Foreign Companies Say "To Increase Investment in Korea, Excessive Taxes Must Be Reduced"

The 8th Industrial Development Forum (and the 12th Automotive Industry Development Forum) Held
Evaluation and Suggestions on Korea's Business Environment by Foreign-invested Companies

[Asia Economy Reporter Changhwan Lee] Foreign-invested companies have collectively called on the government to reduce the excessive tax burden and ease regulations compared to other countries in order to increase investment in Korea.

On the 28th, Christophe Butte, CFO (Chief Financial Officer) of Renault Samsung, argued that Korea's tax rates are on average higher than those of other countries and need improvement at a forum held by the Korea Industrial Federation on the theme of "Evaluation and Suggestions on Korea's Management and Investment Environment from the Perspective of Foreign-invested Companies" at the Korea Automobile Manufacturers Association in Seocho-gu, Seoul.

Speaking as a lecturer that day, CFO Butte said, "Korea's corporate tax rate is 27.5%, which is higher than the OECD average of 23.5%, and the property tax revenue relative to GDP is also around 3%, higher than Spain's 2% or Turkey's 1%. Korea's tax system and rates need improvement to expand and maintain investment by foreign-invested companies."

He emphasized, "The global automobile industry is facing intensified competition among companies due to the impact of COVID-19, the expansion of electric vehicle adoption, strengthened environmental regulations, and competition among global automobile companies, making it more difficult than ever. In this context, the role and support of governments in the automobile industry are becoming increasingly important for sustainable growth."

"Korea's tax rates significantly exceed major countries, posing obstacles to foreign investment"

James Kim, Chairman of AMCHAM (American Chamber of Commerce in Korea), also pointed out that Korea's high tax rates are a factor hindering the expansion of investment by foreign-invested companies. He analyzed, "Korea's greatest strength is its technological capability, with excellent ICT (Information and Communication Technology) penetration, R&D capacity, infrastructure, and a very stable macroeconomic environment. Additionally, Korea has trend-sensitive consumers, a high standard of living, and strong freedom of the press."

However, he stated, "Personal income tax rates and corporate tax rates significantly exceed those of regional competitors, especially Hong Kong. While foreigners in Korea are subject to a fixed personal income tax rate of 19% for five years, after that period it becomes a significant burden for foreign-invested companies and poses difficulties in attracting and retaining foreign talent."

Rigid labor-management relations were also identified as a problem. Kaher Kazem, President of GM Korea, said, "Stable labor-management relations, a stable economy, flexibility, and parts supply chains are key considerations for foreign companies' investment decisions. Compared to competing countries, Korea has short negotiation cycles (one year), short union executive terms, frequent strikes, frequent regulatory changes and uncertainties related to dispatched/contract workers, which increase costs and rigidity."

He added, "We have proposed to the government long-term labor-management agreements and securing union executive terms for stability and certainty, free utilization of contract workers and enhancement of employment flexibility, and strengthening harmonization with international standards in automobile regulations."

Excessive regulations also pointed out as an issue

Dirk Lukat, Chairman of ECCK (European Chamber of Commerce in Korea), requested that the government engage sufficiently with foreign-invested companies when introducing new regulations. Chairman Lukat said, "Foreign-invested companies need sufficient time for communication with headquarters and legal translation," and argued, "It is necessary to specify regulations and rules through continuous dialogue among companies, government, and stakeholders so that good policy ideas can be transformed into future-oriented actions."

For example, he explained that more time is needed to develop zero- and low-emission vehicles for domestic sales by foreign-invested companies, but the Korean government does not provide sufficient time. He also stated that policies need to be continuously adjusted according to international best practices that encourage innovation and promote investment.

He also requested the expansion of investment promotion support measures for foreign-invested companies. He said, "Providing incentives for new investments by foreign-invested companies can promote investment. For example, under current law, new facility investments from undistributed earnings can be recognized as 'foreign investment,' but additional follow-up work is required to receive actual support. Therefore, clear local tax reduction regulations should be established for new facility investments from undistributed earnings of foreign-invested companies."