From the 10th, Relaxation of Criteria for Selecting U-Turn Companies... Diversification of Overseas Business Site Reduction Indicators

Enforcement of Revised U-Turn Act Enforcement Decree and Rules
Strengthening U-Turn Support for Advanced Industries and R&D Centers

On July 9, when the government announced the 'Materials, Parts, and Equipment 2.0 Strategy,' President Moon Jae-in visited SK Hynix Icheon Campus in Icheon-si, Gyeonggi-do, on the morning of the 9th and engaged in discussions with materials, parts, and equipment stakeholders. (Photo by Yonhap News)

[Asia Economy Reporter Moon Chaeseok] From the 10th, the criteria for recognizing U-turn companies (companies returning to Korea from overseas) will be relaxed. When a company reduces its overseas business sites, various indicators will be used to recognize this as a 'return to domestic operations.' This is the realization of one of the policy messages from President Moon Jae-in, who suggested restructuring the global value chain (GVC) system to make Korea a 'world factory for advanced industries.'

The Ministry of Trade, Industry and Energy announced on the 9th that it will revise and implement the Enforcement Decree and Enforcement Rules of the 'Act on Support for Domestic Return of Overseas-Expanded Enterprises' (U-turn Act) starting from the 10th. This is a follow-up measure to the U-turn policies presented in the 'Second Half Economic Policy Direction' announced in June and the 'Materials, Parts, and Equipment 2.0 Strategy' revealed in July.

Relaxation of overseas business site reduction criteria... synergy with tax benefits

[Image source=Yonhap News]

The selection criteria for U-turn companies will be relaxed. Previously, the overseas and domestic production products and services had to be the same in the Korean Standard Industry Classification subcategory. With this revision, companies recognized by the Domestic Return Company Support Committee can return to Korea even if the subcategories differ.

The indicators for reducing overseas business sites will be diversified. These will include 'sales revenue,' 'current R&D expenses,' and 'production volume of the product with the largest share of sales,' among others.

This aligns with the Ministry of Economy and Finance’s tax law amendment, which improved the previous practice where tax benefits could only be received by significantly reducing overseas production volume.

Previously, companies had to reduce overseas production by more than 50% to receive income and corporate tax reductions (100% for 5 years + 50% for 2 years), but now tax benefits can be obtained simply by closing or reducing overseas business sites.

'World factory for advanced industries' construction... easing R&D facility U-turn

It will become possible to U-turn research and development (R&D) centers and other facilities. When companies report the establishment or expansion of corporate research institutes, such as increasing research personnel, they will be granted the authority to establish or expand domestic business sites.

To establish a facility, companies must meet ▲ a minimum number of dedicated research personnel ▲ independent research space and research facilities. To make expansion changes, companies must ▲ increase R&D personnel ▲ expand research space, among other requirements.

The reduction ratio of overseas business sites will be applied differentially according to the scale of overseas research facilities.

For example, companies with current R&D expenses of 100 billion KRW or more only need to reduce overseas business sites by '10% or more.' This is a lighter obligation compared to the '25% or more reduction' imposed on companies with 0 to 5 billion KRW.

'Advanced industry' certification enables subsidy support in the metropolitan area

The subsidy support target area will be expanded from 'non-metropolitan areas' to 'nationwide including the metropolitan area.' However, subsidies in the metropolitan area will only be provided to advanced industries.

This measure accepts criticism that the metropolitan area, where advanced industrial infrastructure is concentrated, was being unfairly discriminated against under the pretext of balanced regional development.

Here, advanced industries refer to advanced technologies and products under the 'Industrial Development Act.' Mainly manufacturing and service industries are included.

Meanwhile, the Ministry of Trade, Industry and Energy announced that 21 companies have been selected as U-turn companies as of November this year, surpassing last year's 16.

It emphasized the significance of increased U-turns in key industries such as automotive and chemicals, as well as among mid-sized companies. The number of large and mid-sized companies returning domestically increased from 2 between 2014 and 2016, to 4 in 2019, and 6 this year.

The ministry stated, "Through discussions on the 'U-turn Act amendment bill' submitted to the National Assembly standing committee, we plan to further improve the system by relaxing overseas business site reduction criteria for advanced industries and core supply chain items, providing additional support for demand-linked (collaborative) U-turns, and allowing U-turn companies to settle in local foreign investment complexes."

The ministry added, "Taking this revision as an opportunity, we will strategically expand research facilities and advanced industries, provide customized incentives such as advanced investment zones, and actively promote U-turn attraction with significant economic ripple effects, such as demand-linked U-turns."

This content was produced with the assistance of AI translation services.