Korean gov’t expands tax incentives for reshoring companies

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South Korean companies returning home from overseas will be offered a wide range of tax benefits, including reductions in income and corporate taxes as well as acquisition and property taxes starting next year.

The Ministry of the Interior and Safety announced Thursday a revised law related to regional tax revenue. Under the revision, reshoring companies will receive a 50 percent reduction in acquisition tax and 75 percent in property tax.

The ministry is expected to submit the revision to the National Assembly in October after issuing a legislative notice.

Eligible companies are those that have been operating sites overseas for two years and more and returning home to a location outside the capital and surrounding areas.

The companies must close or transfer their overseas business sites and complete the construction of a new domestic business site within four years.

The companies are even eligible for a full exemption of acquisition as local governments may grant an additional cut of 50 percentage points according to ordinances.

In order to expand regional investment, a new regulation will be established to grant local tax reduction to companies relocating from metropolitan areas to opportunity development zones.

Earlier, the government had also included tax incentives for reshoring companies in last month‘s tax law revision. The tax break for income and corporate taxes will be extended to 10 years from the current seven years.

Reshoring companies were granted a 50 percent reduction in income and corporate taxes for two years after a full exemption for five years, but they will be eligible for a 50 percent reduction for three years after a full exemption for seven years.

The government is expanding the benefits for reshoring companies because their return has a significant impact on local productivity and employment.

The government had been trying to attract companies to return home since 2014 by implementing the Act on Assistance to Korean Off-shore Enterprises in Repatriation, but the results have been insignificant.

According to the Ministry of Trade, Industry and Energy, 2,456 Korean companies opened new subsidiaries overseas last year while only 24 companies returned home.

High labor costs and little tax incentives have remained an obstacle but the government’s pledge of a series of tax incentives is expected to be a game changer, observers noted.