Using a Korean company as a trading link: distributor, sourcing hub, intermediary

Korea is a natural place to put a trading company. Busan is one of the world’s largest container ports and among the busiest for transhipment; Incheon is one of the largest air cargo airports. Korea has free trade agreements covering more than fifty countries, including the United States, the European Union, China, the United Kingdom and ASEAN; its banks finance trade in dollars, euros and yuan; and Korean manufacturers in cosmetics, food, electronics components, auto parts and machinery sell to buyers worldwide. A foreign group or entrepreneur with a Korean company can sit in the middle of those flows.

The legal framework is the Foreign Trade Act and its regulations for trade itself, the Customs Act for goods crossing the border, the Value-Added Tax Act for the zero rate, the Corporate Tax Act and the Adjustment of International Taxes Act for profit, and the Foreign Exchange Transactions Act for the money. Which of them bites, and how, depends on the role the Korean company plays. For setting up the company itself, see trading companies in Korea.

Six roles a Korean company can play

Simplified. The contract, the conduct and the payments must all point to the same role.

1. Buy-sell distributor

The simplest and most robust model: the Korean company buys from the group or a third party, imports as importer of record, owns the stock, sells to Korean customers in its own name, takes the credit risk and keeps the profit. It pays 10% import VAT and recovers it, charges 10% VAT on sales and pays corporate tax on the margin. Customs examines the import price for related-party influence under Article 30 of the Customs Act; the tax office examines the same price for arm’s length. For the import side in detail see importing into Korea.

2. Limited-risk distributor

Many groups want Korea to earn a predictable margin while the parent keeps the upside and the downside. The intercompany agreement shifts market, inventory and credit risk to the parent — through price adjustments, buy-backs of unsold stock, or credit guarantees — and the Korean company earns a benchmarked operating margin, often in the low single digits of sales. It works if the conduct matches: the parent really decides pricing and stock levels and really absorbs losses. A Korean company that hires its own sales force, sets its own prices and bears bad debts is not limited-risk whatever the contract says. Year-end price adjustments also need care, because a reduction in the import price can reopen the customs value.

3. Commission agent — and the permanent establishment problem

In a commission or commissionaire (위탁매매인, witak maemaein) model the Korean company sells in its own name for the parent’s account, never owns the goods and earns a commission. It was popular because it kept the trading profit offshore. Korea closed most of that gap from 2019: under the amended Article 94(3) of the Corporate Tax Act, a person in Korea who habitually concludes contracts for a foreign company — or plays the principal role leading to contracts that the foreign company routinely concludes without material modification — creates a permanent establishment (국내사업장, gungnae saeopjang) of the foreign company, and the contracts covered include sales of the foreign company’s goods. The same amendment narrowed the preparatory-and-auxiliary exemption and added an anti-fragmentation rule for related companies.

The result: a Korean commissionaire selling the parent’s goods to Korean customers will usually make the parent taxable in Korea on the sales profit. Use it only with advice and for genuine agency situations — and prefer a buy-sell or limited-risk model for selling in Korea. A Korean company that only markets, supports customers and passes leads to a parent that negotiates and contracts from abroad is on safer ground.

4. Sourcing exporter or buying agent

The reverse flow: the Korean company buys Korean products — cosmetics, food, components, fashion — and exports them to the parent or to foreign buyers. As an exporter it charges zero-rate VAT (영세율, yeongseyul) on exports under Article 21 of the Value-Added Tax Act, recovers the 10% VAT paid to Korean suppliers, and can claim early refunds (조기환급, jogi hwangeup) monthly or bimonthly instead of waiting for the half-year under Article 59. Duty paid on imported materials used in exported goods can be refunded under the drawback law. Korean suppliers can also sell to an exporter at a zero rate against a local letter of credit or a purchase confirmation. See exporting from Korea and K-beauty export rules.

A buying agent (구매대리인, gumae daeriin) is lighter: it finds suppliers, negotiates, inspects and arranges shipment for the foreign buyer, which buys directly and pays the Korean supplier. The Korean company earns a commission, which can be zero-rated as a service supplied to a non-resident and paid in foreign currency when the conditions of the VAT decree are met. Neither model creates a permanent establishment for the foreign buyer if purchasing is all that happens in Korea — but a buying office that also sells, or that is one part of a wider Korean business of the group, falls under the anti-fragmentation rule.

5. Intermediary trade

Intermediary trade (중계무역, junggye muyeok) is buying goods abroad and selling them abroad. The goods may pass through a Korean bonded area or free trade zone without entering the Korean market, or ship direct from the supplier’s country to the buyer’s. The Korean company takes title and earns a margin; it is a principal, not a broker. Intermediary exports are treated as exports for VAT and zero-rated under Article 31 of the VAT Enforcement Decree, as are sales of goods delivered abroad; the margin is taxed as ordinary corporate income. The bank handling the payments will want the purchase and sale contracts, invoices and transport documents to match.

Three issues need watching. First, payments: a buyer that pays the supplier directly, or netting of amounts with the same party, are special settlement methods under the foreign exchange rules and may need a prior report; see Korea’s foreign exchange rules. Second, origin, below. Third, controls: brokering strategic items (전략물자, jeollyak mulja) between third countries requires a brokering permit (중개허가, junggae heoga) under Article 24-3 of the Foreign Trade Act, even if the goods never touch Korea, and Korean sanctions and export measures on Russia and Belarus apply to Korean companies wherever the goods move. See export controls and sanctions.

6. Bonded warehouse or free trade zone hub

A Korean company can hold stock for customers in Korea and abroad without paying duty or import VAT until goods are released into the Korean market. Goods in a bonded warehouse (보세창고, bose changgo) under Article 183 of the Customs Act stay under customs control, can be stored, repacked, sorted and labelled within limits, and can be re-exported free of Korean duty; storage periods are limited and extendable. Free trade zones (자유무역지역, jayu muyeok jiyeok) under the Act on the Designation and Management of Free Trade Zones — Busan New Port, Incheon Airport, Gwangyang, Pyeongtaek and industrial zones such as Masan — go further: manufacturing, assembly and logistics in a duty-suspended area, with low rents and rent reductions for foreign-invested companies meeting investment thresholds.

A regional hub works for groups that serve Korea, Japan, China and Southeast Asia from one stock point, for e-commerce fulfilment out of Incheon, and for spare-parts logistics. Releasing goods into Korea triggers the normal import declaration, duty and VAT at that moment. Bonded stock must be reconciled with customs records; discrepancies are treated as unlawful removal.

A bonded warehouse lets goods wait. It does not let them change nationality.

Voixa Korea

Origin: what a Korean company cannot do

Goods take the origin of the country where they were wholly obtained or last substantially transformed under the applicable rules. Storage, repacking, relabelling, simple assembly and quality checks in Korea do not make foreign goods Korean. A Korean trader re-exporting foreign goods can obtain a certificate of non-manipulation (비가공증명서, bigagong jeungmyeongseo) from Korean customs so that the buyer’s country can still grant the preference for the true origin; it cannot obtain a Korean certificate of origin.

Korea Customs has made disguised transhipment a priority since high US tariffs on Chinese and other Asian goods created the incentive. From January to August 2025 it found 20 cases worth KRW 356.9 billion — up 1,313% by value on the year before — 98% of them bound for the United States, including gold products from China, Vietnam and Indonesia relabelled as Korean and Vietnamese tarpaulins re-tagged in Korea by a foreign company’s local subsidiary. False origin marking breaches Article 33 of the Foreign Trade Act and FTA origin fraud the FTA Customs Act; the importing country prosecutes too. A legitimate Korean trading link adds value through logistics, finance, quality control and customer service — never through the label.

Transfer pricing by role

Whatever the role, related-party prices must be at arm’s length under Article 7 of the Adjustment of International Taxes Act. The expected return follows the functions and risks: a full-risk distributor earns whatever the market gives, but persistent losses invite questions; a limited-risk distributor earns a benchmarked operating margin; a commission agent or buying agent a commission based on sales or on costs plus a mark-up; an intermediary trader a margin consistent with what it does — taking title, financing, arranging logistics, bearing credit risk. A Korean company with two employees that books a large margin on group goods it never sees will be asked where the people are; one that books almost nothing will be asked why it exists.

Document it: an intercompany agreement per flow, a short functional analysis, a benchmark, and a summary of international transactions filed with the corporate tax return. Larger groups file a master file and local file. On the other side, the parent’s tax authority will check the same prices; see Korean corporate tax and dividend treaties for what happens to the Korean profit next.

Money: currency, banks and trade finance

Trading companies live on their bank. A Korean foreign exchange bank will open foreign-currency accounts, issue and advise letters of credit, discount export bills and handle remittances, but it needs to understand the model: who the suppliers and buyers are, why the goods move as they do, and why the money matches. Payments for goods are current transactions supported by contracts and invoices; capital-type flows — group loans, advances beyond normal trade terms — follow the capital transaction rules. Korean exporters, including foreign-owned ones, can insure buyer credit risk with K-SURE and use KOTRA’s overseas network for buyer checks. Expect the bank to ask more questions about intermediary trade than about imports or exports, because the goods never pass its own customs data; a short memo describing each flow, kept up to date, saves weeks at account opening and at every compliance review. See opening a Korean bank account.

A worked example

A German family company that distributes cosmetics and personal-care products in Europe sets up a Korean jusik hoesa in Seoul with KRW 300 million of capital and four staff. The company plays three roles. As a sourcing exporter it buys K-beauty products from Korean manufacturers, checks them, and sells them to the German parent and two other European distributors at a zero VAT rate, claiming early VAT refunds every two months. As an intermediary trader it buys packaging made in China and sells it to a Vietnamese contract manufacturer, with goods shipped direct from Ningbo to Ho Chi Minh City, zero-rated in Korea and taxed on the margin. As a regional hub it holds finished goods in a bonded warehouse near Busan New Port for buyers in Japan and Southeast Asia, re-exporting with certificates of non-manipulation where the goods are not Korean.

The intercompany agreement makes the Korean company a full-risk buyer and seller for the sourcing flow — it chooses suppliers, owns the stock and bears quality risk — and fixes the price to the parent so that Korea earns a margin in line with comparable Korean export traders. Every product is screened for strategic-item status before export, and nothing foreign is ever labelled as Korean. In year two the company earns KRW 600 million of profit, pays Korean corporate tax and pays a dividend to Germany at the 5% treaty rate.

Mistakes we see

1. No intercompany agreement, or one that describes a different business from the one being run.
2. A commissionaire selling to Korean customers and creating a permanent establishment for the parent.
3. Calling the Korean company limited-risk while it sets prices and bears bad debts.
4. Relabelling foreign goods or obtaining Korean origin documents they do not deserve.
5. Intermediary trade in controlled items without a brokering permit, or with customers linked to sanctioned countries.
6. Payments routed through third parties without the foreign exchange report.
7. Missing zero-rate evidence — export declarations, contracts, bank receipts — and losing VAT refunds.
8. Releasing bonded goods informally and facing an unlawful-removal case.

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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