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Gov’t Urged To Encourage Reshoring Of More Korean Firms Through Deregulation

Gov’t urged to encourage reshoring of more Korean firms through deregulation

Gov't urged to encourage reshoring of more Korean firms through deregulation

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, second from left, speaks during a joint government briefing on the 2023 economic policy direction at the Government Complex Seoul, Dec. 21, 2022. Korea Times file By Yi Whan-woo The government needs to ease more business regulations to attract Korean enterprises active abroad to reshore their operations here, as a part of efforts to boost the market-driven economic strategy as addressed by President Yoon Suk-yeol, according to multiple studies and economists. The Yoon administration has pledged to enhance support for the reshoring of Korean businesses, especially in order to secure supply chains that have been increasingly disrupted due to the pandemic and the U.S.-China trade row. Nevertheless, data released by the Ministry of Trade, Industry and Energy, Thursday, showed 24 companies relocated their overseas operations back home last year, the first year of Yoon’s presidency which was inaugurated in May. The 2022 figure is down slightly from the 26 companies in 2021 and 23 in 2020. The total number of firms that returned home between 2014 and 2022 was 126. Reshoring of businesses in Korea is far behind that of the United States, where 6,839 American companies brought back their production and manufacturing operations between 2014 and 2021. Also in Japan, 7,633 companies reshored their operations between 2016 and 2018. In the European Union, 193 companies did so over the same time period. Separate data from the Federation of Korean Industries (FKI) in 2022 showed that 87 percent of companies that are interested in reshoring found the investment environment in Korea “less than satisfactory.” “All the data suggests there should be more coming from the government in terms of incentives and benefits for reshoring of Korean businesses,” said Joo Won, deputy director of the Economic Research Department at the Hyundai Research Institute. In particular, Joo noted Korea still imposes a higher corporate tax rate than many other major economies. For Korean companies reshoring from overseas, the government offers a 100 percent tax exemption for the first five years from the point of return and then a 50 percent tax exemption for another two years. The firms then will be subject to a corporate tax of up to 24 percent, which is higher than the OCED average of 21.2 percent and the seventh-highest among the 38 OECD member countries. The maximum corporate tax rate in Korea is also comparable to those of neighboring countries, such as Japan’s which is at 23.2 percent, Hong Kong’s at 16.5 percent and Taiwan’s at 20 percent. The Yoon administration had planned to lower the maximum corporate tax rate to 22 percent, down from the 25 percent imposed during the previous Moon Jae-in administration. But the plan was drastically revised by the opposition bloc which dominates the National Assembly. The tax rate was eventually settled at 24 percent. Kim Jae-hyun, who heads the Korea Enterprises Federation (KEF) unit on deregulation and reform, said the government is “too picky” concerning the eligibility of companies to receive incentives and benefits when moving their overseas operations back home. For instance, firms will be eligible for the tax exemption only when their facilities are moved to regions outside of the Seoul metropolitan area, in the name of promoting balanced regional growth. These companies are also required to reshore more than 25 percent of their production and manufacturing operations. “The government should further loosen criteria on the reshoring of companies while expanding incentives to induce more firms to return,” Kim said.

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Daisie Hobson

Daisie Hobson is a Director at the Reshoring Institute and an engineer with many years of experience in manufacturing and project management.

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