The South Korean government is significantly improving the recognition process for companies returning from overseas, known as "returning companies." Key changes include relaxing the requirements for product similarity and expanding exemptions for restructuring overseas operations. The subsidy support system will also be restructured to more directly encourage domestic investment.
On May 29, the Ministry of Trade, Industry and Energy presented these plans during an economic ministers' meeting, outlining a strategy for promoting domestic returns.
Previously, to be recognized as a returning company, firms had to liquidate or transfer their overseas operations and reduce their overseas production by a certain level before making new investments in South Korea. However, there have been ongoing criticisms that the existing policies do not align with the realities faced by businesses.
Companies wishing to maintain their global production networks while also investing domestically found themselves outside the support framework, as they were required to completely reduce or restructure their overseas operations. This was particularly challenging for advanced industries, where maintaining overseas bases is crucial for responding to local markets and managing supply chains. Thus, using overseas production reduction as the sole criterion for determining domestic return was seen as inadequate.
The Korea Development Institute (KDI) raised concerns about the effectiveness of reshoring policies in a report published in 2023. The report noted that reshoring companies in South Korea tend to be smaller, labor-intensive, and less productive compared to multinational corporations. Additionally, the employment effects of their domestic investments were found to be lower than those of purely domestic firms, despite receiving more government support.
In response, the government plans to focus on several key areas through this new initiative: redesigning the recognition criteria for returning companies, restructuring the subsidy support system, enhancing evaluation and management, and providing close support for strategic attraction and investment implementation.
The government will broaden the narrow definition of returning companies. Major countries like the United States and Japan are prioritizing investment support based on securing production capabilities in advanced strategic sectors rather than merely formal requirements. The government aims to revise relevant laws related to returning companies this year and implement them starting next year.
The requirement for product and service similarity between overseas operations and domestic return projects will be relaxed. The government will adopt a more flexible approach to similarity assessments to support investments aimed at entering new industries and enhancing business structures.
An official from the Ministry of Trade, Industry and Energy explained, "If a traditional auto parts company transitions to producing electric vehicle parts, it previously could not be recognized for returning. We will now acknowledge such companies transitioning to new industries as returning companies, although sudden shifts in industry will still be challenging."
Additionally, the scope of exemptions for restructuring overseas operations will be expanded. Exemptions will apply to investments recognized as core production facilities in advanced industries and supply chain sectors. This aims to actively promote the domestic acquisition of advanced manufacturing and innovation capabilities beyond mere formal requirements.
The subsidy support system for returning companies will also be restructured. The previous system applied uniform subsidy rates based on a set criteria, which limited the attraction of excellent returning companies, particularly in regional areas. To promote local investment and encourage returning in advanced strategic sectors, the government will overhaul the subsidy system to a negotiation-based approach.
This negotiation method will draw on cash support policies for foreign investment companies, determining the scale of support through discussions between the government and companies based on economic impact or strategic sectors. Factors such as non-capital area investments, youth employment creation, advanced strategic technologies, and mother factory status will be comprehensively considered.
To actively encourage local investment and the introduction of advanced strategic technologies, the criteria will shift from fixed limits to focusing on subsidy rate ceilings. While general sectors and small-scale investments will continue under the current system, the basic subsidy rate will be adjusted to align with local investment promotion levels.
To strengthen investment implementation, the evaluation of domestic investment plans and implementation capabilities will be enhanced from the selection stage of returning companies. A new Domestic Return Practical Committee will be established through amendments to the enforcement decree to systematically manage the selection evaluation and subsidy review processes. Detailed procedures supporting the negotiation-based subsidy system will also be developed.
To ensure closer monitoring of investment implementation by returning companies receiving subsidies, the implementation period will be extended from the current three years based on the scale of support. The requirements for implementation will also be improved to reflect trends in manufacturing automation and changes in industrial structure.
Potential returning companies with core capabilities in advanced industries, manufacturing AI transitions, and supply chain sectors will be proactively identified and attracted. Dedicated project managers will be assigned to provide close support throughout the investment review and implementation process.
Kim Jeong-kwan, Minister of Trade, Industry and Energy, stated, "Returning is becoming a strategic choice about where to center technology development, production, and supply chains, beyond just relocating factories. We will redefine the concept of returning based on feedback from the field and boldly restructure and expand our support methods."
* This article has been translated by AI.
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