One of the first issues a foreign parent company typically reviews when establishing a subsidiary in Korea is whether Korean law imposes a statutory minimum capital requirement.

In principle, the minimum capital requirement that once existed under the Korean Commercial Act has been abolished. Accordingly, a stock company may be incorporated in Korea with a relatively small amount of paid-in capital.

However, when determining the capital of a Korean subsidiary funded by a foreign parent company, the analysis should not stop with the Commercial Act.

If the Korean subsidiary is intended to qualify as a formal foreign-invested company under the Foreign Investment Promotion Act, additional statutory requirements must be satisfied.

If the investment amount is less than KRW 100 million, incorporation of the Korean company may still be possible under the Commercial Act, but registration as a foreign-invested company may not be available. This can create practical limitations for the company’s operations.

In addition, regulated industries such as construction, travel services, worker dispatch, and financial investment businesses may be subject to separate statutory capital requirements under industry-specific laws, some of which may exceed KRW 100 million.

Accordingly, the appropriate capital amount for a Korean subsidiary should be determined not merely by reference to the minimum amount required for corporate registration, but by considering foreign-invested company status, visa requirements, industry-specific licensing requirements, and the subsidiary’s initial operating capital needs.

As a practical matter, setting the initial investment at KRW 100 million or more is often considered where the company intends to qualify as a foreign-invested company.

This article explains the principal capital requirements and practical considerations involved in establishing a Korean subsidiary.

📌 목차 (Table of Contents)

1. Requirements and Benefits of Foreign-Invested Company Status

Although a Korean corporation may technically be incorporated with only a nominal amount of capital under the Commercial Act, a foreign investor must satisfy certain requirements in order for the Korean company to qualify as a foreign-invested company.

Qualification Requirements

Minimum investment amount:
At least KRW 100 million invested by each qualifying foreign investor.

Ownership requirement:
The foreign investor must generally acquire at least 10% of the voting shares of the Korean company or the equivalent ownership interest.

Potential Benefits of Foreign-Invested Company Registration

D-8 Corporate Investment Visa:
Foreign-invested company status may support applications for D-8 visas for qualifying foreign executives, employees, and essential personnel dispatched to Korea.

Facilitated Repatriation of Investment Returns:
Registration may facilitate documentary and foreign exchange procedures relating to dividends, investment proceeds, and liquidation distributions remitted to the foreign investor.

Tax and Location-Based Incentives:
Qualifying foreign investments in certain industries, technologies, or designated areas may be eligible for tax, location, leasing, or other government support under applicable laws.

Financial and Commercial Credibility:
Foreign-invested company status may also be relevant in practical dealings with Korean financial institutions, counterparties, and government agencies.

If the foreign investment is below KRW 100 million, the Korean company itself may still be validly incorporated, but it may not qualify for foreign-invested company registration under the relevant regime.

Accordingly, where the company plans to maintain substantive Korean operations and closely coordinate with its overseas parent, an initial investment of at least KRW 100 million should generally be considered.

2. Key Considerations When Determining Capital

Setting the capital at exactly the minimum amount required for foreign-invested company status may not always be the most appropriate approach.

The following factors should also be reviewed.

① Industry-Specific Minimum Capital Requirements

Separate from the foreign investment threshold, the company should determine whether its intended business requires a particular license, registration, or permit under Korean law.

Certain regulated businesses—including some categories of construction, travel services, worker dispatch, financial investment, and other licensed businesses—may be subject to their own statutory capital or net asset requirements.

Where an industry-specific requirement exceeds the general foreign investment threshold, the higher requirement should generally be reflected in the company’s capitalization structure.

② Initial Operating Capital

A newly established Korean subsidiary often incurs substantial expenses immediately after incorporation, including:

  • office deposits and rent;
  • interior construction;
  • IT infrastructure;
  • employee salaries;
  • professional fees; and
  • initial marketing and business development expenses.

If the initial capital is set too low, the subsidiary may quickly become undercapitalized and require repeated funding from the foreign parent.

Accordingly, the company should consider not only legal minimums but also an appropriate level of working capital, often based on expected operating expenses for the first six to twelve months.

③ Thin Capitalization and Tax Risk

A foreign parent company may choose to minimize equity investment and provide the remaining funding to the Korean subsidiary through intercompany loans.

However, excessive reliance on related-party debt may create Korean tax issues.

Under Korea’s thin capitalization and related international tax rules, where debt owed to a foreign controlling shareholder exceeds applicable statutory limits, interest attributable to the excess debt may be restricted or denied for Korean tax purposes and may receive different tax treatment.

The appropriate balance between equity and debt should therefore be considered from both a financing and tax perspective.

3. Frequently Asked Questions

Q1. If the minimum capital requirement under the Commercial Act has been abolished, why is KRW 100 million commonly recommended?

A. A Korean company may generally be incorporated under the Commercial Act without a meaningful statutory minimum capital requirement.

However, where the foreign parent wishes the Korean company to qualify as a foreign-invested company under the Foreign Investment Promotion Act, the foreign investor generally needs to satisfy the applicable investment amount and ownership requirements, including an investment of at least KRW 100 million.

Accordingly, the KRW 100 million threshold is not fundamentally a minimum capital requirement for corporate incorporation itself. Rather, it is relevant to qualification under Korea’s foreign investment regime.

Q2. What happens if exchange-rate fluctuations cause the KRW value of the remitted investment to fall below KRW 100 million?

A. Where the foreign investment must satisfy a KRW-denominated threshold, exchange-rate fluctuations can create practical issues when the investment is remitted in foreign currency.

For this reason, foreign investors commonly remit an amount with an appropriate buffer rather than transferring the exact foreign-currency equivalent of KRW 100 million.

This can reduce the risk that exchange-rate movements or bank conversion calculations result in the recognized investment amount falling below the required threshold.

Q3. Must the investment funds be remitted from the bank account of the foreign parent company identified in the foreign investment filing?

A. As a practical matter, the remitter and source of funds should generally be consistent with the foreign investor identified in the foreign investment documentation.

Where funds are remitted from a personal account of an executive or from an unrelated third party, the designated foreign exchange bank may request additional documentation regarding the source and nature of the funds, which can significantly complicate the investment registration process.

Accordingly, where the foreign parent company is the reported investor, the safest approach is generally to remit the investment directly from an account held in the parent company’s name.

Q4. Can the Korean subsidiary be established even if the foreign parent’s executives do not enter Korea?

A. Yes. Under Korean corporate law, a Korean subsidiary may generally be incorporated with foreign directors or a foreign representative director who resides outside Korea.

However, where the company has only a non-resident foreign representative, the tax office and financial institutions may conduct a more detailed review of the company’s substantive operations.

In particular, opening a corporate bank account may require stronger evidence regarding the Korean office, business activities, management structure, and persons authorized to conduct business locally.

For this reason, depending on the business model, appointing a locally available director, manager, or authorized representative may be helpful from an operational perspective.

Proper Capital Planning Is Essential to Establishing a Successful Korean Subsidiary

Determining the capital of a Korean subsidiary should not be treated as a purely formal incorporation issue.

If the company intends to qualify as a foreign-invested company, obtain investment-related visas, operate in a regulated industry, repatriate investment returns efficiently, and maintain sufficient working capital, the capitalization structure should be designed strategically from the outset.

Foreign investors should review industry-specific capital requirements, exchange-rate exposure, related-party financing and thin capitalization risks, and realistic operating expenses before determining the final investment amount.

The foreign investment filing, remittance of capital, corporate incorporation, foreign-invested company registration, and any subsequent visa procedures should then be managed as part of a coordinated implementation process.

Because foreign exchange, tax, corporate, and immigration rules frequently overlap in foreign investment projects, obtaining legal advice at the planning stage can help reduce administrative delays, financing inefficiencies, and compliance risks.