How to Dissolve and Liquidate a Foreign-Invested Company in Korea: Complete 2026 Guide

How to Dissolve and Liquidate a Foreign-Invested Company in Korea: Complete 2026 Guide

Not every business venture in Korea succeeds — and even those that do eventually reach an end. Whether your Korean subsidiary has completed its mission, the market strategy has changed, or you simply need to restructure, knowing how to close a foreign-invested company in Korea correctly is just as important as knowing how to open one.

The dissolution and liquidation of a Korean corporation is a multi-step legal process governed by the Korean Commercial Code (상법) and the Foreign Investment Promotion Act (외국인투자촉진법, FIPA). Done properly, it allows you to recover your invested capital and exit cleanly. Done improperly, it can leave you exposed to tax liabilities, regulatory violations, and reputational damage.

This guide walks you through every stage of the process.

Table of Contents

Overview: The Two-Stage Process

Closing a Korean corporation involves two legally distinct phases:

Both stages require court filings, shareholder resolutions, and public notices. You cannot simply stop operating and walk away — Korean law requires you to formally complete both stages before the corporate entity ceases to exist in the eyes of the law.

Before You Decide: Consider Alternatives

Before initiating dissolution, consider whether one of these alternatives better fits your situation:

1. Dormancy (휴업)

If the business slump is temporary, you can file for business suspension (휴업신고) with the tax office. The entity remains alive but all operations pause. This avoids dissolution costs and allows you to reactivate later.

2. Share Transfer (주식양수도)

Selling your shares to a Korean buyer transfers the business — and any liabilities — without dissolving the entity. Often faster and more commercially practical, especially if the company has value as a going concern.

3. Merger (합병)

The Korean subsidiary can be merged into another Korean entity. Less common for wholly foreign-owned subsidiaries, but available under the Commercial Code.

4. Branch Conversion

If the company has little value but a useful business presence, converting to a liaison office may preserve the footprint at lower cost.

If none of these alternatives fit, proceed with formal dissolution and liquidation.

Stage 1: Dissolution

Step 1: Board of Directors Resolution

The first step is a Board of Directors resolution proposing dissolution. This resolution must:

• Be passed by a majority of the board
• Set a date for the extraordinary general meeting (EGM) of shareholders

Step 2: Shareholder Resolution (EGM)

Dissolution of a Korean corporation (주식회사) requires a supermajority shareholder vote:

• At least two-thirds (2/3) of the total shares present must vote in favor
• The quorum requires that at least one-third of total issued shares be represented at the meeting

For a wholly owned foreign subsidiary with a sole foreign corporate shareholder, this requirement is easily met — but the formalities must still be observed. Minutes must be prepared and notarized.

For a 유한회사 (LLC): The dissolution resolution requires unanimous or supermajority consent of members per the company’s articles.

Step 3: Appointment of Liquidator (청산인)

Upon passing the dissolution resolution, the existing directors automatically become joint liquidators (청산인) unless the shareholders designate a different person at the EGM. The liquidator is responsible for:

• Managing the company during liquidation
• Filing court registrations
• Publishing creditor notices
• Distributing remaining assets

Step 4: Court Registration of Dissolution

Within 2 weeks of the dissolution resolution, the liquidator must register the dissolution with the district court (지방법원) having jurisdiction over the company’s registered office. The filing must include:

• Dissolution resolution minutes (certified)
• Liquidator appointment documents
• Liquidator’s acceptance statement
• Corporate seal and registration certificate

Filing fee: approximately KRW 3,000–10,000 (nominal court fee)

Step 5: Public Notice to Creditors

After registering the dissolution, the liquidator must publish a creditor notice (채권자공고) in the Official Gazette (관보) and/or a major daily newspaper for two consecutive months. The notice invites all creditors to come forward and submit their claims.

This 2-month notice period is mandatory and cannot be shortened. It is the main reason dissolution takes a minimum of 3 months from start to finish.

During this period, the liquidator should:

• Compile a complete inventory of assets and liabilities
• Notify known creditors directly (by registered mail)
• Settle or otherwise resolve outstanding debts

Stage 2: Liquidation

Step 6: Settle All Liabilities

Before distributing anything to shareholders, all creditor claims must be resolved:

• Pay outstanding invoices, loans, and tax liabilities
• Handle employee termination (severance pay, accrued wages)
• Resolve or transfer any ongoing contracts
• Close corporate bank accounts (after paying all obligations)

Employee obligations under the Labor Standards Act are given priority. Any employee who has worked for 3+ years is entitled to statutory severance (퇴직금) equal to at least one month’s average wage per year of service.

Step 7: Prepare and Submit Liquidation Balance Sheet

After the creditor notice period ends and all known claims are settled, the liquidator prepares a liquidation balance sheet (청산대차대조표) showing:

• All assets remaining
• All liabilities settled
• Net assets available for distribution to shareholders

This balance sheet must be approved by shareholders at a final general meeting.

Step 8: Distribute Remaining Assets to Shareholders

After settling all liabilities and obtaining shareholder approval of the liquidation balance sheet, the remaining assets are distributed to shareholders proportionally to their shareholdings.

For a wholly foreign-owned subsidiary:

• The sole shareholder (foreign parent company) receives all remaining assets
• This typically involves closing Korean bank accounts and remitting funds overseas

See the section on capital repatriation below.

Step 9: File Liquidation Completion with the Court

Once distribution is complete and liquidation accounts are finalized, the liquidator files a liquidation completion report with the district court, including:

• Final liquidation accounts
• Shareholder approval resolution
• Evidence of asset distribution

The court reviews the filing and strikes the company from the commercial register. At this point, the company legally ceases to exist.

Tax Obligations Before and During Dissolution

Tax compliance is the most complex — and most consequential — part of winding down a Korean company. Errors here can result in reassessments years after you believe the matter is closed.

Corporate Income Tax Return (법인세)

The company must file a final corporate income tax return for the period up to the dissolution date. This must be submitted within:

• 3 months from the fiscal year end for the dissolution period (or within 3 months of dissolution, whichever is sooner)

VAT Returns

All outstanding VAT returns for open taxable periods must be filed and any VAT liabilities paid before the business registration can be cancelled.

Business Registration Cancellation (사업자등록 말소)

The company must apply to the National Tax Service (NTS) to cancel its business registration. This is separate from the court dissolution filing. Required documents include:

• Business closure report (폐업신고서)
• Business registration certificate
• Final tax return filings

Timing: Apply for business registration cancellation after passing the dissolution resolution but ideally before completing the final liquidation filing.

Withholding Tax on Dividend Distributions

When assets are distributed to the foreign parent shareholder:

• If any amount exceeds the original paid-in capital, it may be classified as a deemed dividend (간주배당) and subject to withholding tax (typically 20% or lower under a tax treaty)
• Return of original capital investment is generally tax-free (it is a capital reduction, not income)

Confirm the applicable rate under the tax treaty between Korea and the parent company’s home country. Korea has comprehensive tax treaties with over 90 countries.

Cancellation of Foreign Investment Registration

Companies registered under the Foreign Investment Promotion Act (FIPA) as Foreign Direct Investments must also cancel their FDI registration with KOTRA (Korea Trade-Investment Promotion Agency) or the relevant foreign investment zone authority.

Required documents:

• Application for cancellation of foreign-invested enterprise registration
• Court-issued certificate of company dissolution/liquidation completion
• Evidence of capital repatriation (or explanation if capital was consumed in operations)

Failure to cancel FDI registration does not block the corporate dissolution itself, but it is a regulatory obligation and may affect future FDI applications or reporting.

Capital Repatriation: Getting Your Money Back

One of the main concerns for foreign investors is: can I get my money out of Korea?

The short answer is yes — but with conditions:

Foreign Exchange Transaction Act (외국환거래법)

Repatriation of original invested capital (i.e., the amount you wired into Korea to capitalize the company) is generally freely permitted as a capital return. You must:

1. Open a foreign exchange account at a Korean bank or use your existing corporate account
2. Provide documentation that the funds being remitted represent:
   • Return of capital (equity)
   • After-tax liquidation proceeds
3. File the appropriate foreign exchange remittance report with your Korean bank

Documentation Required for Repatriation

Timing

Banks typically process capital repatriation wires within 3–5 business days once all documentation is in order. Large amounts (over USD 5,000,000) may require additional review.

Timeline and Cost Estimates

Estimated Costs

Costs vary significantly based on company size, number of employees, outstanding liabilities, and complexity of tax matters.

Common Mistakes to Avoid

1. Skipping the Creditor Notice Period

Some foreign investors try to shortcut the mandatory 2-month creditor notice. This is illegal and will result in the court rejecting the dissolution registration, forcing you to restart.

2. Forgetting Employee Severance

Korean labor law entitles employees to severance. Failing to pay in full before final distribution can expose directors personally to labor law penalties.

3. Distributing Assets Before Tax Clearance

Distributing remaining assets to shareholders before filing and paying all taxes (corporate income tax, VAT) can result in the NTS pursuing the foreign shareholder for the tax debt.

4. Ignoring FIPA Cancellation

Even after court dissolution is complete, failing to cancel the KOTRA FDI registration can create complications in future Korean business dealings.

5. Closing the Bank Account Too Early

Many founders close the corporate bank account as soon as they decide to shut down. However, you need the account active to receive creditor claims, make final payments, and process capital repatriation.

Key Takeaways

• Korea’s dissolution and liquidation process is formal and sequential — shortcuts are not available
• Minimum timeline is 4–6 months due to the mandatory 2-month creditor notice period
• Tax compliance is the most complex step — engage a Korean tax advisor before initiating dissolution
• Capital repatriation is generally permitted after all liabilities are settled and NTS clearance is obtained
• Engage a Korean attorney from the start to ensure each step is completed correctly and the court filings are accepted on first submission

Closing a company in Korea is straightforward compared to some jurisdictions — but only if you follow the process. Cutting corners creates liabilities that can follow you for years.

📩 Planning to close or restructure your Korean subsidiary?

SMA Law Firm specializes in advising foreign investors on Korean corporate exit strategies, including dissolution, liquidation, and share transfer transactions. Our bilingual team guides you through every step from the initial resolution to final capital repatriation.

Contact us at sma@saemunan.com or visit startcompanykorea.com.