) itself: imported food business registration and import reports under the Special Act on Imported Food Safety Control; responsible cosmetics seller registration under the Cosmetics Act; KC certification for electrical and children’s products; medical device import licences. Labels must be in Korean, and goods without the required approvals are held at customs under Article 226 of the Customs Act.

Under the Product Liability Act, injured consumers can claim against the manufacturer, and an importer that presents itself as the manufacturer or cannot identify one is treated similarly; suppliers who fail to identify the manufacturer on request are liable too. Korean courts accept presumptions of defect in favour of consumers. Product liability insurance in the Korean company’s name, and a supply agreement in which the foreign manufacturer indemnifies the Korean importer, are standard.

Paying the supplier

Import payments flow through the Korean company’s foreign exchange bank, which asks for invoices or contracts on larger transfers. Ordinary trade settlements — payment in advance, on open account, by letter of credit — need no special reporting. Unusual methods — netting payables to the parent against receivables, paying a third party in another country, settling long after shipment — must be reported under the Foreign Exchange Transactions Act. Groups with cash pooling or regional treasury centres should clear the method with the bank first.

Currency risk sits with whoever invoices in the other’s currency. A Korean distributor buying in euros or dollars and selling in won bears it, which is consistent with a full-risk distributor; a limited-risk distributor should not, and the transfer pricing policy should say who absorbs it.

Corporate tax on the import business

The Korean importer pays corporate tax on its margin at 10% to 25% plus local income tax under Article 55 of the Corporate Tax Act — 11% on the first KRW 200 million. Profits go to the foreign owner as dividends, bearing Korean withholding at 22% or the treaty rate. A distributor whose margin is unusually low year after year — or which makes losses while the parent profits — is a standard transfer pricing audit target. Our guide to corporate tax rates covers the calculation.

Post-clearance audits and AEO

Korea’s self-assessment system means most checks happen after the goods are released. Korea Customs audits importers’ declarations for up to five years under the Customs Act, focusing on related-party valuation, royalties, classification and FTA origin. Underpaid duty and import VAT are collected with additional penalties and interest; deliberate under-valuation is a crime. Importers can correct their own errors through amended declarations or refund claims, and doing so voluntarily reduces penalties.

Regular importers can apply for Authorised Economic Operator (수출입 안전관리 우수업체, suchurip anjeon gwalli usu eopche) status under Article 255-2. AEO companies enjoy fewer inspections, faster clearance and recognition in partner countries’ customs systems, but must maintain internal controls that satisfy Korea Customs. For a new importer, AEO is a goal for year three, not year one; what matters at the start is a clean record.

Where the goods come from matters

Origin, not the supplier’s address, decides the duty. A German parent that ships goods made in its Chinese factory supplies Chinese-origin goods: the EU–Korea FTA does not apply, the Korea–China FTA may, and the Chinese factory’s certificate of origin is the proof. A UK distributor reselling Italian goods to Korea relies on Italian origin, which the UK–Korea agreement does not cover unless the rules on cumulation allow it. Groups with global supply chains should map each product’s origin and the agreement that applies before setting up the Korean flows; the cheapest route is not always through the parent.

Risks importers underestimate

1. Customs and transfer pricing pulling in opposite directions, with year-end adjustments made without considering duty.
2. Royalties added to customs value because licence and supply contracts were drafted separately.
3. FTA preference claimed without valid proof, then reclaimed with penalties after a verification.
4. Anti-dumping duties discovered after prices were agreed with Korean customers.
5. Goods held at customs because food, cosmetics or KC approvals were not in place.
6. Commission structures that create a Korean PE for the foreign supplier.
7. Withholding missed on software licences and technical fees paid abroad.
8. Working capital exhausted by duty and import VAT on the first large shipment.

A worked example

A German maker of kitchen appliances forms a Seoul Jusik Hoesa as a buy-sell distributor. It agrees a transfer pricing policy giving the Korean company an operating margin in line with comparable Korean distributors and shares it with Korea Customs when the first related-party imports are reviewed. Appliances carry KC certification in the Korean company’s name and enter at zero duty under the EU–Korea FTA with the parent’s approved-exporter statements on origin. A brand royalty is folded into the product price rather than charged separately, avoiding a customs addition. Import VAT is recovered quarterly. The Korean company sells to department stores and online marketplaces with electronic tax invoices, pays 11% corporate tax on its first KRW 200 million of profit, and remits a dividend at the 5% Germany–Korea treaty rate plus local income tax.

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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