S.Korea proposes extended tax breaks for reshoring companies

The South Korean government and the ruling party proposed longer-term tax cuts for companies that bring production back home to reinvigorate the country’s manufacturing industry, the chief policymaker of the People Power Party said on Friday.

The party's policy planning committee and the Ministry of Strategy and Finance on Wednesday agreed to amend tax laws, to take effect in 2024, to extend the period of corporate tax breaks from seven years to 10 years for reshoring companies.

Under current laws, Korea does not impose both income and corporate taxes on companies that transfer operations back home for the first five years at home and then cuts taxes in half for the next two years.

The revised laws, subject to parliamentary approval, will exempt reshoring companies from both sets of taxes for the first seven years and then apply a 50% tax cut for the following 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 and return to Korea,” said Park Dae-chul, the People Power Party's chief policymaker at a media briefing.

The tax law amendments aim to revitalize the domestic economy, stabilize peoples’ livelihoods and cope with the country's demographic changes, he said.

They will be tabled at the National Assembly, where the opposition Democratic Party holds a majority.

The extended tax cut proposals have already won support from some opposition party members.

A few Democratic Party lawmakers had submitted a bill to reduce corporate taxes for reshoring companies for an extended period, matching the ruling party’s proposals.

OTHER TAX BENEFITS

The revised law package also addresses 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 pushing 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-led FoF can be formed within this year.

For individuals, both the finance ministry and the ruling party seek to further slash income taxes for crews of deep-sea fishing vessels and ocean-going ships, as well as construction employees who work abroad.

They also offered tax breaks to low- to middle-income earners to ease their burden from inflation and high borrowing costs.

Income tax cuts for entry-level employees at small- and medium-sized companies are included in the package as well.

To support farmers and the self-employed, the government is looking to cut taxes for small eateries’ purchases of agricultural products, as well as a value-added tax deduction on credit card sales.

Some of the abovementioned income tax reductions have been already introduced for a limited time and are due 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 in a bid to boost the country's fertility rate, as well as for retirement pensions.

Addressing the shrinking, aging population in rural areas, the government offered tax reductions for companies that relocate operations to less-populous provinces.

Write to Jae-Yeon Ko at yeon@hankyung.com
Yeonhee Kim edited this article