The government is bolstering efforts to attract 'foreign investment' this year to manage the country's external credibility. If global corporations establish a 'headquarter' (regional office) in South Korea, the government will provide cash subsidies covering up to 75% of the investment amount for this year only. If foreign investment occurs in non-capital areas and is designated as an 'opportunity development zone,' no separate area limit will be applied, and the relevant foreign investment companies will receive 'package support' such as tax, financial, and residential condition improvements.
The effort to promote shareholder returns, halted due to the impeachment situation, along with the reinforcement of tax support for the Individual Savings Account (ISA), will be pursued again. Until the actual inclusion in the World Government Bond Index (WGBI), the infrastructure will be overhauled to allow foreign investors to easily trade our government bonds, and measures will be taken to improve the foreign exchange market infrastructure and accessibility.
On the 2nd, related ministries held an expanded economic ministers' meeting at the government office in Seoul, presided over by Minister Choi Sang-mok, acting president and deputy prime minister for the Ministry of Strategy and Finance, to finalize and announce the '2025 economic policy direction' containing these details. Kim Beom-seok, the first vice minister of the Ministry of Strategy and Finance, noted in a related briefing on the 27th of last month, 'If the most urgent issue domestically is improving people's livelihoods, managing credibility is the most important externally.'
◇ Foreign investment zones excluded from opportunity zone area limits
The government will expand incentives to promote foreign investment. Especially this year, it will provide even more enhanced incentives 'temporarily.' Under the current law, if a foreign entity invests in South Korea beyond a certain purpose and ratio, the government provides a certain amount of funds in cash.
Currently, at least 30% and up to 50% of the investment amount is subsidized. The government plans to raise this to at least 40% and up to 50%. Specifically, it is ▲ 50% for research and development (R&D) centers, regional headquarters of global corporations, and national advanced strategic technology ▲ 45% for new growth, advanced, and materials, parts, equipment industries ▲ 40% for large-scale employment and region-specialized industries.
Especially this year, these benefits will be 'greatly' expanded temporarily. This is a temporary increase of 10-25 percentage points (p) more than the planned increase of 5-20 percentage points (p) compared to the current level. For R&D centers related to national advanced strategic industries and regional headquarters of global corporations, cash subsidies of 'up to 75%' will be provided. Additionally, the maximum cash subsidies cap for this year is ▲ 60% for other R&D centers and national advanced strategic technologies ▲ 55% for new growth, advanced, and materials, parts, equipment industries ▲ 50% for large-scale employment and region-specialized industries.
The country's and local governments' sharing rates of the cash subsidies for foreign investment will be adjusted. Especially for non-capital areas and opportunity development zones, the national expenditure sharing rate will be increased by 10% p over the current level. Presently, the sharing ratio for non-capital areas is 60 to 40 between the state and local governments, which will be changed to 70 to 30, and for opportunity zones, from 70 to 30 to 80 to 20. This is to consider the importance of foreign investment in areas outside the capital and to ease the burden on local governments by expanding support from the central government.
In addition, the area where foreign investment occurs will be excluded from the limited area of the 'opportunity development zones' set by metropolitan cities and provinces. This standard will also be applied retroactively to existing foreign investments. For example, if a metropolitan city 'A' has a maximum area designation of 1.5 million pyeong (4.95 km² · or 2 million pyeong for provinces) as an opportunity zone, and the area occupied by the foreign investment corporations is 100,000 pyeong, it can operate a 1.6 million pyeong opportunity zone.
Additionally, the Export-Import Bank will establish a preferential support program for foreign investment corporations, offering benefits in loan interest rates and limits above the level given to returning corporations, and the creation of a foreign investment promotion fund matched by policy financial institutions and the private sector through mother funds is also under consideration.
◇ Re-promotion of value-up tax support... Easily delisting of underperforming corporations
The work to advance the capital market will continue. Particularly, the 'value-up tax support package,' including tax support to promote shareholder returns and the reinforcement of ISA tax support, which the government intended to pursue through the tax law amendment last year but was thwarted at the National Assembly at the end of last year, will be pursued again.
The shareholder return promotion tax scheme will provide a tax credit of 5% on the corporate tax for the portion exceeding 5% compared to the previous three years if listed corporations return more to shareholders than in previous years, and personal shareholders will be taxed at a lower rate of 9% for dividend income (originally 14%) compared to the previous three years. The ISA tax scheme will expand the current contribution limit (20 million won annually · 100 million won in total) and tax-exempt limit (2 million won · 4 million won for the low-income type) to 40 million won annually (200 million won in total) and 5 million won (10 million won for the low-income type), respectively, and the introduction of a 'domestic investment-type ISA,' which can only invest in domestic listed shares and domestic stock-type funds, is planned.
To efficiently delist underperforming listed corporations from the stock market, the delisting procedure will be simplified. Plans include reducing the maximum improvement period (4 years for KOSPI · 2 years for KOSDAQ) and the review stages (2-stage system for KOSPI · 3-stage system for KOSDAQ) granted by the stock exchange during the delisting review. Amendments to the capital market laws, such as the introduction of regulations to protect shareholder interests by the board of directors during mergers or partitioning, are being considered, such as allowing 20% of new public offering stocks during the listing of a subsidiary after a physical partition to be preferentially allocated to existing shareholders.
◇ Continuing improvement of infrastructure for government bond investment and foreign exchange markets
In preparation for the actual inclusion of Korean Government Bonds in the WGBI this November, the government is pushing forward five projects to expand the infrastructure for foreign investment in government bonds. Firstly, a unified trading method will be introduced, which allows a global custodian bank or asset management company to execute securities and foreign exchange transactions on behalf of foreign investors. Previously, each sub-fund affiliated with a custodian bank or asset manager had to carry out transaction procedures such as account opening and trading, but this will be simplified to allow transactions under the name of the representative custodian bank.
The application process related to the tax exemption benefits for foreigners investing in Korean Government Bonds will also be simplified. The law will be revised so individual custodian banks no longer need to register under the scope of ‘Qualified Foreign Institution’ (QFI), which must receive approval from the National Tax Service, and to omit the cumbersome process requiring foreign investors to submit tax exemption application forms mandatorily. Efforts will also be made to widen the usability of our government bonds by enabling foreign investors to use the government bonds they hold as collateral in repurchase agreements (RP) and other secured transactions.
From June this year, the futures market for government bonds will operate overnight. Currently, it opens from 9 a.m. to 3:45 p.m., but in the future, it will also open from 6 p.m. to 6 a.m. the following day to enhance global investors' accessibility to government bond derivatives. Plans include selecting 1 or 2 more banks as primary dealers (PD) for government bond trading and issuing newly five-year government bonds for individual investors.
Efforts to improve foreign exchange market infrastructure will persist, in addition to the government bond market. This will be achieved by measures such as allowing foreign financial institutions (RFI) to exchange foreign currencies for ordinary transactions, activating electronic transaction systems, modernizing won brokerage infrastructure, relaxing the 'cut-off' time for won transactions, and extending the guidance period for non-compliance with RFI foreign exchange network reporting obligations until the first half of this year.
Additionally, to manage potential risks, the government will operate a 60 trillion-won real estate project financing (PF) market stabilization program and aim to keep the annual household debt growth rate within the nominal growth rate. The 'Stress Debt Service Ratio (DSR) Phase 3,' which includes the credit and other loans of the secondary financial sector in the loan capacity calculation, is scheduled to be implemented from July as initially planned. Support for the 'proactive restructuring program' to aid promising small to medium-sized corporations experiencing temporary management difficulties will be expanded, along with pursuing improvements in systems related to 'corporate restructuring' and 'bankruptcy.'