SEOUL – South Korea’s major exporters of cars and smartphones are bringing home a bigger chunk of their earnings this year to enjoy new tax breaks, and their “reshoring” has become one rare source of support for a depreciating currency.
South Korean companies repatriated a record US$33.13 billion (S$45.3 billion) of overseas earnings during the January-July period, 6.3 times the amount a year earlier, central bank data on current account balances showed.
The flows, the bulk of which is from globe-trotting exporters such as Samsung Electronics, Hyundai Motor and Kia Corporation, are a welcome relief for the won which has been crushed by Korea’s falling exports and a broad US dollar rally.
“The coming home of earnings retained abroad has been a big help for the won,” a government official in charge of foreign exchange market said, asking not to be named due to internal policy.
Bank of Korea officials say the volume of overseas earnings brought back home so far is nearly three times the US$12 billion companies repatriated in all of 2022.
That rush comes after a tax break President Yoon Suk Yeol introduced this year to encourage reshoring of cash hoarded outside Korea, and allows up to 95 per cent of corporate income generated abroad to be repatriated tax-free. Such repatriation was previously subject to corporate tax of as much as 25 per cent.
The flows are a sizeable buffer for Korea’s balance of payments and the won, which has fallen for two years and is also down 5 per cent this year.
The won has been the second most volatile currency in the first half after the Japanese yen among some 14 major currencies, a BOK analysis released by lawmaker Hong Sung-kook shows.
The US$33 billion of repatriated money more than offsets the country’s US$26 billion trade deficit in the first half of this year. In August, the country’s foreign exchange reserves dropped to the lowest level in nine months to US$418.30 billion as authorities intervened to support the won.
“Capital reshoring has been a relief to the won,” said local Woori Bank currency analyst Min Gyeong-won, adding that the flows had helped offset sluggish exports by becoming a source of dollars.
Samsung Electronics declined to comment for this story, when asked on the use and amount of the returned retained earning.
Hyundai Motor has used the tax break to channel money into investments. The automaker said on June 12 it plans to invest 7.8 trillion won (S$7.97 billion) of retained earnings from overseas operations this year in electric car factories at home.
“Our primary goal is to (channel those repatriated funds) to expand production capacity of electric cars in the country, although not all of it (will be used for it),” a spokesperson at Hyundai Motor Group said.
“As for how much we will bring in next year, corporate savings from dividends for 2024 will be decided early next year.”
The surge in repatriation also comes ahead of trading reforms planned for next year, when South Korea will extend onshore trading hours until 2 a.m. to improve access for foreign investors.
“I reckon it (reshoring by exporters) helped cushion the won’s fall by about a fifth in the first half,” said Shinhan Bank senior economist Paik Seok-hyun. “The trend is likely to continue albeit to a lesser extent.” REUTERS
