Liaison Office in Korea: Setup, Structure, and Practical Use Cases

When foreign companies first explore entry into Korea, one of the most efficient and low-risk structures to consider is a Liaison Office (연락사무소).

This structure is particularly suitable for companies that want to establish a presence without engaging in direct revenue-generating activities.

1. What is a Liaison Office?

A Liaison Office is a non-commercial presence of a foreign company in Korea.

It is legally permitted to carry out only non-revenue generating activities, such as:

• Market research

• Business liaison and coordination

• Communication with Korean clients or partners

• Administrative support for the head office

Importantly, it cannot generate income in Korea, issue invoices, or sign sales contracts.

2. Why Companies Choose a Liaison Office

A Liaison Office is often selected in early-stage market entry due to the following advantages:

✔ No Corporate Income Tax (CIT)

Since no revenue-generating activity is allowed, there is generally no corporate income tax exposure.

✔ Simplified Setup Process

Compared to a subsidiary or branch, the establishment process is relatively straightforward and faster.

✔ No External Audit Requirement

In most cases, liaison offices are not subject to statutory audit obligations.

✔ Lower Compliance Burden

No VAT filing, no CIT filing — significantly reduced ongoing compliance.

3. Can a Liaison Office Hire Employees?

Yes — and this is where the structure becomes highly practical.

A Liaison Office can hire employees in Korea and pay salaries.In fact, this is one of the most common use cases.

Typical Use Case

• Hiring local staff for:

  • Business development

  • Market research

  • Client communication

  • Technical support (non-billable)

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Payroll & Compliance

Even though the office does not generate revenue, it must still comply with:

• Payroll withholding tax

• Four major social insurances:

  • National Pension

  • Health Insurance

  • Employment Insurance

  • Workers’ Compensation Insurance

  • 
    

This makes the Liaison Office an efficient structure for:

“Testing the Korean market with a local team — without triggering tax exposure from revenue activities.”

4. Limitations You Must Be Aware Of

Despite its advantages, there are clear regulatory boundaries:

❌ No Revenue Activities

• Cannot invoice Korean customers

• Cannot generate sales or profits

• Cannot sign contracts leading to revenue

5. When Should You Use a Liaison Office?

A Liaison Office is ideal if your company:

• Is in the early market entry stage

• Needs local employees without revenue generation

• Wants to minimize tax and compliance burden

• Plans to transition later into a subsidiary or branch

6. When It Is NOT Appropriate

You should NOT use a Liaison Office if:

• You plan to generate revenue in Korea

• You need to issue invoices locally

• You are entering into commercial contracts

In such cases, a Korean subsidiary (법인) or branch (지점) is more appropriate.

7. Practical Structuring Strategy

A common approach we see with foreign companies:

1. Start with a Liaison Office

2. Hire 1–3 employees for market validation

3. Operate for 6–12 months

4. Convert to a subsidiary once revenue visibility is secured

This phased approach helps manage both risk and cost efficiently.

Conclusion

A Liaison Office is not just a “lightweight entity” — it is a strategic entry vehicle when used correctly.

Particularly, for companies that want to:

• hire local staff,

• establish a physical presence,

• and validate the Korean market

…without immediate tax exposure, it is often the optimal starting point.

However, strict compliance with its non-revenue nature is essential to avoid unexpected tax risks.

If you need assistance with:

• Liaison Office setup

• Payroll & compliance

feel free to reach out.

email: justinseo@samdoacc.com

Toby & Justin / Samdo Accounting Firm

We specialize in supporting foreign companies entering Korea.