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09 August
Sunday

Asia

Seoul joins race to attract financial firms from Hong Kong

City to offer free rent for companies opening new offices here

Seoul Photo: ЕНВ

/NOVOSTIVL/ The Seoul Metropolitan Government has joined the heated race to attract foreign capital and financial firms leaving Hong Kong, amid growing unrest there caused by the deepening feud between the United States and China.

Seoul plans to offer free rent for foreign financial firms opening offices here, an industry source familiar with the matter said Sunday.

"Office space is set to be provided free of rental costs at the Parc1 complex on Yeouido," a ranking official at the Financial Supervisory Service said. Foreign financial firms can sign up beginning in October. But the city has yet to decide whether to offer tax incentives.

The move, which is in line with the government's initiative to improve Korea's competitiveness as a financial hub, comes as other major Asian countries, including Japan and Taiwan, are seeking to raise their profiles as Asia's new financial hub by capitalizing on the instability in Hong Kong.

The Trump administration recently decided to end preferential economic treatment for Hong Kong after China enacted a new security law in the former British colony.

The Parc1 complex is a cluster of four buildings on Yeouido, comprised of two office towers, as well as Fairmont Hotel of Accor Group and Hyundai Department Store. The construction of the complex, which has taken almost seven years, is set to be completed this month.

Seoul's move came a few weeks after the Busan government unveiled similar incentives for foreign financial firms. Busan is offering free rent for 25 years to three entities that will open offices in the Busan International Finance Center building. Busan is also offering a corporate tax cut.

The central government has been careful, however, in setting up its stance on the financial hub issue, so as not to appear to be seeking to take advantage of Hong Kong's troubles. Authorities have stated it is the government's plan to foster Seoul as a financial hub specialized in asset management.

"Korea has an advantage, based on the scale of the assets managed by the National Pension Service. The market for asset management services has also grown rapidly over the past decade," the official said.

The public pension fund is the third-largest in the world, with 726 trillion won ($600 billion) in assets.

The competitiveness of Korea's major cities as financial hubs remains largely short of major centers such as Hong Kong. Seoul and Busan ranked 33rd and 51st respectively out of 108 cities in this year's Global Financial Centers Index published by the London-based think tank Z/Yen earlier this year.

Foreign financial firms have pointed out that the biggest barriers are Korea's high corporate tax rate and a lack of transparency in regulations.

At the government's financial hub fostering committee meeting held last week, Financial Services Commission Chairman Eun Sung-soo said the government will seek to enhance transparency in regulatory supervision.

Yet, he noted at the same time that it would be difficult for the government to offer tax incentives or fix labor regulations for the sole purpose of establishing a financial hub.

Korea's corporate tax rate stands at 25 percent, which is higher than Japan's 23 percent or Singapore's 17 percent. The corporate tax rate was raised under the Moon Jae-in administration in 2018 to the current level from 22 percent, at a time when other economies were lowering their rates.

"There are limitations to fixing the tax and employment systems solely for the purpose of a financial hub, when considering the macro economy. And Japan faces the same problems as a country that is not a city-state," Eun said at the meeting.

He pledged to find a creative solution for overcoming these limitations.

The government has stated offering a corporate tax cut for firms present at the financial center would discriminatory against local companies.

Currently 163 foreign financial firms are operating in Korea.

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