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Subject Now That You¡¯ve Set Up an Entity in Korea: How to Open a Bank Account and Stay Compliant

Now That You've Set Up an Entity in Korea: How to Open a Bank Account and Stay Compliant

🌏 Starting Our New Series on Compliance in Korea
This newsletter marks the beginning of a new series focused on compliance obligations after establishing an entity in Korea. Building on our previous five-part series that explored different entity types and establishment processes in Korea, we now shift focus to the essential compliance steps that foreign-invested companies need to follow after their entity is set up.
For those who missed our five-part series, please click on the below titles (links) to the Newsletters.
Now, let's dive into one of the first steps after establishing your business in Korea: opening a local bank account. While some foreign investors may wish to control finances directly from abroad, managing local payments and tax obligations can become complex without a Korean bank account. Here's why it's essential:

The Necessity of a Local Bank Account 🚨

  1. Tax and Social Security Payments: Korean law requires that businesses make local payments for corporate income tax, VAT, and social security contributions. These payments must typically be made through a Korean bank account in Korean Won (no foreign currency accepted).
  2. Refunds of Taxes and Social Security Payments: If your business qualifies for any tax or social security refunds, the Korean government will deposit these refunds into your registered local bank account.
  3. Facilitating Local Transactions: Having a local bank account makes day-to-day transactions, such as paying local vendors or employees, much smoother. Without it, your company may face delays or higher costs related to cross-border transactions.

Choosing the Right Bank for Your Korean Entity 🏦

When deciding where to open your corporate bank account, the options fall into three main categories: local banks, global banks with limited local functions, and global banks with local capabilities. Let¡¯s break down each option:

1. Local Banks: A Practical Choice for Korean Operations

Major Korean banks such as Hana Bank, Woori Bank, KB Bank, and Shinhan Bank offer the most practical and efficient options for companies looking to operate smoothly in Korea¡¯s financial environment.
Benefits of Local Banks:
  • Fast Account Opening: Although documentation such as KYC (Know Your Customer) and UBO (Ultimate Beneficiary Owner) requirements still apply, the account opening process tends to be shorter compared to global banks.
  • Compatibility with Local Payments: These banks are fully integrated with Korea's tax and social security systems, allowing seamless payments and refunds.

2. Global Banks: Oversight and Control, but Limited Functionality

If your company prefers direct oversight from headquarters, global banks such as JP Morgan and Bank of America can be appealing. However, they come with certain limitations:
Benefits of Global Banks:
  • Global Oversight: Enhanced coordination between your local entity and overseas headquarters.
  • International Financial Tools: Some global banks offer sophisticated financial tools and services suited for multinational companies.
Limitations:
  • Limited Local Functionality: Most global banks are not equipped to handle local tax payments or receive tax refunds, which means you will likely need to open a local bank account as well for these purposes.
  • Longer Opening Process: Global banks tend to have more stringent rules and administrative processing times, leading to longer timelines for account setup.

3. Hybrid Banks: Global Banks with Local Capabilities

A few global banks, Citi Bank and Standard Chartered, operate in Korea with the ability to provide local banking functions, thanks to their acquisition of local banks.
Benefits of Hybrid Banks:
  • Global Oversight with Local Functionality: These banks offer the best of both worlds, with the capacity for local tax payments and seamless integration into global financial systems.
  • Long Account Opening Process: While they offer the convenience of local payments, the account opening process may still be similar to other global banks, and their IT systems are sometimes not tailored to local needs.

Summary: The Right Bank for Your Business 🧭

For most foreign-invested companies, opening a local bank account is a non-negotiable part of staying compliant with Korean tax laws and ensuring smooth operations. While global banks may offer enhanced oversight from abroad, their limited functionality in local tax systems means they are often not sufficient on their own.
Local banks such as Hana Bank, with expertise in foreign exchange, provide the quickest, most practical solutions for companies looking to manage tax payments, payroll, and other local transactions. However, global banks with local functions (Citi and Standard Chartered) offer a middle ground if your company needs both international oversight and local payment abilities but may not be as efficient for local purposes compared to local banks.
At KEA, we provide comprehensive guidance on bank account opening, starting from the establishment of your entity. We synchronize the entity establishment and the bank account opening process to ensure that both can be achieved efficiently and smoothly in Korea.
Important Note: In Korea, when establishing an entity, the foreign direct investment (FDI) is reported to a designated foreign exchange (FX) bank (i.e., commercial bank). Synchronizing the entity establishment and bank account setup from the start makes the entire process more efficient. At KEA, we provide one-stop services to streamline these critical steps.


#BankingInKorea #CorporateCompliance #TaxPayments #ForeignInvestment #BusinessInKorea #LocalBanking #KoreanEntities #KoreanBusinessSetup
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