As in many other countries, there are various forms of financial support and relief available in Korea to companies impacted by COVID-19. We write to summarize the types of support and relief available.
There are generally three types of financial support available to companies impacted by COVID-19, as outlined below.
1. Support Subsidy for Maintaining Employment:
Under the Employment Insurance Act, the Ministry of Employment and Labor (the “MOEL”) provides support for companies meeting certain criteria if they reduce employee work hours or suspend their operations due to unavoidable circumstances such as sudden drops in revenue. The purpose of the support is to encourage companies to reduce work hours or suspend work rather than lay off workers as they may need to do otherwise. After the COVID-19 outbreak, the eligibility requirements have been gradually relaxed to make the subsidy available to more companies, regardless of industry.
As of March 25, 2020, a company is eligible for support if (i) it reduces work hours or its work force by 20% or more in one month or orders its employees to suspend their work for more than one month due to COVID-19, and (ii) pays its employees the necessary business suspension allowance or paid leave allowance.
These allowances must be paid to employees under the Labor Standard Act in case of business suspension for reasons attributable to the employer. The Act requires the employer to pay at least 70% of the employee’s average wage as business suspension or paid leave allowance.
If granted, the support subsidy will be up to 3/4 (for small and medium enterprises (“SME”) and certain other companies designated as requiring priority support) or 2/3 (for large companies) of the business suspension allowance or paid leave allowance, as applicable, that the company has paid to a given employee, which amount is capped at KRW 66,000 per day per employee. The support is available for the period February 1 to July 30, 2020, when the suspension allowance or paid leave allowance was paid. (In case of companies subject to priority support, the government further increased the ceiling to up to 90% for between April to June 2020.)
2. Support Subsidy for Paid Leave:
Under the Infectious Disease Control and Prevention Act, the Ministry of Health and Welfare (the “MOHW”) provides a support subsidy for paid leave to an employer that provides paid leave to an employee who is hospitalized or in isolation due to COVID-19. The amount of the daily subsidy, computed according to a formula based on the monthly salary, is capped at KRW 130,000 per day. However, this subsidy is not available if the affected employee has applied for and receives the living support expenses that the government has made available to employees under the same law who are hospitalized or in isolation due to COVID-19.
3. General Subsidy for Corporations:
The Ministry of Economy and Finance announced on March 24 that it would increase the emergency corporate subsidy fund from KRW 50 trillion to KRW 100 trillion, which will be utilized to provide guarantees or loans for corporations in need of financial support and to stabilize the bond market. The government will use this fund for various corporate relief measures, as part of the government’s “public welfare and financial stabilization package.”
The government has instructed various financial institutions to provide financial support for corporations in various sectors including tourism, air carrier, restaurant and shipping industries as well as other corporations which export/import products. The government will also expand its support for SMEs by providing government-funded loans and guarantees, while financial institutions will provide extensions of maturity and grace period on interest payments to corporations starting from April 1, 2020. The government will also purchase corporate bonds and support companies in issuing their P-CBO (primary collateralized bond obligation).
1. Tax Relief for Taxpayers Impacted by COVID-19:
Korea’s National Tax Services announced on February 7, 2020, that it would provide national tax relief/support for taxpayers who suffered damages due to COVID-19. Such relief/support is available to corporate and individual taxpayers engaging in the tourism and hospitality sectors (food and lodging), transportation, concert/performances, medical services (hospitals/medical clinics), and wholesale and retail sales.
For example, the following taxpayers engaging in one of the business sectors above would be eligible for tax relief/support: an individual who is a confirmed patient or is subject to quarantine, a business with a confirmed case or a workplace where a confirmed case has visited, a business with a workplace located near facilities occupied by Korean returnees from Hubei Province, in China, and an SME transacting with China.
The national tax relief/support includes an extension on the deadline for filing tax returns, a similar extension on payment of corporate taxes, a postponement on issuing notices to pay delinquency fines and on collecting such fines, the prepayment of tax refunds, and suspension of tax audits.
In addition to this national tax relief, on February 5, 2020, the Ministry of Interior and Safety requested all municipal governments in Korea to implement local tax relief measures (similar to the above) for taxpayers who suffered damages due to COVID-19.
2. Compensation of Damages Due to Government Measures:
Any person or business that has been adversely affected by government measures implemented to prevent the spread of COVID-19 may file a claim for compensation with the MOHW or the municipal government. The MOHW and the municipal government will compensate the loss in accordance with the decision by the Loss Compensation Review Committee. Examples of government measures include a mandatory order to close a workplace due to COVID-19 that results in the inability to use relevant facilities, equipment or personnel, and workplace disinfection in accordance with the Infectious Disease Control and Prevention Act. The MOHW is expected to provide more detailed guidelines on compensation criteria.
3. Customs Support:
The Customs Service will operate a 24-hour customs support system to expedite the import/export process for companies that experienced import/export delays due to COVID-19. The Customs Service will also (i) conduct minimum inspection and review of imported/exported goods to expedite customs clearance, (ii) allow extensions on payment of customs duties and payment of customs duties in installments, and (iii) suspend customs audits to support companies during the COVID-19 outbreak.