The government will grant additional corporate and property tax benefits to companies that expand investment and hiring in regional areas. The plan effectively provides differentiated support to non-capital-area firms by extending tax incentives—previously centered on companies relocating to the provinces—to broader corporate activities such as investment and employment. A proposal to apply differentiated corporate tax rates by region, however, was ultimately dropped.
According to relevant ministries on the 11th, the Ministry of Finance and Economy plans to include the regional tax-differentiation scheme in the tax revision bill to be announced in late July, and is working out specific eligibility criteria and application standards.
The measure focuses on easing corporate concentration in the capital area and promoting regionally led growth through regional tax differentiation. To this end, the government will extend tax support beyond the existing corporate and property tax cuts for relocating companies to cover corporate activities that substantively contribute to regional economies, including investment, hiring, and research and development (R&D).
Currently, capital-area firms that relocate to one of 70 cities and counties designated as growth promotion zones—such as Samcheok, Goheung, and Mungyeong—receive a 10-year corporate tax exemption followed by a 50% reduction for the next five years. Among cities with populations of 300,000 or more, underdeveloped areas receive a full exemption for seven years plus an additional 50% cut for four years, while general areas receive a full exemption for five years plus a 50% cut for three more years. The government plans to add further benefits on top of these based on companies' business activities. "The core of this tax revision is designing the system to provide greater tax incentives to companies that actively conduct business in the regions," a senior government official said.
The widely watched proposal to adjust corporate tax rates by region was ultimately excluded. Analysts say the decision reflects the practical concern that applying lower corporate tax rates only to regional areas would make it difficult to prevent "cherry-picking," in which firms place only their headquarters in the provinces while conducting actual business in the capital area.
