Gov’t to Ease Rules to Nurture Small Firms
By Lee Hyo-sik
Staff Reporter
The government said on Monday that it will ease rules to encourage financial institutions to fund innovative venture firms and other small knowledge-based businesses as part of its efforts to create a more business-friendly investment environment. It also plans to make it easier for large companies as well as startups to set up operations in and around Seoul to help stimulate them make more investment and create jobs.
The Ministry of Finance and Economy unveiled these and other deregulatory steps to improve the business environment, revitalize corporate activities and attract more foreign investment. ``A comprehensive package of measures, jointly set up by ministries, are based on the determination to create one of the 10 best business environments in the world,'' Deputy Finance and Economy Minister Chon Won-dong said.
The is the second phase of an ambitious government project since Finance and Economy Minister Kwon O-kyu became the country's top economic policymaker in July 2006. It involves 105 incentives and deregulation measures in a range of fields. Of these, 84 steps that need no legislation will be implemented by the end of the year. The rest will be implemented by 2009, according to the ministry.
The government first unveiled a series of similar steps in September last year, including expanding financial incentives and tax benefits to small companies.
The ministry said it will overhaul financial and other regulations to encourage banks to increase financing of knowledge-based small and medium-sized enterprises (SMEs) as well as venture startups. Also, it will raise a one trillion won fund to help innovative and high technology small firms.
The government will also help financial companies to construct more advanced risk management strategies and share credit information on small firms to better manage their investments.
A number of regulations on the establishment of factories and the environment will be eased to help companies expand their production facilities.
The government will also ease rules to allow more industries to set up factories in and around Seoul. Currently, only eight industries, including computer manufacturing, are permitted to build production facilities, but over 10 industries with high growth potential are expected to set up a presence in the metropolitan area, according to the ministry.
It said that it is considering allowing Hynix Semiconductor to expand its production lines in Icheon, Gyeonggi Province if the company meets the current environmental regulations.
Ventures and knowledge-based companies, including those focused on telecommunication and engineering, are also expected to be able to build factories more easily in Seoul and its surrounding area.
The government will also relax regulations on manpower. To do so, it will provide subsidies to SMEs employing young workers for a longer period until 2010, up from the current 2007. Also, companies are expected to hire foreign workers through a simpler legal and administrative procedure.
Another measure will see the government rationalize taxation and improve legal procedures to help the creation of ventures and small firms. Start-ups will be exempt from paying acquisition and registration taxes on business-related real estate purchases for four years following establishment. Currently, companies benefit from such a tax exemption for two years.
Also, the government plans to implement a new taxation system by 2009 to lower the tax burden on venture companies and other small businesses. Under the ``Partnership Taxation System,'' a business set up by more than two individuals to generate profits, will have income tax imposed only on investors who receive earnings, with the company being exempt from corporate income tax.
Additionally, the government will provide financial incentives, tax benefits and other assistance to help companies lower their logistics costs and boost their competitiveness. It plans to increase a list of items that are exempt from tariffs and help companies make inroads into foreign markets by expanding tax deductions.
The government will also exempt large companies from regulations restricting equity investments in their units and non-affiliates when investing in the country's three free economic zones (FEZs).