[Second Half Economic Policy] Minimum 50% Investment Support for U-Turns in Advanced Strategic Industries

2023 Second Half Economic Policy Direction
Equal Support Regardless of Return Area Classification
26 Trillion Invested to Create Conditions for Investment Expansion

The government will support at least 50% of the investment amount for domestic return (U-turn) companies in advanced strategic industries such as semiconductors and batteries. It is also planning to extend income tax reduction benefits for foreigners working at foreign-invested companies. The government intends to provide comprehensive support so that exports and investments can become the key drivers of economic growth in the second half of this year.

On the 4th, the government announced the '2023 Second Half Economic Policy Direction,' which includes these investment promotion measures. First, it is considering a plan to support at least 50% of the investment amount for U-turn companies in future advanced strategic industries such as semiconductors and batteries. This measure takes into account that foreign companies possessing the relevant technology receive about 50% support when investing domestically.

The key point is that while current general U-turn companies receive differential investment support rates ranging from 11% to 44% depending on the return region, advanced strategic industry U-turn companies will receive at least 50% support regardless of region. Advanced strategic industries refer to national strategic technologies designated by the government (semiconductors, displays, vaccines, secondary batteries, hydrogen, future mobility) and advanced strategic technologies (semiconductors, displays, bio, secondary batteries). A Ministry of Economy and Finance official explained, "When domestic companies with advanced technology return, the support level is strengthened to ensure fairness with foreign companies."

The criterion of industry identity for U-turn companies to receive tax benefits will also be applied broadly. For example, if an internal combustion engine parts company returns domestically, it can switch to an electric vehicle parts company and still receive benefits as a U-turn company. Tax benefits for foreign workers will also be extended. Currently, foreign workers employed by foreign-invested companies can choose between a flat tax rate of 19% and a comprehensive income tax rate of 6-45%, applied for 20 years. Considering that this benefit expires this year, the government is pushing to extend it. Additionally, the 50% income tax reduction period (10 years) for these workers is also expected to be extended.

The scale of cash support for foreign-invested companies will also be expanded. The government's related cash support budget increased from 50 billion KRW in 2019 to 60 billion KRW in 2021 but decreased back to 50 billion KRW this year. The government plans to increase the budget for next year while introducing a processing deadline to shorten the time required to calculate the support limit after application.

Along with this, the government will supply facility investment funds worth 26 trillion KRW to create conditions for expanding investment in the second half of the year. It plans to hold outreach meetings with associations and organizations to expand the scope of tax credits for national strategic technologies and facilities and to increase the utilization of temporary investment tax credits. The tariff on naphtha and crude oil used for naphtha production will be reduced from 0.5% to 0% until December. Restrictions on industries and rental areas in port hinterland complexes will also be eased. For example, for type 2 hinterland complexes, which currently allow only residential and sales facilities, all industries except hazardous and harmful facilities will be permitted.

The government is also pushing to extend the installment payment period for gift tax on business succession beyond the current 5 years. Furthermore, it plans to ease the tax burden on business succession by increasing the low-rate gift tax (10%) threshold from the current 6 billion KRW. Currently, a 20% tax rate applies to the taxable base exceeding 6 billion KRW up to 60 billion KRW. Amendments to three laws to revitalize the venture industry are underway. Specifically, the government will create the first fund through corporate tax credits for private venture mother funds and allow general holding companies to hold startup planners. It also plans to relax the external investment requirements for their CVCs (corporate venture capitals) from the current 40% limit per individual fund.

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