Foreign firms in Korea are voicing concerns over an increasingly deteriorating business environment, with the government seeking to introduce a “profit-sharing system,” which would force companies to share their earnings with others that have been more seriously damaged by the COVID-19 pandemic. This proposal comes after a law punishing CEOs for major accidents at workplaces was passed, and is waiting to go into effect.
Militant unions, a rigid labor market and high corporate tax are some of the factors foreign businesses have continued to state undermine Korea’s attractiveness as an investment destination. These factors have not improved but rather worsened under the Moon Jae-in administration given his policies prioritize the protection of workers’ rights.
GM Korea CEO Kaher Kazem in a recent forum on attracting foreign investment said the strikes that frequently occur in Korea make it difficult to make investments.
He said it is easier in Korea for workers to launch collective action, and that union-management negotiations take place every year in Korea, while these are held every four years in the U.S.
Kazem added that the terms leaders of unions serve are too short ― making it hard for management to establish stable relations with them.
But the concern is growing further over the government’s plan to introduce a system under which companies that have reaped large profits are required to share these with others that are suffering from the COVID-19 pandemic.
The ruling Democratic Party of Korea is seeking to set up the legal grounds for the initiative. Details have yet to be laid out as discussions are ongoing regarding which firms will be expected to share their profits, and with which entities.
While the initiative is well-intended, it is being criticized as an anti-business measure that further dampens foreign companies’ willingness to invest here.
“It will depend on how the policy is operated, but companies will most likely view this as another form of tax, and more tax is not welcome,” American Chamber of Commerce (AMCHAM) Board of Governors Chairman Jeffery Jones told The Korea Times, Friday.
“There are a lot of complaints about taxes from the foreign business community. Korea’s tax rate for foreign firms is not competitive to that of Hong Kong or Singapore. The tax regime makes it difficult to attract good people to come to Korea,” he said.
Korea’s corporate tax rate stood at 27.5 percent in 2019, which compares with 25.9 percent in the U.S., 17 percent in Singapore and 16.5 percent in Hong Kong.
CEO risks have also been consistently cited by foreign firms as an issue.
AMCHAM CEO James Kim referred to the imprisonment of Samsung’s chief Lee Jae-Yong as an example of a “Korea-unique” business hurdle for global businesses here, in a press conference held last month.
He said the risks CEOs face in Korea greatly affect business plans and decisions, and that regulations that hold CEOs accountable for a greater range of issues make the position at Korean offices unattractive for global firms.
