The government is set to revise the incentive system for foreign investment corporations investing in non-capital areas. The allocation rate for cash subsidies granted to local governments attracting foreign direct investment (FDI) is expected to drop from 20-30% to 10-20%. This change addresses the issue that local governments have not been able to fully utilize the allocation rate due to financial constraints, resulting in reduced government support and incomplete payment of subsidies.
Plans to increase the scale of local preferential incentives beyond the current levels are also being considered. This is aimed at inducing local FDI as part of a balanced development policy. The government is currently making final adjustments to include this plan in the 'new government's economic growth strategy' to be announced in mid-month.
According to the government on the 12th, the Ministry of Economy and Finance is pushing forward measures to strengthen local preferential incentives for foreign investment corporations. This reflects the policy stance of President Lee Jae-myung, who has emphasized the revitalization of the local economy.
A government official noted, "We are looking to establish measures that can contribute to regional balanced development," adding, "We are considering adjusting the cash support ratio for foreign investment corporations."
Currently, the government provides a certain percentage of the investment amount as cash subsidies when foreign corporations invest. The support rate can reach up to 40% (for regionally specialized industries), 45% (for new growth, high-tech, and materials and components), and 50% (for R&D centers, global corporation regional headquarters, and national strategic technology corporations), depending on the type of corporation.
Subsidies are calculated based on factors such as the effect on job creation, with the sharing ratio between the state and local governments varying depending on the investment area. Local governments in the capital area must bear 70% of the subsidies, while those in non-capital areas must bear 30%. Particularly, designated opportunity development zones in non-capital areas only need to bear 20%. These zones are a system that allows local governments to autonomously design and operate projects for regional balanced development, with central government support through tax benefits and regulatory exemptions.
The Ministry of Economy and Finance is seriously considering raising the government support ratio applied to non-capital areas from 70-80% to 80-90%. When announcing the '2025 economic policy direction' at the end of last year, the ministry had also raised this ratio by 10 percentage points.
The government expects that this alone will increase the actual amount of incentives received by corporations. Since the burden on local governments is not mandated, if non-capital local governments fail to meet the matching rate of 20-30%, the total subsidies will be reduced accordingly.
To simplify, for example, if a subsidy of 10 billion won is determined for a foreign investment corporation that invests in an opportunity development zone, the local government must provide 2 billion won. However, if its capacity for support is only 1 billion won, government support will also be limited to 4 billion won.
A government official explained, "There are some exceptions, but if local governments cannot provide matching funds, government subsidies will also be reduced," adding, "Ultimately, reducing the burden on local governments will appear as an effect of strengthening support for corporations."
Additionally, there are plans to consider expanding the current local preferential subsidies to a 'plus alpha' scale. Various measures, such as increasing the subsidy rate for corporations that create more employment locally, are under review.
However, the government is expected to set the budget for supporting foreign investment corporations next year at a scale similar to this year (219.5 billion won). This is because it can strengthen support without increasing the yearly budget by providing subsidies not as a lump sum but through partitioning payments over several years.
A government official stated, "No specific policy has been finalized yet," while adding, "The new government's economic growth strategy and next year's budget plan are expected to reflect this policy."