Korea mulls tax cuts to encourage companies to relocate to regional areas

[Photo by MK DB}

The South Korean government is considering lowering the corporate tax rate by 5 percentage points on those that relocate their headquarters outside the Seoul metropolitan area to boost regional investments.

According to the government’s regional investment vitalization plan obtained by Maeil Business Newspaper from the office of Representative Ku Ja-keun of the People Power Party on Thursday, the Ministry of Economy and Finance and the Ministry of Trade, Industry and Energy have decided to offer tax benefits to companies that move headquarters to provinces and plan to revise the related law such as the restriction of special taxation act.

Under the plan, the government is considering applying different tax rates on companies that relocate their offices, move more of their workers or raise more sales from outside the Seoul metropolitan area. Companies that are already based in the non-capital areas are also subject to these tax benefits but they must meet the employee and sales requirements.

A 5-percentage-point cut in the corporate tax rate will lower the overall range to 4 percent to 19 percent from 9 percent to 24 percent. The government expects the plan to win support from the political parties as it involves offering customized cuts instead of an overall reduction, which faced opposition from the liberal party that argued excessive favors are given to large companies.

According to the Korea Institute for Industrial Economics and Trade, 58.2 percent of 461,677 business entities in Korea are clustered around the capital city. The companies account for 69.9 percent of the entire revenue and 67 percent of the entire number of employees.

“If tax benefits are offered, there will be a sufficient reason for businesses to relocate their headquarters to regional areas,” said an unnamed official from the industry ministry. “Once the related law is revised and companies start to actively relocate, that should eventually help to attract foreign companies to also move into the non-capital areas.”

A senior official from the economy ministry noted that it will decide on the details of the tax cut rate after discussions with related ministries.