S.Korea proposes extended tax breaks for reshoring companies

Some members of the opposition Democratic Party support the extended tax breaks The South Korean government and the ruling party proposed longer-term tax cuts for companies bringing production back home in order to reinvigorate the country’s manufacturing industry, the chief policymaker of the People Power Party said on Friday. Its policy planning committee and the Ministry of Strategy and Finance on Wednesday agreed to amend tax laws, to come into effect in 2024, to extend the period of corporate tax breaks to 10 years from seven years for reshoring companies. Under the current laws, South Korea does not impose both income and corporate taxes for companies transferring operations back home for the first five years and then cut the taxes by half for the following two years. The revised laws, subject to parliamentary approval, will exempt them from both taxes for the first seven years and then apply a 50% tax cut for the next three years. “In order for the manufacturing sector, the backbone of our economy, to take a leap forward again and to create many quality jobs, we need to provide more tax support for companies that have gone abroad to return to Korea,” said Park Dae-chul, the chief policymaker of the People Power Party at a media briefing. Hyundai Motor’s plant in Russia’s St. Petersburg, which the carmaker reportedly puts up for sale The tax law amendments are aimed at revitalizing the domestic economy, stabilizing peoples’ livelihoods and coping with the demographic changes, he said. They will be tabled in the National Assembly, where the opposition Democratic Party holds a majority. The extended tax cut proposals have already won the backing of some opposition party members. A few Democratic Party lawmakers had submitted a bill to reduce corporate taxes for reshoring companies for an extended period of time, matching the ruling party’s proposals. OTHER TAX BENEFITS Props of megahit Korean drama Squid Game are on display at a K-content exhibition in Seoul in July, 2023 The law revision package also deals with tax reductions on investments in K-content such as movies and TV dramas, as well as startup investments by private venture capital funds. Specifically, the ruling party called for bringing forward the planned tax breaks on startup investments by private funds of funds (FoFs) to this year so that the country’s first private sector-lead FoF can be formed within the year. For individuals, both the finance ministry and the ruling party are seeking to further cut income taxes for crews of deep-sea fishing vessels and ocean-going ships, as well as construction employees working abroad. They also offered low- to middle-income tax breaks to relive their burden from inflation and high borrowing costs. Income tax cuts for entry-level employees at small- to medium-sized enterprises are encompassed in the package as well. A traditional marketplace in South Korea To provide support to farmers and the self-employed, the government is looking to cut taxes for small eateries’ purchases of agricultural products, as well as value-added tax deduction on credit card sales. Some of the aforementioned income tax reductions have been already introduced for a limited period of time and are set to expire this year. But the ruling party asked the finance ministry to leave them intact. The government is preparing to expand tax benefits for married couples and families with children to boost their fertility rate, as well as on retirement pensions. Addressing the dwindling and aging population in rural areas, the government offered tax reductions for companies relocating operations to small provinces. Write to Jae-Yeon Ko at yeon@hankyung.com Yeonhee Kim edited this article

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