Korean Branch Office Establishment

In Korea foreign companies have the option of organizing the sale of products or services through a third party (agent or distributor) or setting up a branch office or subsidiary in Korea themselves. In this context, the branch office has become increasingly unattractive for many industries in recent years, if compared to a subsidiary. There are several reasons for this, which I will explain briefly below.

In general, a branch office is allowed to do all kinds of legal and commercial activities and does not require any minimum capital or other minimum investment for its establishment. Up to this point, it sounds pretty good for foreign companies.

Please note that a branch office is not a Korean separate legal entity but is an extended office of the headquarters in a foreign country (e.g., headquarters could be in Germany, Austria, Switzerland, or Singapore) although it should be registered with the court registry. Consequently, all liabilities of the branch office are also the liabilities of the headquarters.

The branch office also needs to provide Korean bookkeeping for the Korean National Tax Service (the “NTS”) as well as to be included in the bookkeeping in a foreign country of the headquarters for the respective foreign tax authorities. In Korea, a branch office must file value-added tax reports, make tax declaration on corporate tax, and pay all mandatory social insurances and withholding taxes for its employees. In this regard, even though a branch office has the advantage of no minimum investment requirement, considerable number of foreign investors are prudent in establishing a branch office due to the extension of its potential liability to the “headquarters”.

The establishment costs for a branch office are similar to those for a subsidiary in the form of a limited company or a joint stock corporation. That said, the establishment costs may considerably increase if it is required by the court registry to translate into Korean and submit the articles of association/incorporation of the foreign company establishing the Korean branch office.

In addition, there are some de facto disadvantages: The Korean courts rendered not so long ago that the so-called Rules of Employment should be filed with the competent Labor Office even for a branch office from the first employee onwards, and not only from the 10th employee onwards, as is the case with a subsidiary, for example. The Korean courts count in the number of employees not only the employees of the Korean branch office, but also all employees of the company (that has established the Korean branch office) from abroad, and thus these Rules of Employment are regularly required to be arranged already at the time of establishment. These not insignificant additional costs to be associated with such filing need to be added to the establishment of a branch office as well when compared to the establishment costs of a subsidiary with less than 10 employees.

I would also like to mention that if a subsidiary in Korea has four (4) or fewer employees, the employer may dismiss the employees without giving any reason by giving 30 days' notice or paying the equivalent of 30 days' salary. From the fifth (5th) employee onwards, just cause is required to issue a dismissal and, if necessary, to enforce it legally. In the case of a branch office - in contrast to a subsidiary - not only the employees in Korea are taken into account when determining the number of employees under the labor laws, but - similar to the aforementioned rules of employments - also the employees of the company which established the branch office (headquarters). So, if the number of employees is up to four (4), it might be an advantage not to have a branch office, but a subsidiary.

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Your point of contact in Korea: Joachim Nowak

DAERYOOK & AJU LLC

7 - 16F, Donghoon Tower
317, Teheran-ro, Gangnam-gu
Seoul 06151, Republik Korea

CELL +82 10 9001 6430
TEL   +82 2 3016 9594
FAX  +82 2 3016 5222

www.draju.com
nowak@draju.com

Increase in surcharges for overtime work

Overtime regulations have been further tightened in Japan. As of 1 April 2023, the allowance for overtime exceeding 60 hours per month has increased from 25% to 50% (Article 37(1) of the Labour Standards Act). Previously, there was a transitional arrangement for small and medium-sized enterprises (SMEs), which expired on 31 March 2023.

For overtime that does not exceed 60 hours per month, the 25% allowance still applies. However, it is possible to split the total salary in employment contracts into a basic salary and an overtime supplement for up to 45 hours per month. This means that overtime can be included in the monthly total salary, regardless of whether overtime is actually worked.

Accurate recording of working hours is crucial. Employers have a duty to ensure this, and in case of doubt, employers are obliged to provide evidence of an accurate record. If overtime compensation is not paid properly, employees can demand back payments retroactively for five years at the end of the contract due to the corresponding amendment to the law in 2020 (for a transitional period that has not yet been determined, however, a restriction to three years currently applies).

It is important to take into account the special allowance duties for work on Sundays or statutory non-working days as well as in the case of night work (10 p.m. to 5 a.m.). Even employees in managerial positions are not exempt from the surcharges for night work, so it is essential to accurately record working hours to avoid any unnecessary work during night hours that would incur additional charges.

When drafting contracts for managerial positions, it is necessary to check in detail if the conditions for overtime, breaks and days off are met based on the assigned tasks and responsibilities, to avoid any surprises when the contract is terminated and additional payments for overtime become due.

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Your point of contact in Japan: Michael Müller

Mueller Foreign Law Office

Shin-Kasumigaseki Building
3-3-2 Kasumigaseki, Chiyoda-ku
Tokyo 100-0013, Japan

TEL       +81 3 6805 5161
FAX       +81 3 6805 5162

www.mueller-law.jp
info@mueller-law.jp

India creates new authority to speed up the dissolution of companies

On March 17, 2023, the Indian Ministry of Corporate Affairs announced that a new central authority (“Centre for Processing Accelerated Corporate Exit”) is to process applications for the removal of a company’s name because of lack of business or operations. The Indian Government expects the new authority to substantially speed up the process. So far, this took up a lot of time, hence some investors hesitate creating an Indian company in the first place. This is to change for the better.

Under Indian law, there are four different ways of terminating a company. The recent change concerns one of them, namely, the removal of the company name after a longer period without business or operations.

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Your contact person in India: Dr. Jörg Schendel

Suman Khaitan & Co.

W-13, West Wing, Greater Kailash Part-II
Delhi 110048, Indien

www.sumankhaitanco.in
germandesk@sumankhaitanco.in
schendel@adwa-law.com

China accedes to the "Apostille Convention"

On 8 March 2023, the Peoples Republic of China ("PRC") acceded to the Convention of 5 October 1961 abolishing the Requirement of Legalisation for Foreign Public Documents ("Apostille Convention").

With the accession of the PRC to the Apostille Convention, which enters into effect for the PRC on 7 November 2023, the authentication procedure for public documents issued in Germany, Austria and Switzerland, among other countries, and intended for presentation to authorities in the PRC, will be considerably simplified.

The authentication or legalisation of documents is required for various administrative and judicial matters in the PRC, including the application for work permits for foreign employees, the establishment of companies or amendments in the PRC commercial register.

The full article on this topic can be found on the website of Burkardt & Partner at https://www.bktlegal.com/news-events/news-erleichterung-des-urkundenverkehrs-mit-der-vr-china.html.

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Your point of contact in China: Rainer Burkardt

Burkardt & Partner

Suite 2507, 25/F, Bund Center
222 Yanan Road (East)
Shanghai 200002, P.R. China

CELL     +86 186 1687 7153
TEL       +86 21 6321 0088
FAX      +86 21 6321 1100

www.bktlegal.com
info@bktlegal.com

Competition Amendment Act Passed

The Competition (Amendment) Bill, which was introduced to parliament in August 2022, has been passed and promulgated in the Gazette of India without major changes. As we wrote in September 2022 (linked below), several deadlines have been shortened to speed up the process of merger control. The Competition Commission of India now has to form a prima facie opinion within thirty days, otherwise a merger shall be deemed approved. In addition to threshold values of value of assets and turnover for merger control, now a transaction value of more than INR 20 billion, or c. EUR 250 million, has been introduced. In case of violations of the law, the Competition Commission may now even more accept commitments and settlements of the companies. Yet some penalties have been increased, esp. as some are now calculated as a percentage of total turnover of the company in question, not only the relevant market. Those are only some of numerous changes meant to render Indian competition law more modern and more effective.

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Your point of contact in India: Dr. Jörg Schendel

Suman Khaitan & Co.

W-13, West Wing, Greater Kailash Part-II
Delhi 110048, Indien

www.sumankhaitanco.in
germandesk@sumankhaitanco.in
schendel@adwa-law.com

Facilitation of foreign direct investment in Malaysia through fast-track visa approval process

When the new Malaysian government took over in December 2023, there were bold announcements to facilitate investments for foreign companies in Malaysia. So far, most of this focused on a general discussion, without concrete plans. This changed recently when Minister of Economic Affairs Rafizi Ramli announced that visa applications for expats will in future be processed within only five days. Previously, one had to expect a processing time of at least three months.

It is noteworthy that the Ministry of Economic Affairs had special regard to foreign investors in fast-tracking the process. As Free Malaysia Today and other newspapers reported, Rafizi Ramli pointed out that the duration for visa applications had so far been “one of the obstacles, especially for investors who want to enter the country.”

The new procedure is expected to take effect from the beginning of June 2023. The government’s move shows that it is serious about foreign direct investment – previous governments would likely have praised themselves for a 15% reduction of time, which would have still been well over two months. The move by the new government underlines that it understands the necessity for Malaysia to stay competitive – even if that means making drastic changes!

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Your point of contact in Malaysia: Dr. Harald Sippel

Skrine

Level 8, Wisma UOA Damansara
50 Jalan Dungun, Damansara Heights
Kuala Lumpur, Malaysia

TEL        +60 1 8211 4958
FAX       +60 3 2081 3999

www.skrine.com

Real Estate Service Act enters into force (Republic Act No. 9646)

Under the Real Estate Service Act the practice of Real Estate Service Practitioners is now being regulated.

The performance of such services now requires a license to be granted by the Professional Regulation Commission (PRC). These activities include consultancy, appraisal, assessment, brokering and sales.

The law distinguishes between Real Estate Appraisers, Real Estate Assessors, Real Estate Brokers and Real Estate Sales Persons.

Partnerships or corporations that engage in the business of real estate service must furthermore register with the Securities and Exchange Commission (SEC).

Only those service practitioners who are already licensed as real estate brokers, real estate appraisers or real estate consultants by the Department of Trade and Industry may continue to offer their services as before without the required exams, provided, that they are in active practice as real estate brokers, real estate appraisers and real estate consultants, and have undertaken relevant continuing professional education.

Furthermore, assessors and appraisers who hold early granted permanent appointments and have been performing actual appraisal and assessment functions for the last five years, can register with the Board as long as they have passed the Real Property Assessing Officer examination and have undertaken relevant continuing education.

Real Estate Service Practitioners are listed in a public register, maintained by the PRC. The register of practitioners shall contain the names of all registered Real Estate Service Practitioners, their residence and office addresses, license number, dates of registration or issuance of certificates. Copies thereof shall be made available to the public upon request.

No Real Estate Salesperson can, either directly or indirectly, negotiate, mediate or transact any real estate transaction for and on behalf of a Real Estate Broker without first securing an authorized accreditation as Real Estate Salesperson for the Real Estate Broker, as prescribed by the Board.

Violations against the act are subject to criminal proceedings. The Penalty of a fine is not less than 100 000 pesos and/or imprisonment of not less than two years.

The law aims to professionalize the real estate service sector under a regulatory scheme of licensing, registration and supervision of Real Estate Service Practitioners (Real Estate Brokers, Appraisers, Assessors, Consultants and Salespersons) in the Philippines.

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Your point of contact in the Philippines: Lutz Kaiser

Villanueva Gabionza & Dy Law Offices

20th/F Corporate Center
139 Valero St., Salcedo Village
Makati City 1227, Philippines

CELL      +63 995 985 4957
TEL        +63 2 8813 3351
FAX       +63 2 8816 6741

www.vgdlaw.ph
manila@adwa-law.com

"Don't talk to me about taxes" This is the wrong approach

Taiwan offers companies various tax breaks, both for the company and for locally hired professionals, which should not be left unused. The goal of the tax breaks is to spur investment in Taiwan, target promising industries, and attract and retain skilled workers in Taiwan.

To achieve these points, Taiwan has a variety of tax law tools at its disposal. In the following, we would like to briefly discuss two tax law tools:

• Tax credits

• Tax incentives for foreign professionals

The use of "free trade zones" as well as tax incentives for research and development centers are further possibilities to achieve tax reductions if the required conditions are met.

Investments

Investments in key technologies such as smart machinery, 5 G technologies and information and communication security are costly. A portion of the costs can be tax-reduced by Taiwan-registered companies from within the annual corporate income tax return. 5% of the recognized costs incurred in the tax year can be deducted from the corporate income tax. In the case of expenses carried forward, a deduction of 3% is possible, which must be claimed within 2 years of the year in which they were incurred. In total, costs can be claimed up to 30% of the corporate income tax incurred.

Costs are recognized if they are above TWD 1 million and incurred between 2019 and 2024 for Smart Machinery and 5G, and between 2022 and 2024 for Information and Communication Security. The machinery/equipment must also be delivered or serviced within the above time period.

Locally registered companies are eligible to apply (branches are excluded). It should be noted that tax credits must be submitted with the corporate income tax application by the deadline. If applications are submitted after the deadline passed, they will not be considered.

Tax incentives for foreign professionals

As early as 2010, Taiwan has set the tax incentives for foreign professionals for certain industries. Expenses such as round-trip airfare for the professional and his or her family, home leave allowance as per contract, moving expenses, utility bills, cleaning expenses, telephone bills, apartment rent, residence repair costs, and educational scholarships for children can be excluded from the taxable income of foreign professionals. It should be noted that the professional must be locally employed in Taiwan. This can be in a company, a branch office or a representative office. There is no restriction to a certain type of company. Furthermore, the person must have stayed in Taiwan for at least 183 days in the tax year in order to qualify for a reduction in taxable income.

Especially in the case of costs for rent and schooling of the professional's children, the procedure must be discussed in detail with the person in advance so that the reduction is also recognized by the Taiwanese tax authorities.

The Employment Gold Card offers an additional reduction. If the taxable income is more than TWD 3 million, only 50% of the amount above TWD 3 million is added to the taxable income.

Free Trade Zones

The choice of location can also have an impact on taxation, for example, companies registered in a free trade zone can be exempt from customs duties, VAT, tobacco and alcohol taxes and, in the case of tobacco products, health and welfare surcharges for products that are exported.

Research & Development Centers

Taiwan continues to offer tax incentives to various industries if they conduct their research and development in Taiwan. Generally, this is governed by the Statute for Industrial Innovation. There are special laws for SMEs, pharmaceutical and biotech companies, as well as for companies in the cultural and creative industries.

Taiwan is and remains an interesting investment location. Investors should discuss the various tax law options before setting up facilities and review them at regular intervals thereafter. The same applies to the deployment of foreign professionals in Taiwan.

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Your point of contact in Taiwan: Michael Werner

Eiger Law

Bldg. A, 2F, 25-2 Ren Ai Rd, Sec. 4
Taipei 10685
Taiwan

CELL      +886 9 8726 1326
TEL        +886 2 2771 0086
FAX       +886 2 2771 0186

www.eiger.law
info@eiger. law

"Work from Home" ("WFH") Legislation Comes into Force

On March 19, 2023, the new Thai Work from Home Act amending the Labor Protection Act (No. 8) B.E. 2566 (2023) was published in the Official Gazette of Thailand. The new provisions are part of the Thai Labor Protection Act, Art. 23. (1). The amendments will take effect on April 18, 2023.

The Act aims to improve worker protection to bring it in line with current global standards, provide alternative work arrangements for employers and employees, increase labor efficiency, and improve job security and quality of life for workers.

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Your point of contact in Thailand: Dr. Andreas Respondek

Respondek & Fan Ltd

United Center, 39th Floor, Suite 3904 B
323 Silom Road
Bangkok 10500, Thailand

CELL     +66 89 896 4048
TEL       +66 2 635 5498
FAX       +66 2 635 5499

www.rflegal.com
respondek@rflegal.com

Delayed processing of amendments to the Enterprise Registration Certificate in Ho Chi Minh City

The successful establishment of a company in Vietnam ends with the issuance of the so-called Enterprise Registration Certificate (in short: ERC). The information listed in such ERC includes the name and registered address of the local company, personal details of the registered legal representative(s) as well as, for limited liability companies, the name of the owners. These details will, to a lesser extent, also be listed in the electronic register of companies (https://dichvuthongtin.dkkd.gov.vn/inf/default.aspx). With regard to the registered legal representatives, the passport or local ID card will be listed in the ERC only.

An application to change the information contained in an ERC can be submitted online and will take 3 working days to be approved.

During the last few weeks, we noticed that the processing time exceeded the 3 working days. Since such delays tended to indicate a "problem" with the content of the application itself, they occasionally cause serious concern with several investors.

The local Department of Planning and Investment in Ho Chi Minh City is currently issuing written apologies concerning such delays and stating that the delays had been caused by an alleged "notice" of the Tax Department which allegedly required an update to the personal details of all registered legal representatives (updates to passport or local ID cards). Based on such "notice," more than 3,000 applications per day had been submitted and thus caused a tremendous overload at the local authority.

The Department of Planning and Investment in Ho Chi Minh City advises its customers on its online submission platform that local tax authorities currently do not require updates to the personal details of registered legal representatives.

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Your point of contact in Vietnam: Christian Brendel

Brendel & Associates Law Co., Ltd.

D&D Tower, 10th Floor
458 Nguyen Thi Minh Khai Ward 2, District 3
Ho-Chi-Minh-Stadt, Vietnam

CELL     +84 98 978 4791
TEL       +84 28 3911 2008
FAX       +84 28 3911 2010

www.brendel-associates.com
info@brendel-associates.com