South Korean Government to Promote Reshoring

The South Korean government announced a series of reshoring promotion plans on June 1. According to the plans, a business income tax cut will be applied to companies reshoring by domestic business place expansion whereas the same tax cut has been applied to those reshoring by reducing a place of business abroad and opening a new place of business in South Korea. In addition, a corporate tax cut proportional to overseas production curtailment will be available on certain conditions.

Subsidies to cover reshoring companies’ facility investments and relocation costs have been prepared. Specifically, the amount per business place is 20 billion won in non-capital areas and 15 billion won in the case of high-tech companies returning to the capital area. In addition, companies with a trade-to-sales ratio of 20 percent or more, instead of 30 percent or more, can be located in port hinterland complexes and more assistance will be provided for reshoring companies wishing to be located in industrial complexes.

Also, the government is planning to accelerate smart manufacturing and industrial robot popularization by increasing the upper limit of its financial assistance to that end from 300 million won to 500 million won per reshoring company. Reshoring material, component and equipment exporters can be provided with guarantee in relation to capital expenditures and visa-related assistance will be given so that reshoring companies can bring their employees in.

Experts point out that the outcome of the measures may fall short of expectations. “Many South Korean companies outside their home country have already established industrial ecosystems there and the high wages in South Korea, the biggest hindrance to their reshoring, still remain as they are,” the Korea Economic Research Institute explained, adding, “This means the government’s reshoring efforts need to focus more on a slower increase in labor cost and higher labor productivity.”