One company chooses to move to rural area in 2023 to date

South Korea has seen a sharp decline in the number of companies moving their factories from the capital region to rural areas over the past 10 years. As the number declines, the population decreases and makes it difficult to find workers, leading to a vicious cycle where companies are reluctant to move to rural areas. Amidst the country’s challenges of an aging population and low birth rates, calls are mounting for urgent measures to prevent the decline of rural areas.

According to data from the Ministry of Trade, Industry and Energy on companies relocating to rural areas, the number of companies that moved their production bases from the capital region to rural areas has sharply declined in the past 10 years. In 2013, there were as many as 36 such companies, but the number dropped to 17 just two years later in 2015 and began a sharp downward spiral. During the height of the Covid-19 pandemic in 2021, only one company made the move, and last year, there were only five. This year, only one company has chosen to relocate to rural areas, deepening the concentration of manufacturing companies in the capital region and significantly impacting job creation. The proportion of manufacturing companies in the capital region was 51.1 percent in 2020, surpassing non-capital regions for the first time.

The government introduced a plan in September to promote new development zones in rural areas offering various tax benefits, including income, corporate, and inheritance tax reductions in a move to achieve balanced development across the country. But companies argue that these incentives are insufficient to encourage them to move from the capital region, where there is abundant labor and infrastructure, to rural areas and are seeking more substantial and long-term tax benefits. The CEO of a company based in the Gasan Digital Complex in Geumcheon-gu, Seoul, recently received a request from his hometown in Cheongyang, South Chungcheong Province, to “come home.” Cheongyang plans to build a general industrial complex by 2026 for the first time in the region and while the CEO is considering the request, the decision is not an easy one as he does not see much to gain in leaving Seoul, where the business ecosystem is well established and logistics are convenient.

“To move to rural areas from Seoul, we need significant benefits,” the CEO said. “The biggest concern for small and medium-sized businesses is ‘family succession.’ If the government offers gift and inheritance tax benefits, many companies might choose to relocate to rural areas.”

The burden of corporate tax is another reason companies are hesitant to relocate to rural areas. “The increase in factories’ land value and the resulting capital gains tax burden are preventing us from actively considering moving to rural areas,” according to another CEO of a company in Sihwa Industrial Complex in Ansan, Gyeonggi Province. “If incentives, including tax benefits, are provided for significant tax items, we will consider relocating to rural areas.”

But more than anything else, a change in the stance of relevant government ministries, including the Ministry of Economy and Finance (MOEF), is crucial to implementing these measures to prevent rural decline. “There must be incentives when companies move their headquarters or factories from the capital region to rural areas,” a senior MOEF official said. “But we are not currently considering additional tax breaks.”