The United States has worked to attract factories from South Korean chip, auto and battery makers. Seoul now wants to give those same companies stronger reasons to keep production and investment at home.
South Korea’s government is proposing new tax incentives for domestic production and broader support for technologies it considers strategically important. The measures are part of an effort to defend the manufacturing base behind one of the world’s leading exporters of semiconductors, automobiles, batteries, ships and petrochemical products.
The Federation of Korean Industries, a business group representing many of South Korea’s largest companies, said the government’s 2026 tax reform plan could strengthen economic activity and help the country develop new sources of growth as geopolitical risks and weaker growth potential weigh on the economy.
The group welcomed the proposed domestic production tax credit and the expansion of tax benefits for strategic technologies. It said the changes could make South Korea a more competitive location for factories and advanced production at a time when governments are competing to influence where major manufacturers place capital.
The policy does not mean South Korean companies will pull back from the United States or other overseas markets. It does, however, give them another financial reason to compare domestic projects with foreign expansion when deciding where to build their next production facilities.
The federation also supported tax assistance for corporate restructuring, saying it could help restore competitiveness in South Korea’s petrochemical industry.
Its main criticism concerned employment. The group warned that narrowing eligibility for an integrated employment tax credit could discourage companies from creating the stable and well paid jobs sought by younger workers.
That exposes a tension in Seoul’s approach. The government wants to reward companies for producing more at home, but weaker hiring incentives could allow factory and technology investment to grow without creating a comparable number of jobs.
The federation also said strict requirements for the domestic production credit could make the program difficult for companies to use. It urged lawmakers to revise the proposal so that South Korea can compete for manufacturing investment without weakening hiring or limiting access to the new incentives.
