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Home » Countries » Asia » South Korea

Global expansion is a step to make for any business, regardless of what you wish to achieve. The opportunities that can come with an expansion can be both incredibly exciting as well as intimidating and confusing, especially when you consider all of the registration procedures that needs to be done and documentation required.

Expanding to countries such as South Korea – which is characterized by a highly-skilled and innovative workforce, flexible employment and tax laws, a world-renowned infrastructure network, and leading sectors in agriculture, manufacturing, ICT, energy, pharmaceuticals, and tourism – can bring both excitement to the possibilities, but also significant stress to ensuring the entity with the country’s rigorous legal structures and laws.

Ensuring compliance without the sufficient knowledge of the country’s laws also adds to the stress of getting your new entity off the ground and ready to test new markets. Going at it without the proper support can increase the costs, time and risks involved.

Each new markets bring new challenges, and these can be worked through more efficiently and cost-effectively with the support of an International Professional Employer Organization (PEO) such as Bradford Jacobs, especially through our Employer of Record (EOR) framework. This can be best utilized when businesses are just beginning their expansion process and require more information before committing to incorporating an entity and fully establishing themselves in that market.

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South Korea – The Economy

The economy of South Korea is a highly developed mixed economy. By nominal GDP, it has the 4th largest economy in Asia and the 10th largest in the world.

South Korea is notable for its emergence of economic development from an underdeveloped nation to a developed, high-income country in a few generations. This economic growth has been described as the Miracle on the Han River, which has allowed it to join OECD and the G-20.

South Korea still remains one of the fastest growing developed countries in the world, following the Great Recession. It is included in the group of Next Eleven countries as having the potential to play a dominant role in the global economy by the middle of the 21st century.

South Korea’s education system and the establishment of a motivated and educated populace is largely responsible for spurring the country’s high technology boom and economic development.

South Korea began to adapt an export-oriented economic strategy to fuel its economy. In 2019, South Korea was the eighth largest exporter and eighth largest importer in the world. The Bank of Korea and the Korea Development Institute periodically release major economic indicators and economic trends of the economy of South Korea.

Renowned financial organizations, such as the International Monetary Fund, notes the resilience of the South Korean economy against various economic crises. They cite the country’s economic advantages as reasons for this resilience, including low state debt, and high fiscal reserves that can quickly be mobilized to address any expected financial emergencies.

Other financial organizations, like the World Bank, describe Korea as one of the fastest-growing major economies of the next generation, along with BRIC and Indonesia. South Korea was one of the few developed countries that was able to avoid a recession during the Great Recession. Its economic growth rate reached 6.2% in 2010, a recovery from economic growth rates of 2.3% in 2008 and 0.2% in 2009, during the Great Recession. The South Korean economy again recovered with the record-surplus of US$70.7 billion mark of the current account in the end of 2013, up 47 percent growth from 2012.

Small and Medium-Sized Companies

In Korea, there are about 3.5 million small and medium-sized enterprises, which make up about 99.9 percent of the total number of Korean firms. As for the number of employees, Korean SMEs employ approximately 14 million, constituting nearly 88% of the workforce.

As for the contribution to the Korean economy, Korean SMEs account for less than 50% while Korea’s large companies make up more than 50% in terms of both production and added value.

Wholesalers and retailers stand at around 1.66 million, the largest among all industries, followed by SMEs in the property business with 1.17 million and those in the hospitality sector with 815,000.

Manufacturing SMEs hire the largest number of workers with 3.39 million, trailed by wholesalers and retailers with 3.29 million, and those in the hospitality industry with 1.83 million. Slightly over 51 percent of all SMEs, or 3.53 million, are located in the capital area, which includes Gyeonggi Province and the western port of Incheon.

CountrySouth Korea (the Republic of Korea (ROK))
No. of States/Provinces8 provinces
Principal CitiesSeoul, Busan, Incheon, Daegu, Daejeon, Gwangju, Suwon, Goyang-si, Seongnam-si, & Ulsan
Local CurrencySouth Korean won (KRW)
Major ReligionChristianity, Buddhism
Date FormatYYYY-MM-DD
Time ZoneKorean Standard Time (GMT+9)
Country Dial Code+82
Population51.3 million
Border CountriesA land border with North Korea in north, and maritime borders with China and Japan
Tax Year1 January – 31 December
VAT %10%
Minimum Wage9,160 won (US$7.7) per hour
Taxpayer Identification NumbersResident Registration Number
Business Registration Number
VAT Number
Leading Sectorselectronics, telecommunications, automobile production, chemicals, shipbuilding, steel
Main importscrude petroleum, integrated circuits, petroleum gas, refined petroleum, and cars
Main exportsintegrated circuits, cars, refined petroleum, passenger and cargo ships, and vehicle parts
Main trading partnersChina, United States, Vietnam, Hong Kong, Japan, and Germany
Government TypeUnitary presidential republic
Current Prime MinisterYoon Suk-yeol (President), Han Duck-soo (Prime Minister)

The Main Sectors of the South Korean Economy

South Korea focuses on the following key sectors, which all have a significant impact on the country’s economy:

  1. Tourism – Korea is a place where people from all over the world gather. According to the Union of International Associations (UIA), Korea hosted 1,113 international conferences in 2019, making it the world’s second most prolific host of international conferences.

    In the Travel and Tourism Competitiveness Report of the World Economic Forum (WEF), Korea ranked 16th out of 140 countries. Shopping experiences in Korea have attracted more foreign tourists, resulting in tourism revenue reaching USD 21.6 billion in 2019, up 16.5% YoY.

  2. Machinery – The machinery industry refers to five major industries, which according to the Korean Standard of Industry Classification (KSIC), are general machinery, electrical machinery, precision machinery, transport machinery, and metal products (assembly metal).

    As of 2020, Korea was the world’s third largest semiconductor equipment market, with a market size of USD 16.08 billion. The production of precision processing equipment reached USD 4 billion (no. 6 in the world) with exports of USD 1.8 billion (no. 7 in the world). The manufacturing system supply capacity is expected to be further strengthened following the expansion of smart factories in Korea’s key industries.

    Korea’s robot density index (the number of robots used per 10,000 workers) was the highest in the world in 2020. Korea has the fourth largest number of industrial robots in the world.

  3. Information & Communication Technology (ICT) – Korea is a global leader in the ICT industry. Korea was the first country in the world to commercialize CDMA in 1996, LTE-A in 2013, and 5G in 2019. Korea is evaluated as a global ICT leader based on its high level of ICT related technologies and penetration rate.

    As of 2020, the ICT industry accounted for 11.4% (USD 177.5 billion) of the total GDP, driving the growth of the Korean economy. Mobile phones, in particular, are one of Korea’s top 15 export items, accounting for 2.2% of total exports in 2020. The commercialization of 5G service is continuously boosting the sales of the telecommunication service industry.

    Korea ranks 1st in ICT Penetration, according to the ICT Adaptation Index (2020), and 8th in in the Digital Competitiveness Index, part of The Global Competitiveness Report (2020).

  4. Renewable Energy – As of 2020, the total sales of the new and renewable energy industry was approximately KRW 25.5 trillion. The number of employees stood at 119,000, and investment grew to KRW 7.7 trillion.

    Korea‘s level of technology in the field of new and renewable energy stands at 86% (with the highest level being 100%), according to the Korea Institute of Science and Technology Planning and Evaluation (KISTEP, 2018). There is a technological gap of around 10% compared to other developed countries, such as the US, Japan, and European nations.

    The growth of the photovoltaic industry is led by cell and module manufacturers (Hanwha Solution, Shinsung ENG, Hyundai Energy Solution, and OCI). Those companies are expanding the domestic market and at the same time, increasing exports and the number of overseas plants.

    The wind power industry has infrastructure for producing major parts with high growth potential (blades, power converters). The industry intends to expand the domestic market and investment and secure global competitiveness by creating large-scale wind farms.

    As the government’s renewable energy transition policy has expanded to focus on new and renewable energy, the 2020 Industry Statistics surveyed the status of the overall industry including the enactment of New and Renewable Energy Industry Special Enactment in 2020 as well as the manufacturing, construction, supply, and service industries.

  5. Pharmaceuticals – The Ministry of Food and Drug Safety analyzed the data on the clinical trials registration system of the US National Institutes of Health ( According to the analysis, Korea’s industry-led clinical trials ranked no. 6 in 2020, compared to no. 8 in 2019. Its multinational clinical trial ranking also rose from no. 12 in 2019 to no. 10 in 2020. Seoul, in particular, has continued to rank first in global clinical trial city rankings since 2017.

    The number of clinical trials on pharmaceuticals in Korea rose by 12% year-on-year in 2020, showing a steady increase, thanks to excellent infrastructure in Korea. Korea offers a prompt application and approval period (30 days), efficient IRB composition, and over 30 proven clinical trial hospitals and 170 clinical trial centers (CTCs) that have large and diverse patient pools.

    Domestic pharmaceutical production in 2020 was KRW 24.5 trillion, up 10.1% compared to the previous year, according to the Ministry of Food and Drug Safety. The industry has shown an average annual growth rate of 6.9% over the past five years. Finished pharmaceuticals accounted for 85.6% and raw materials accounted for 14.4% of total pharmaceutical production.

  6. Financial Services – Venture capital creation and investment have been breaking records for several years in a row, and venture investment has been continually active even amid the COVID-19 crisis.

    In 2021, Korea ranked first in the Bloomberg Innovation Index and fifth (no. 1 in Asia) in the Global Innovation Index of the WIPO. Korea has taken the top spot for several years in various innovation related evaluations. Korea is an incredibly attractive place for investment with its well-established innovation ecosystem.

    The formation of venture funds in 2020 reached KRW 6.56 trillion, an increase of 54.8% compared to 2019, and an all-time high of 206 newly formed associations were recorded.

    The formation of venture funds in 2020 broke the previous record of KRW 4.84 trillion in 2018 and exceeded KRW 6 trillion for the first time.

  7. Food – The Korean food market was worth USD 128.7 billion as of 2019, which was 1.9% of the global food market. In response to the recent growth of emerging markets, such as China and ASEAN countries, and the growing global demand for Korean processed foods, exports have been rapidly and continuously growing.

    As of 2019, the production scale of the Korean food industry was KRW 96.5 trillion. The industry has grown at an average annual rate of 5.9% since 2007, which is higher compared to the manufacturing industry (4.2%). The share of the food industry in the manufacturing industry has been steadily increasing. The number of businesses, production amount, and added value all increased compared to 2007.As of 2020, exports of Korean processed food amounted to USD 6.14 billion, accounting for 62.2% of the total agricultural and fishery food exports.

Compliance Highlights

  • The National Tax Service – one of the tax organizations in South Korea and is run under the Ministry of Economy and Finance. The headquarters are in Sejong City.
  • The Fair Work Ombudsman – South Korea’s Ministry of Employment and Labor (MOEL) is a cabinet-level ministry overseeing labor affairs. Its predecessor agency, the Division of Labor, was established under the direction of the Minister of Social Affairs on 11 November 1948. It was upgraded to a cabinet ministry on 8 April 1981.

    Major tasks include the establishment of policies related to employment, establishment and management of policies related to industrial insurance, the establishment and management of policies related to industrial insurance, the establishment of policies related to occupational capacity development, employment equality with work and family compatibility, and the establishment of policies related to labor conditions.

Labor Contracts Law

Internationally minded companies hiring employees in South Korea must operate within a strict framework of legislation.

Most aspects of employment law are covered by the South Korea Constitution and the Labor Standards Act (LSA), supplemented by Collective Bargaining Agreements (CBAs) and Rules of Employment (ROEs).

General requirements applying to all contracts include:

  • The LSA stipulates employers should have a written agreement with employees detailing such as working conditions and hours, wages and payment schedule, paid days off and paid vacations, benefits including sick leave entitlement, location of job and working conditions.
  • Any agreements that do not comply with LSA minimums are invalid
  • The usual contract is indefinite or open-ended, known as ‘regular’ contracts
  • Fixed-term contracts cannot exceed two years, or they become indefinite
  • Part-time and fixed-term employees are entitled to the same rights as full-time employees
  • The contract does not have to be in Korean, although this is recommended for local employees
  • There are no statutory requirements regarding probation periods, which generally are for three to six months

The main contract types/agreements that affect employment in South Korea include:

  1. Open-ended, Indefinite, ‘Regular’ Employment Contracts:  The most common type of contract or agreement, which generally end by termination according to employment law or by retirement.
  2. Fixed-term Employment Contracts: Allowed for a maximum of two years, including renewals. If employment continues after this, they become open-ended. Exceptions include where a specific task is the reason for the fixed-term contract, or where a full-time member of staff is substituted for a specific time by the fixed-term employee. Employers cannot discriminate against fixed-term employees in terms of pay or working conditions in comparison with those on regular, open-ended contracts.
  3. Part-time and Temporary Employment Contracts: Under the Labor Standards Act, employers cannot discriminate against part-time employees in terms of pay or working conditions in comparison with those on regular, open-ended contracts.
  4. Collective Bargaining Agreements (CBAs): These generally cover only union members in a company, which means employment conditions can vary between union and non-union members. However, under the Trade Union and Labor Relations Adjustment Act, all workers in a given company come under the CBA if the majority of workers are union members. All workers will also be covered by the CBA if general working conditions are worse than those covered by the CBA.

Companies with 10 or more employees must display Rules of Employment (ROEs), detailing such as scales of pay and payment schedule, health and safety and measures against harassment and discrimination in the workplace. ROEs must be filed with the Ministry of Employment and Labor.

Payroll – Tax Contributions and Benefits

Income Tax:

Local Income Tax: Residents must also contribute a local income tax. The same tax bands apply as for PIT, but the tax bands are 10% of the above, from 0.6% to 4.5%. Tax is paid to the province or city where the taxpayer resides.

Tax residents are liable for their worldwide income, as are foreign residents who have lived in the country for five years in the most recent 10-year period. Non-residents are taxed on South Korea-sourced income.

Tax residents are those residing in South Korea for more than 183 days in a tax year or spending 183 days or more in-country due to their occupation. Individuals residing with families or having assets in South Korea for more than 183 days or those whose family are in the country for more than 183 days a year even if their job is overseas, are also tax residents.

The tax year is the calendar year. Returns must be filed between May 1 and May 31 of the following year along with taxes due.

Health and Social Insurance: The health and welfare system in South Korea has three pillars:

  1. Social Insurance Funds: Health insurance; national pension; unemployment insurance; industrial accident compensation; long-term care
  2. Public Assistance: Basic livelihood protection; medical aid
  3. Social Services: Providing welfare support for the aged, disabled, children and women; providing medical and psycho-social services

Employees are registered with the National Health Insurance Service (NHIS) for contributions to National Pension (NP), National Health Insurance (NHI), Employment Insurance (EI) and Workers’ Compensation Insurance (WCI). Employers and employees contribute to the system, as follows:

  • National Pension – employers contribute equivalent of 4.5% of salaries and employees contribute 4.5% of their salaries
  • National Health Insurance – employers and employees each contribute approximately 3.9% of salaries
  • Employment Insurance – from July 2022 employers contribute between 1.15%-1.75% of salaries and employees 0.80%. Additionally, employers contribute between 0.25%-0.85% to employment stabilization insurance and occupational development insurance
  • Workers’ Compensation Insurance – employers contribute between 0.7% and 18.6% of total payroll, decided by the social security authority and depending on the type of industry

Sick Leave and Benefit: Employment law does not require sick leave or paid sick leave in Korea, where a tendency to work though illness is considered to indicate a strong work ethic, unless illness or injury is directly work-related. Where allowed in CBAs, ROEs or the employment contract, employees may use paid vacation as sick leave.

Paid Vacations: A full year’s employment entitles workers to 15 days’ paid vacation. If an employee has not completed a full year or has less than 80% attendance, they receive one day’s paid leave for each month of completed employment with perfect attendance. Employees who have worked continuously for three years receive an extra day of paid leave for each further two years up to a maximum of 25 days. As of January 2022, employers with more than 30 employees must give paid time off for public holidays.

Public Holidays: As of June 2021, the Transfer Holiday Expansion Law ruled that where public holidays fall on a weekend, employees can take the Monday following that weekend as paid vacation. Since January 2022, employers with more than 30 employees must give paid time off for public holidays.

However, an employee who works on a holiday is entitled to 150% of ordinary wages. An employer may grant time off in lieu of working on a rest day instead of payment of wages, in case of a written agreement between the employer and labor representatives.

  • January 1 – New Year’s Day
  • January – February – Korean New Year (three days, from 1st day of 1st lunar month)
  • March 1 – Independence Movement Day
  • May 1 – Labor Day (not Public Holiday but widely observed)
  • May 5 – Children’s Day
  • May – Buddha’s Birthday (8th day of 4th lunar month)
  • June 6 – Memorial Day
  • July 17 – Constitution Day
  • August 15 – Liberation Day
  • September – Harvest Festival (three days, 15th day of 8th lunar month)
  • October 3 – National Foundation Day
  • October 9 – Hangeul Day
  • December 25 – Christmas Day

Maternity, Paternity, Parental Leave and Benefits: The Ministry of Employment and Labor stipulates 90 calendar days, with a minimum of 45 taken after the birth, which can be extended in case of delayed birth. In which case, only 90 days are paid.

The mother receives 100% of earnings (excluding bonuses and overtime) from her employer for the first 60 days, then 100% for the remainder paid by the Employment Insurance Fund (EIF), capped at KRW 2,000,000 (€1,495, US$1,655).


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