>> Liaison Office

Scope of permissible activities

A liaison office may be used only for non-income-producing liaison activities conducted exclusively for the entity of which is a part. A liaison office can thus act on behalf of its parent company as an agent; it can enter into purchase agreement as long as the agreement does not result in its earning income. A foreign company that purchases goods in Korea may establish a liaison office. If a liaison office renders any service to another entity, it could lose its liaison status and would be required to register as a branch.

Registration Requirement

A liaison office of a foreign corporation is required to be registered with the following two Korean authorities :

  The Bank of Korea ("BOK", central bank in Korea)
  The Korean Tax office

As an option, the liaison office may be registered with the commercial Registry Office of the District Civil Court as a legal entity in Korea. If a liaison office is not registered with the court,all registration (i.e.,automobile,golf club / health club membership,etc.) and contracts(i.e., office lease contract,etc.) would need to be made in the name of representative ,not the company. However, if a liaison office is registered with the Korean court, all registrations and contracts may be executed in the name of the liaison office and thus is not affected by changes of representative in Korea.

Tax Liability of a Liaison Office

Since a liaison office, by definition, acts only for its home office and does not generate income in Korea, it is not subject to corporate income tax and need not file corporate income tax return in Korea. However, it is subject to withhold payroll income tax as an employer with respect to employees who are paid by the liaison office.

A liaison office does not have an obligation to report and collect Value Added Tax (VAT), although it has an obligation to cooperate with the relevant tax authorities. But a liaison office has to pay VAT to Korean supplier (Input VAT), when it purchases goods or services in Korea. A liaison office cannot claim to refund input VAT, thus rather being absorbed as additional costs or expenses.

The liaison office should submit an application to the tax office for a nontaxable business tax code number.

Funding for Operation

Since a liaison office, by definition, has no income derived from Korean source, it must be funded by its head office through remittance of operating fund. The repatriation of operating fund back to the home office is generally allowed unless and until the office cease its activities and liquidate all of its assets in Korea.