South Korea Expands Tax Benefits for Regional Businesses and Workers to Counter Capital Area Concentration

South Korea is set to implement a "Regional Preferential Tax Package" designed to curb the concentration of economic activity in the Seoul metropolitan area and stimulate growth in other regions. The initiative aims to provide significant tax incentives for both businesses and individuals operating outside the capital.

The package includes a reform of tax support for corporate research and development (R&D), investment, and employment, incorporating regional preferential rates. Specific methods, such as applying regional multipliers to basic tax credit rates, are under consideration. Furthermore, the government plans to enhance tax support for startups located in local areas, offering more favorable conditions compared to those in the capital region.

To encourage employment in regional businesses, the government will offer preferential treatment for income tax reductions for employees of local small and medium-sized enterprises (SMEs). Currently, tax reductions are available for employees of SMEs, with higher rates for young workers and specific groups like the elderly or disabled. However, there are no existing provisions based on the company's location. The new policy will also extend tax exemptions for relocation support funds provided by companies to their employees, up to 200,000 won per month, or 500,000 won in special support zones.

In addition to these tax measures, the government intends to significantly expand existing regional preferential programs. These currently include seven initiatives such as child allowances, elderly job support, and local currency vouchers. Plans are also underway to establish a "Detailed Implementation Plan for National Contract System" by December, which will include preferential price evaluations for companies in depopulated areas and measures to promote the purchase of products from local SMEs in public procurement.

Other measures include rationalizing the eligibility criteria for the Earned Income Tax Credit (EITC) for low-income households and improving the priority admission system for kindergartens to include families with two children as multi-child families. The government also plans to streamline the automatic payment of cash benefits, such as the initial child voucher, parental benefits, and child allowances, eliminating the need for separate applications.