Korea mulls tax benefits for SMEs that relocate from capital region

[Image source: Yonhap]

The South Korean government is promoting a plan to significantly reduce the inheritance tax burden on small and medium-sized enterprises (SMEs) that relocate from the capital region to non-capital regions in a bid to disperse economic power that is excessively concentrated in the capital region and promote balanced regional development.

“Discussions are underway in inter-ministerial meetings involving the Ministry of Economy and Finance , the Ministry of Trade, Industry and Energy, and the Ministry of the Interior and Safety regarding providing various tax benefits to companies relocating to Opportunity and Development Zones, including inheritance tax, corporate tax, and earned income tax,” Woo Tong-ki, the chairman of the Presidential Committee for Decentralization and Balance Development, said in a recent interview with Maeil Business Newspaper.

The core of the plan is to ease the burden of inheritance tax. Currently, the scope of companies eligible for the family business inheritance deduction, which allows SMEs to receive tax benefits when inheriting a family business, is less than 500 billion won in sales. The committee is in discussions with the relevant ministries to expand the application of the deduction to companies with annual sales exceeding 1 trillion won. The committee also plans to discuss increasing the limit of the family business inheritance deduction to up to 100 billion won ($75.87 million) from the current 60 billion won, with Woo emphasizing that simply framing the family business inheritance deduction as a ‘tax cut for the rich’ will not solve the issue of regional decline. “It can only be effective if companies with minimum annual sales of 1 trillion won or more relocate to rural areas,” he said.

A plan is also underway to reduce the earned income tax for young people employed by companies in the Opportunity and Development Zones. With stronger tax incentives needed to encourage young people to settle in rural areas, the key lies in smooth negotiations with the Ministry of Economy and Finance as well as amendments to laws such as the Inheritance Tax Act and Act on Restriction on Special Cases Concerning Taxation.

“We are in discussions with relevant ministries and agencies,” a senior official from the Ministry of Economy and Finance said. “Our policy is to coordinate policies based on discussions in the Taxation Subcommittee of the National Assembly’s Strategy and Finance Committee.