Seoul to expand tax benefits for foreign firms

South Korea’s tax authority has decided to expand tax incentives for foreign companies, which would increase the workforce in the nation next year, said economic policymakers on Thursday.

According to the 2015 tax code revision unveiled by the Finance Ministry, the ceiling of tax deduction for foreign firms operating here will be raised to 40 percent of their total inbound-investment from the current 20 percent -- when it comes to job creation.

Currently, they are offered a corporate deduction of 10 million won ($8,540) for every Korean worker they hire. Now, a company investing 10 billion won in Korea can see a deduction-tolerance band of up to 2 billion won by hiring 200 local workers.

When the revision code passes the National Assembly, the same company will be able to see the deduction expand to 4 billion won via selection of 400 workers.

Further, the deduction per employee will be extended to 15 million won when they hire young, disabled or senior (aged 60 or older) jobseekers, and to 20 million won when they hire graduates of specialized vocational high schools.

“Expanding on the government’s active policy to reduce the youth jobless rate by providing incentives to toward the local businesses, the tax benefit scheme for foreign players has been included in the 2015 tax code to reinforce the economy,” said a Finance Ministry official.

The government also plans to increase the tax benefits for outbound investors by inducing enterprises and individuals to make investments in overseas funds.

As a representative case, the ministry said, tax exemption will be pushed for gains on overseas stock-oriented funds. The benefit targets will include gains from equity trading and foreign exchanges.

A special fund will feature investment in overseas shares of more than 60 percent of investors’ cash. Its ceiling per investor is set at 30 million won.

The investors could sign up for the fund from Jan. 1, 2016, to Dec. 31, 2017, and enjoy the nontaxable gains for 10 years starting from the date of their subscription.

Analysts in the financial industry shared the view that the outbound investment -- initiated by the government several months ago -- is targeted at depreciating the Korean won’s value versus major currencies and raising the price competitiveness of exporters.

Domestically, the tax authority -- in coordination with the Financial Services Commission -- will introduce the “individual savings account” for income earners, which will be designed to support wealth accumulation through such tax favors.

The ISA, which comprehensively deals with savings, funds and other financial investments, will have the function of providing individuals with tax refund of 550 billion won in total.

As part of efforts to revitalize inbound tours, the authority is considering offering tax refunds to foreigners, who have cosmetic surgery in local hospitals, when they leave the nation.

Meanwhile, as a way to widen the tax base the government has continued to push for legislation to tax religious organizations.

In addition, the authority has decided to widen the territory of main shareholders, who will be subject to capital gains tax of 20 percent on the bourses. And businesses whose yearly sales exceed 1 billion won will be excluded from tax deduction on customers’ settlement via credit cards.

The tax code also contains ways to reduce the burden for ordinary citizens and small- and medium-sized enterprises, while raising it for conglomerates and high-income households.

Some market insiders question its efficacy, predicting that less-than-expected number of ordinary citizens would have the capacity to participate in overseas investments or ISA amid the record household debt.

The code is scheduled to be presented to the plenary session of the Assembly by Sept. 11.

By Kim Yon-se (kys@heraldcorp.com)