Doing business in South Korea: overview
by Chi-Hyoung Cho, Chan Sik Ahn and Sang Jun Kim, HMP Law
A Q&A guide to doing business in South Korea.
This Q&A gives an overview of key recent developments affecting doing business in South Korea as well as an introduction to the legal system; foreign investment, including restrictions, currency regulations and incentives; and business vehicles and their relevant restrictions and liabilities. The article also summarises the laws regulating employment relationships, including redundancies and mass layoffs, and provides short overviews on competition law; data protection; and product liability and safety. In addition, there are comprehensive summaries on taxation and tax residency; and intellectual property rights over patents, trade marks, registered and unregistered designs.
To compare answers across multiple jurisdictions, visit the Doing business in… Country Q&A tool.
This article is part of the global guide to doing business worldwide. For a full list of contents, please visit global.practicallaw.com/dbi-guide
1. What are the key recent developments affecting doing business in your jurisdiction?
South Korea has seen the following key recent developments:
According to the Act on External Audit of Stock Companies, limited liability companies (except for small-sized companies) which are the most common legal entity with regard to foreign investment also have been obligated to prepare financial statements and undergo an audit performed by extremal auditor as well as stock companies.
According to the revised Act on Promotion of Information and Communications Network Utilisation and Information Protection, a large-sized foreign company with a liaison office in South Korea must appoint an agent (person) in order to communicate with public authorities and to deal with grievance filings, or requests for submissions.
According to the recently revised Labour Standards Act, the maximum number of working hours in each week was reduced from 68 hours to 52 hours.
The South Korean Government plans to submit an amendment bill in relation to class actions. According to the amendment bill, an additional five categories (products, fair trade, advertisements, public information, food) of class actions will be permitted. As of now, only investors in securities may file class actions.
2. What is the legal system based on (for example, civil law, common law or a mixture of both)?
South Korea has a civil law legal system as the laws were influenced largely by the European civil law system. However, the US law has influenced more recent legislations.
South Korea does not recognise a federal legal system.
3. Are there any restrictions on foreign investment (including authorisations required by central or local government)?
Foreign investment is restricted in certain industries such as:
– Nuclear fuel processing.
– Electricity generation (partial).
– Meat wholesale (partial).
– Food crop cultivation (rice and barley).
– Radio and terrestrial television broadcasting. Investments in other forms of broadcasting are partially permitted.
– Telecommunications (partial).
– Publication of newspapers, magazines and periodicals (partial).
– Passenger transportation and carriage of goods (partial).
A foreign investment must be reported under the Foreign Investment Promotion Act (FIPA) or under the Foreign Exchange Transaction Act.
A fast track registration process is available for foreign direct investments (FDI) under the FIPA. To apply, an FDI:
– Needs to invest at least KRW100 million.
– Needs to:
— acquire at least 10% of voting shares of a Korean company, or;
— own shares of a Korean company and dispatch or appoint an executive officer to or at such Korean company.
There are no special restrictions that apply exclusively to foreign shareholders once the foreign investment has been successfully completed.
4. Are there any restrictions on doing business with certain countries or jurisdictions?
The South Korean government has imposed heavy restrictions on doing business with North Korea under the National Security Act. In addition, there were restrictions on engaging in financial transactions with Iran under the Foreign Exchange Transactions Act. The South Korean Government recently lifted most of those restrictions, but some of the restrictions will remain for a certain period of time.
5. Are there any exchange control or currency regulations?
The Foreign Exchange Transaction Act regulates foreign exchange transactions and includes provisions on:
Regulatory measures for foreign exchange (FX) stability by the Ministry of Economy and Finance (MOEF), such as restrictions on FX rates and suspension of FX trading.
– Registration requirements for FX-related businesses with the MOEF.
– Reporting requirements for designated FX banks.
– Reporting requirements to the Bank of Korea or the MOEF on non-typical FX transactions, such as payment or settlement of f- oreign currencies through the non-banking system, and complicated financial or capital transactions (such as derivatives transactions).
6. What grants or incentives are available to investors?
Foreign invested domestic companies investing in certain high technology industries stipulated in the Special Tax Treatment Act or doing business in certain industrial complexes designated by the Foreign Investment Promotion Act enjoy certain tax exemptions or concessions including the corporate income tax, the personal income tax, customs duty, value added tax, acquisition taxes and property taxes for a certain period and may receive a cash grant and site location support.
7. What are the most common forms of business vehicle used in your jurisdiction?
Under the Commercial Code, the main business vehicles in South Korea are:
– Partnership company (hapmyeong hoesa).
– Limited partnership company (hapja johap).
– Limited liability company (yuhan chaegim hoesa).
– Stock company (jusik hoesa).
– Limited company (yuhan hoesa).
An investment trust is also available under the Capital Market and Financial Investment Business Act.
The most common form of business vehicle used by foreign companies is a stock company (jusik hoesa). A limited liability company (yuhan hoesa) is also commonly used by foreign companies due to:
Lower regulatory standards (as effective from 1 November 2019, limited liability companies in Korea are also subject to the external audit requirements of the Act on External Audit of Stock Companies).
Simple incorporation procedure and corporate governance structure
8. In relation to the most common form of corporate business vehicle used by foreign companies in your jurisdiction, what are the main registration and reporting requirements?
Registration and formation
The following activities, among others, must be completed to incorporate a joint stock company:
– Draft articles of incorporation (articles).
– Subscription of shares by the promoter(s) and other subscriber(s).
– Payment of subscription money.
– Investigation by the directors and statutory auditors into whether the incorporation has complied with applicable laws and the articles, and investigation by the court-appointed inspector (where applicable) into whether any elements of abnormal incorporation, such as promoters’ special benefits, contributions in kind and transferred property in advance, have been duly assessed and dealt with in accordance with applicable laws.
– Election of director(s) and statutory auditor(s); and
– Registration of the incorporation at a competent court registry. This must be filed within 2 weeks following the date of completion of the investigation on elements of abnormal incorporation and any subsequent procedure of change.
A business registration certificate from the local tax office must then be obtained.
For more information on registration requirements, see www.iros.go.kr.
To incorporate a joint stock company, the following taxes and fees apply:
Registration and License Tax: 0.4% to 1.2% of the paid-in capital, depending on the place of incorporation.
Local Education Tax: 20% of the Registration and License Tax.
Notarisation fees for articles: KRW80,000 or more (but at a maximum of KRW1 million) depending on the amount of paid-in capital.
Fees for registration of incorporation: KRW25,000 to KRW30,000 depending on the filing methods.
There is no prescribed minimum or maximum amount of share capital.
If expressly set out in the articles, a company can issue shares for non-cash consideration. The matters such as the name, type, quantity and value of consideration will need to be expressly prescribed in the articles and inspected by the court-appointed inspector.
Rights attaching to shares
Restrictions on rights attaching to shares. Restrictions on rights attaching to shares will be detailed in the articles and may concern:
– Voting rights.
– Rights to dividends.
– Rights to receive distribution of assets upon liquidation; or
– Rights of redemption and conversion.
During the election of the statutory auditor(s), if a shareholder holds more than 3% of the total issued and outstanding voting shares, he/she must be restricted from exercising the voting rights attached to the shares exceeding 3%.
The transfer of shares may be subject to approval by the board of directors in accordance with the articles.
Automatic rights attaching to shares. Unless otherwise provided in the articles, shares contain automatic rights to:
– Receive dividends.
– Vote at the shareholders’ meeting; and
– Receive remaining assets on liquidation.
However, certain shareholders’ rights may only be enforceable once a certain percentage of the share capital is owned, for example the right to:
– Call a shareholders’ meeting.
– Propose agenda items at the shareholders’ meeting.
– File derivative claims against directors and statutory auditors.
– Demand the removal of a director; and
– Inspect accounts.
9. In relation to the most common form of corporate business vehicle used by foreign companies in your jurisdiction, outline the management structure and key liability issues.
A stock company must have at least three directors, including one representative director, and an in-house statutory auditor, unless the company has a total capital of less than KRW1 billion, in which case there only needs to be one or two directors.
There are no nationality or residency restrictions on directors, managers or statutory auditors.
Directors’ and officers’ liability
Directors have a fiduciary duty to the company, therefore if a director violates the company’s articles or applicable laws, or negligently fails to fulfil his/her duties, he/she will be jointly and severally liable to the company (and, in some cases, to a third party), together with any director who directly or indirectly approved the violating act, and must indemnify the company.
Parent company liability
Parent companies and subsidiaries are independent for legal purposes. A parent company is not generally liable for the obligations of its subsidiaries unless:
– It is obligated contractually.
– It is liable under tort law.
– Other exceptional circumstances apply.
Laws, contracts and permits
10. What are the main laws regulating employment relationships?
– The Labor Standards Act (LSA) regulates employment issues. Other relevant Acts include:
– The Employee Retirement Benefit Security Act.
– The Act on Equal Employment for Both Sexes and Support for Compatibility of Work and Family.
– The Employment Insurance Act.
– The Minimum Wage Act.
These Acts also apply to foreign persons working in South Korea. As mandatory rules of law, most of these Acts apply regardless of the contractual terms agreed between the parties or any choice of law clause in the employment contract. In addition, these Acts may apply to South Korean employees working outside of South Korea if the employees are under the control or supervision of South Korean employers.
11. Is a written contract of employment required? If so, what main terms must be included in it? Do any implied terms and/or collective agreements apply to the employment relationship?
A written contract of employment is not required. However, employers must set out in writing major employment conditions specified under the LSA, including:
– Wages (there are detailed categorisations in relation to wages, including calculation methods and payment methods).
– Working hours.
– Annual leave.
– Place and scope of work (among other things).
Employment relationships are governed by internal employment regulations, which are required for businesses with ten or more employees.
12. Do foreign employees require work permits and/or residency permits?
To hire unskilled foreign workers, employers must obtain an employment permit, unless one of the limited exceptions applies.
Skilled foreign workers do not need permits, but must have residency status. To obtain residency status, the employee must obtain the relevant work visa, which varies depending on the type of occupation (such as teaching, research or technology occupations). The processing fees for work visa applications usually ranges from USD30 to USD50. The approvals can take three to four weeks.
Once in South Korea, employees intending to stay longer than 90 days must register as foreign persons at the local Immigration Office. The processing fees for registration usually cost USD85. The approvals can take two to three weeks.
Termination and redundancy
13. Are employees entitled to management representation and/or to be consulted in relation to corporate transactions (such as redundancies and disposals)?
Employees facing redundancy have the right to be represented (for example, by a trade union official) in negotiations with the management. Employers must consult with a representative of the trade union or the majority of workers when preparing or amending the company’s employment regulations. If the employment regulations are to be modified in a manner unfavourable to employees, employers must obtain the employees’ consent.
Some of the above are typical rights to representation or consultation the employees are entitled to regarding corporate transactions.
14. How is the termination of individual employment contracts regulated?
There are several basic principles that the employer must follow in the case of a dismissal.
An employer cannot dismiss an employee who is on leave due to occupational illness or injury, pre and post-natal leave, or within 30 days’ following such leave. Exceptions can apply if the employer has paid temporary compensation (LSA) or if the employer cannot continue its business.
Grounds for dismissal
There is a distinction between justified and unjustified dismissals. An employer can only dismiss an employee for justifiable reasons. Dismissals are usually justified if they are for:
– Intentional misconduct.
– Poor work-related performance.
– Illegal group activities.
– Verbal/physical violence.
– Convictions for criminal offences.
– Neglecting to protect trade secrets.
If an employer intends to dismiss an employee, the employer must notify the employee in writing of the reasons for dismissal and the date of such dismissal.
30 days’ notice must be given to the dismissed employee or, in lieu of notice, payment of 30 days’ normal pay. Severance pay should amount to at least one month’s salary for each year of service.
If the dismissal is unjustified, an employee can apply to the Labor Relations Commission for a remedy, such as reinstatement or compensation. The employee can also file a lawsuit to reverse the termination.
15. Are redundancies and mass layoffs regulated?
Redundancies and mass layoffs are regulated, and an employer intending to make any of its employees redundant must prove that it has:
– An urgent business reason for the redundancies, including:
Managerial crisis due to ongoing business problems; or
Business transfers, M&A’s, and other plans to avoid further financial deterioration.
– Made sufficient efforts to avoid the redundancies, including:
Restrictions on overtime, and encouraged use of leave;
Freezing the recruitment process;
Non-renewal of temporary employees’ contracts; or
Temporary suspension of work.
– Applied reasonable and fair standards in the selection of employees being made redundant. Discrimination, including by gender is banned in the selection process.
– Held frank discussions with employee representatives (see Question 13). A 50-day notice should be given to the employee representative to discuss measures to avoid dismissal and to explain the criteria for selecting employees to be dismissed.
– Report to the Ministry of Employment and Labor. This is required 30 days before the dismissal of:
10 employees or more at businesses with less than 100 employees;
10% of employees at businesses with 100-999 employees; or
100 employees or more at businesses with 1,000 employees or more.
Taxes on employment
16. In what circumstances is an employee taxed in your jurisdiction and what criteria are used?
A person who is domiciled in South Korea, or has a residence in South Korea for 183 days or more, is considered tax resident.
Domicile is determined by the individual’s objective relationship with the place, such as the location of their family life or ownership of properties.
Residence is found to exist if an individual has dwelt for a significant period of time in a place other than his/her place of domicile.
17. What income tax and social security contributions must be paid by the employee and the employer during the employment relationship?
Tax resident employees
Tax resident employees are subject to personal income tax for all income earned, including South Korean and foreign-source income. Taxes on personal income range from 6.6% to 46.2% of the tax base (gross salary less certain deductions) and are taxed on a calendar year basis for resident employees.
Foreign nationals whose employment started before the end of 2020 can elect to be taxed at a flat rate of 20.9% without deductions for the first five years that they are employed in South Korea. The same is true for foreign nationals employed in Korean regional headquarters of foreign companies but no sunset period is applied. Tax resident employees must also pay premiums for:
– National pension (at 4.5% of their monthly salary, with a maximum payment of KRW218,700 per month). Certain foreign nationals may be exempt from Korean national pension contributions based on social security agreements between Korea and their home country.
– National health insurance (3.335% of monthly salary).
– Long-term medical treatment insurance (10.25% of the national health insurance premium).
– Employment insurance (0.8% of monthly salary).
An employee’s salary and bonus are subject to withholding tax by the employer. This must be paid to the relevant tax authority by the 10th day of the following month. Normally if a tax resident employee’s income is limited to earnings through employment, tax filings and payments are made with year-end settlements of the monthly withholdings by the employer at the end of that year. If a tax resident employee has additional income, they will need to file and pay personal income tax in May of the following year for their global income earned in the previous year.
Non-tax resident employees
Non-tax resident employees are subject to personal income tax on South Korean-source income only. Tax rates range from 6.6% to 46.2% of the tax base and are taxed by calendar year. Normally, non-tax resident employees are not subject to the same deductions as those for resident employees (see above, Tax resident employees). The same method that applies for tax resident employees applies for tax filings and payments of non-tax resident employees.
Employers must make contributions for:
– National pension (at the same rate as for employees, see above, Tax resident employees).
– National health insurance and long-term medical treatment insurance (at the same rate as employees, see above, Tax resident employees).
– Employment insurance (at a rate of 0.9% to 1.5% of monthly salary based on the number of employees).
– Industrial accident compensation insurance (contribution rates vary depending on industry).
Employers have an obligation to withhold employees’ income tax and social insurance contributions through salary and bonus payments. The withheld tax must be paid to the tax authority by the 10th day of the month following payment. Employers are also required to carry out year-end settlement for their employees’ income tax paid during that year. They must then file and remit the assessed amount to the tax authority by the 10 March of the following year.
18. When is a business vehicle subject to tax in your jurisdiction?
Tax resident business
Tax resident companies are those that have their main office or a place of effective management in South Korea.
Non-tax resident business
Non-tax resident companies with a permanent establishment in South Korea are subject to corporate income tax on income earned by their permanent establishment in the same way as resident companies (see Question 19), with some exceptions.
Non-tax resident companies that have no permanent establishment in South Korea are subject to a withholding tax on their South Korean-source income and are not required to file corporate income tax returns, with the exception of capital gains from the sale of real estate in South Korea.
Permanent establishment means the fixed business place of a non-tax resident business vehicle, including:
– Working sites.
– A place used for more than six months for construction.
– A place where services are provided for more than six months.
– A place where the business is run through a dependent agent.
19. What are the main taxes that potentially apply to a business vehicle subject to tax in your jurisdiction (including tax rates)?
The main taxes which apply to a tax resident business vehicle are:
Personal income tax. This is the main tax for an individual business vehicle. An individual running his/her own business in South Korea or who is a member of a partnership is subject to:
– Personal income tax on his/her worldwide income (resident individual); and
– Korean sourced income (non-resident individual).
The applicable personal income tax rates are from 6.6% to 46.2%. Tax filings and payments of individual business vehicles should be made in May of the year following the year that the relevant income is earned. The interim filings and payments for their individual business vehicles should be made in November of each year.
Corporate income tax. All types of resident companies are subject to corporate income tax, with the rates ranging from 11% to 27.5%. However, if the normal corporate income tax (based on the aforementioned rates) is less than the minimum rates of tax which vary from 7.7% to 18.7% (determined by the tax base and the size of a company) of the taxable income before certain tax deductions and credits pursuant to Korean tax acts, then resident companies are liable for the minimum rate of tax instead of the aforementioned normal corporate income tax. Their tax filings and payments are to be made within three months after the end of the relevant fiscal year. The interim filings and payments for corporate income tax should be made within two months after the end of the first six months of the relevant fiscal year.
Additionally, for companies with shareholders’ equity exceeding KRW50 billion (excluding small and medium sized companies) or belonging to certain large conglomerates within which cross-shareholding between affiliates is not allowed, if they do not spend a certain amount of earnings for the current fiscal year on investment, employees’ salary increase or mutual co-operation payments, they are subject to additional corporate income tax of 22% of the excessive reserve until 2020.
Capital gains tax. Capital gains of tax resident companies are included in their taxable income and are subject to corporate income tax, at rates ranging from 11% to 27.5%. Capital gains of tax resident companies from the transfer of certain residential and non-business real estate in specially designated areas would be subject to corporate income tax at rates from 11% to 44% which is levied in addition to the normal corporate income tax payable (see above). If the capital gains of an individual business vehicle are classified as business income, such gains are treated as taxable income of the individual business vehicle and therefore subject to personal income tax.
Value added tax (VAT). VAT is imposed at 10% on services and goods provided by a business. The amount of VAT payable is determined by deducting purchase VAT from sales VAT. If purchase VAT exceeds sales VAT, the difference is refunded. VAT filings and payments are made on a quarterly basis on 25th of April, July, October and January of each year.
Dividends, interest and IP royalties
20. How are the following taxed:
– Dividends paid to foreign corporate shareholders?
– Dividends received from foreign companies?
– Interest paid to foreign corporate shareholders?
– Intellectual property (IP) royalties paid to foreign corporate shareholders?
If foreign corporate shareholders do not have a South Korean place of business or the dividends paid are not effectively connected with their South Korean place of business, a withholding tax of 22% applies to dividends paid, subject to the applicable maximum withholding tax rate under the double tax treaty (see Question 25). If dividends paid are attributed to their South Korean place of business, the dividends are included in the taxable income of their South Korean place of business and subject to corporate income tax, with the rates ranging from 11% to 27.5%. This is except for the amount deducted from dividend income, which ranges from 30% to 100% of the dividend based on the ownership ratio of the dividend payer.
Dividends received from foreign companies are included in the taxable income of domestic corporate shareholders. A domestic corporate taxpayer can elect to receive either a tax credit or a deduction from taxable income for foreign taxes paid. In addition, foreign taxes paid by a dividend payer in relation to its net income may be deducted in the form of foreign tax credits. To qualify for these credits, the South Korean parent company must have held at least 25% of the issued shares of the foreign subsidiary for at least six months before the date the dividend payments become fixed. Any tax credits are subject to the provisions of the applicable double tax treaty.
A withholding tax of 22% applies, subject to the maximum withholding tax rate under the provisions of the applicable double tax treaty. Interest paid to the foreign shareholders may be subject to the transfer pricing rules on the reasonableness of the interest rate (see Question 23).
IP royalties paid
Identical treatment as with interest paid to foreign corporate shareholders (see Interest paid).
Groups, affiliates and related parties
21. Are there any thin capitalisation rules (restrictions on loans from foreign affiliates)?
If a foreign controlling shareholder provides a loan to a South Korean company or guarantees a loan granted by a third party (to a South Korean company), the South Korean company must have a debt-to-equity ratio of 2:1 (6:1 for financial institutions). Interest payments on loans that exceed the applicable ratio are deemed to be dividend distributions and are taxed as such.
22. Must the profits of a foreign subsidiary be imputed to a parent company that is tax resident in your jurisdiction (controlled foreign company rules)?
If a company owns more than 10% of the shares of a subsidiary located in a tax haven where the effective tax rate on its income is 15% or less, or no tax is imposed, the retained earnings of the subsidiary are taxed as dividends paid to the parent company.
23. Are there any transfer pricing rules?
The International Tax Coordination Act provides that international transactions between related parties must be at arm’s length and are potentially subject to adjustment if they are not. The Corporate Income Tax Act contains similar rules for domestic transactions.
24. How are imports and exports taxed?
Imports are subject to VAT at 10% and customs duties, which vary according to the classification of the goods and country of origin.
Exports are zero-rated for VAT purposes.
Double tax treaties
25. Is there a wide network of double tax treaties?
South Korea has tax treaties with more than 80 countries including the US, Japan, Germany, France, Italy and the UK.
Interest, dividends and royalties paid to a foreign company without a South Korean business place will be eligible for maximum withholding tax rates under the applicable double tax treaties.
26. Are restrictive agreements and practices regulated by competition law? Is unilateral (or single-firm) conduct regulated by competition law?
Korean competition law, specifically the Monopoly Regulation and Fair Trade Act (MRFTA) govern:
– Horizontal and vertical restrictive agreements (for example, cartels, exclusive dealings, territorial restraints, customer restrictions, resale price maintenance and tying).
– Unilateral conduct (for example, refusals to deal, price discrimination and predatory pricing).
In this regard, the Fair trade Commission may judge some business activities to be:
– A form of cartel activity (Article 19, MRFTA).
– An abuse of market dominant power (Article 3-2, MRFTA). This covers the following:
conduct that unreasonably determines, maintains, or changes the price of goods or services;
conduct that unreasonably controls the output of goods or services;
conduct that unreasonably interferes with business practices of other entities;
conduct that unreasonably impedes or precludes market entry; and
conduct that unfairly excludes competitors or significantly harms consumer interests.
– Unfair trade practice (Article 23, MRFTA). This covers the following:
conduct that unfairly refuses any transaction, or discriminates against a certain transaction partner;
conduct that unfairly excludes competitors;
conduct that unfairly coerces or induces customers of competitors to deal with oneself;
conduct that results in trading with a certain transaction partner by unfairly taking advantage of his/her position in trade;
conduct that results in trading under the terms and conditions which unfairly restrict business activities of a transacting party or disrupts business activities of another company; and
conduct that assists a person with a special interest, or any other companies by conducting a transaction under substantially favorable terms.
– Resale price maintenance (Article 29, MRFTA).
The MRFTA, including the regulations on horizontal and vertical restrictive agreements and unilateral conduct, is enforced by the Korea Fair Trade Commission, which may:
– Impose penalty surcharges or corrective orders or file a criminal complaint if it finds a certain conduct in breach of the MRFTA.
– Extend to apply to foreign entities and transactions outside of South Korea if they have an effect on the South Korean market.
27. Are mergers and acquisitions subject to merger control?
Under the MRFTA, an antitrust clearance (that is, a Report on Business Combination filing with the Korea Fair Trade Commission) is necessary for a merger/acquisition under the following conditions:
– The previous fiscal year’s total revenue or total assets of a party (including its affiliates, regardless of nationality) is no less than KRW300 billion.
– The previous fiscal year’s total revenue or total assets of the other party (including its affiliates, regardless of nationality) is no less than KRW30 billion.
In addition, foreign-to-foreign mergers and acquisitions are also subject to merger control if both:
– The previous fiscal year’s total revenue or total assets of at least one of the parties is KRW300 billion or more, and that of the other party is KRW30 billion or more.
– The previous fiscal year’s local turnover in South Korea of each of the parties (including its affiliates, regardless of nationality) is KRW30 billion or more.
28. Outline the main IP rights in your jurisdiction.
Definition and legal requirements. Patents are exclusive rights granted to inventions and are protected by the Patent Act.
For a patent to be granted, the technology must:
– Be capable of industrial application.
– Be novel.
– Contain an inventive step.
Registration. Patents are registered with the Korean Intellectual Property Office (KIPO). KIPO provides information about the South Korean intellectual property system.
Enforcement and remedies. The patent owner can seek injunctive measures and/or damages from a court against infringers. Courts can impose the following penalties for infringers:
– Preliminary or permanent injunctions.
– Restoration of business reputation of the patent owner.
– Confiscation of material or facilities related to the infringement.
The infringer can also be criminally liable and subject to imprisonment of up to seven years or a fine of up to KRW100 million.
Length of protection. Protection starts when the patent is registered and lasts for 20 years after the filing of the patent application. The length of protection can be extended for five years under special circumstances.
Definition and legal requirements. Trade marks are protected by the Trade Mark Act. Any sign, character, figure, three-dimensional shape, colour, hologram, movement, sound, scent or any combination of these constitutes a trade mark.
To be registered, a trade mark must:
– Be distinctive enough to identify the marked goods or services.
– Not conflict with another individual’s registered trade marks.
Protection. Protection is achieved through trade mark registration with the KIPO. Unregistered trade marks can be partially protected under the Unfair Competition Prevention and Trade Secret Protection Act if they are well known in South Korea.
Enforcement and remedies. The remedies available are the same as for patents (see above, Patents).
The infringer can also be criminally liable and subject to imprisonment of up to seven years or a fine up to KRW100 million.
Length of protection and renewability. Protection lasts for ten years from registration and is renewable for ten-year terms. There is no limit on the number of renewals.
Definition. Designs are protected under the Industrial Design Act. They refer to the shape, pattern, colour or combination of these in an article that produces an aesthetic impression.
To be registered, a design must be:
– Capable of industrial application.
Registration. The designs are registered with the KIPO.
Enforcement and remedies. The remedies available are the same as for patents (see above, Patents).
Length of protection and renewability. If the design application is filed on or after 1 July 2014, protection starts when the design is registered and lasts for 20 years after the filing of the design application, and is not renewable. If the design application is filed before 1 July 2014, protection lasts for 15 years from the date of registration, and is not renewable.
Definition and legal requirements. New, unconventional designs are protected under the Unfair Competition Prevention and Trade Secret Protection Act.
Enforcement and remedies. The remedies available for infringement are preliminary or permanent injunctions, damages and measures to restore the business reputation of the owner.
The infringement of an unregistered design is not subject to criminal prosecution.
Length of protection. Protection lasts for three years from the date when the shape of products is prepared, including manufacturing of pilot products.
Definition and legal requirements. Copyright protection is extended to all varieties of works covered under the United Nations Universal Copyright Convention 1952 as well as the Copyright Act. Copyright laws protect literary, scientific or artistic works. Copyrights can also occur if the relevant work is expressed in an intangible form.
Protection. Registration is not required for legal protection of copyrights, but it enhances the degree of protection. The Korea Copyright Commission governs registrations to the Copyright Register and provides information about the copyright registration system (see www.copyright.or.kr).
Enforcement and remedies. The remedies available for infringement are preliminary or permanent injunctions, confiscation of the replicated article and any tools related to the infringement, damages and measures to restore the reputation of the author.
The infringer can be criminally liable and subject to imprisonment of up to five years or a fine up to KRW50 million.
Length of protection and renewability. Protection lasts for:
– The life of the author plus 70 years, for copyright owned by a natural person.
– 70 years from first publication, or from creation if unpublished, for copyrights owned by a legal entity.
Other notable IP rights relate to confidential information (trade secrets) and utility models.
A trade secret is information of a technical or business nature that can be used in business activities, including production or marketing methods.
Utility models are granted to devices that are capable of industrial application and are governed by the Utility Model Act. Protection is achieved through registration with the KIPO.
29. Are marketing agreements regulated?
Marketing agreements are primarily regulated by the Civil Code and Commercial Code.
Freedom of contract is guaranteed as a general principle, and particular agreements may be restricted for reasons of the public interest, or for social policy considerations.
Multi-level marketing is basically lawful in Korea, subject to regulations.
Agency agreements are mainly regulated by the Commercial Code.
Distribution agreements are regulated by the:
– Commercial Code.
– Act on Development of the Distribution Industry.
– Local government, who may restrict the operating hours of a “large-sized supermarket” (for example, a hypermarket) or order it to have compulsory non-business days in order to protect nearby SMEs.
– Act on Fair Transactions in Large Franchise and Retail Business.
– Promotion of Distribution Complex Development Act.
Franchise businesses and franchise agreements are mainly regulated by the Fair Franchise Transactions Act.
A franchisor must not reject the renewal of a franchise agreement without justifiable reason.
30. Are there any laws regulating e-commerce (such as electronic signatures and distance selling)?
The Digital Signature Act regulates matters related to digital signature and certification regarding identity.
The Framework Act on Electronic Documents and Electronic Transactions regulates basic matters related to:
– Achieving reliability.
– Protecting consumer rights.
– Implementing policies to promote commerce.
The Act on Consumer Protection in Electronic Commerce provides protection to consumers in e-commerce, telemarketing and distance selling.
The Electronic Financial Transaction Act regulates matters related to electronic financial transactions.
31. Outline the regulation of advertising in your jurisdiction.
The principal regulations governing advertising activities are as follows:
Act on Fair Labelling and Advertising. This Act is intended to prevent unfair labelling and advertising of products and services likely to deceive or mislead consumers and to facilitate the provision of correct and useful information to consumers so as to establish fairness in trade and protect consumers. It is enforced by the South Korean Fair Trade Commission.
Act on Broadcast Advertising Sales Agencies Etc. This Act is intended to promote competition in the market for broadcast advertising sales as well as establishing fair trade principles, thereby regulating and promoting the broadcasting advertising market and protecting the public interest. The Act is also intended to promote greater variety in broadcasting services by regulating broadcast advertising, including sales agency services for broadcast advertising. In addition, the Act addresses matters that are necessary for the incorporation of the Korea Broadcast Advertising Corporation. It is enforced by the South Korean Communications Commission.
Outdoor Advertisements, Etc. Control Act. This Act is intended to create the basis for qualitative improvement of outdoor advertisements in order to:
– maintain scenic beauty and public morals;
– prevent any injury to the public; and
– create a healthy and pleasant living environment.
The Act is enforced by the South Korean Ministry of the Interior and Safety.
32. Are there specific statutory data protection laws? If not, are there laws providing equivalent protection?
The following legislation regulates data protection:
– The Personal Information Protection Act. This regulates data collection and processing by public institutions and government organisations as well as business entities including foreign companies that collect personal information of Korean nationals, private organisations and individuals.
– The Act on the Promotion of Information and Communication Network Utilization and Information Protection, etc.. This applies to personal data collection and processing held by telecommunications service providers and certain related business entities.
– The Credit Information Use and Protection Act and the Act on the Protection, Use, etc. of Location Information. These Acts protect privacy and prohibit the misuse of personal information on credit and location.
– The Act on Real Name Financial Transactions and Confidentiality. This protects the privacy of financial transactions.
– The Act on the Consumer Protection in the Electronic Commerce, etc.. This regulates the proper use of consumer data collected through electronic transactions.
– The Act on the Development of Cloud Computing and Protection Its Users. This regulates cloud computing, and provides a legal basis for user data protection.
33. How is product liability and product safety regulated?
The Product Liability Act adopts a strict liability approach to manufacturers of defective products. The types of defect can be categorised into manufacturing, design and labelling.
A manufacturer must compensate for damages to the life, body or property of a person caused by a defect of a product, and if such manufacturer causes serious damage to the life or body of a person as a result of not taking necessary measures against a defect of a product, despite the manufacturer’s knowledge of such defect, that manufacturer shall be liable up to three times the damage sustained by the person.
In addition, it will be presumed that the product had a defect at the time of supply, and that the damage or injury was caused because of the defect, where the injured person proves that damage or injury:
– Was caused while the product was being used normally.
– Was attributable to a cause practically controllable by the manufacturer.
– Would not ordinarily be caused if it were not for the relevant defect of the product.
Chi-Hyoung Cho, Partner
T +82 2 772 2705
F +82 2 772 2800
Professional qualifications. South Korea, 1985
Areas of practice. M&A; capital markets; taxation; energy.
– Successfully representing an investment fund seeking huge monetary damages against a multinational asset management company.
– Advising a multinational insurance company on a comprehensive outsourcing arrangement with a local IT-SI service provider.
– Advising a multinational automobile importer on local dealership arrangements and related issues.
Languages. Korean, English
Professional associations/memberships. Korean Bar Association and Seoul Bar Association.
Chan Sik Ahn, Partner
T +82 2 772 2809
F +82 2 772 2800
Professional qualifications. South Korea, 2002
Areas of practice. M&A; anti-trust and fair trade; employment; FDI & overseas investment.
– Acting for a Japanese investor on its acquisition of a South Korean mobile advertisement application producer.
– Acting for a Finnish energy consulting service company on its sale of a 50% shareholding in a Korean district heating engineering company.
– Advising a Korean state-run bank on its sale of a major Korean special steel company to another Korean steel company.
Languages. Korean, English, German
Professional associations/memberships. Korean Bar Association and Seoul Bar Association.
Sang Jun Kim, CPA
T +82 2 772 2744
F +82 2 772 2800
Professional qualifications. South Korea, 1985; US, 1992
Areas of practice. M&A; taxation; international trade.
– Successfully representing South Korean companies and foreign exporters in anti-dumping cases.
– Advising Korean tax planning and consulting for Korean and foreign companies in M&A, corporate restructuring and reorganisation, finance and security, private equity transactions and international taxation.
– Successfully representing Korean and foreign companies in tax appeal cases.
Languages. Korean, English
Professional associations/memberships. The Korean Institute of Certified Public Accountants, Registered as CPA in California, US.