Korea revamps enforcement decrees to ease burden on small businesses, startups

The government has revised a package of enforcement decrees to reduce the staffing burden on small and medium-sized enterprises, ease fundraising regulations for ventures and startups, and lower compliance costs for innovative companies in regulatory free zones. Under the changes, employers will receive government support when colleagues cover work left by an employee on paternity leave, the investment scope of individual investment partnerships will be broadened, and the conditions attachable to regulatory sandbox approvals will be more tightly defined.

The Ministry of SMEs and Startups and the Ministry of Employment and Labor said Tuesday that the Cabinet approved amendments to the enforcement decrees of the Employment Insurance Act, the Industrial Accident Compensation Insurance Act, the Act on Promotion of Venture Investment, the Special Act on Fostering Venture Businesses, and the Act on Special Cases Concerning Regulation of Regulatory Free Zones and Specialized Local Development Zones. The revised decrees take effect July 1.

The revisions focus on addressing the recurring "people, money and regulation" burdens that small businesses have long flagged. The centerpiece of the Employment Insurance Act amendment is an expansion of the work-sharing subsidy to cover paternity leave. Previously, the subsidy was available only when a colleague took over duties from a worker on parental leave or reduced working hours for child-rearing purposes and the employer paid additional compensation. Going forward, the same support will apply when a spouse takes 20 consecutive days of paternity leave.

The work-sharing subsidy is a program under which the government reimburses employers who pay extra compensation to workers absorbing the duties of an absent colleague. The government expects the change to encourage greater participation by male workers in childbirth and child-rearing while easing the burden on small businesses — which have limited staffing flexibility — when employees take leave.

Parental leave benefit payment rules will also be updated to align with a short-term parental leave system set to take effect in August. The existing monthly calculation standard will be adjusted proportionally based on the number of leave days taken, allowing the benefit adjustment rules to apply to leave periods as short as one to two weeks. The change reflects the shift toward shorter, more flexible use of parental leave.

In the venture investment sector, the amendments expand investment autonomy. The mandatory investment targets for individual investment partnerships managed by startup accelerators will be broadened from companies up to three years old to startups up to five years old that have not yet secured outside investment. The ceiling on listed-company investments by individual investment partnerships will also rise from 10 percent to 20 percent. The scope of fintech-based financial services that venture capital firms may exceptionally acquire will be reorganized from a classification based on "business type" to one based on "license or registration."

Corporate venture capital funds affiliated with large conglomerates will be given a nine-month grace period to dispose of stakes in portfolio companies that subsequently come to belong to the same conglomerate group. The measure is designed to ease the pressure of immediate divestiture — and improve conditions for recovering investment — in cases where a portfolio company ends up in the same group as the CVC through a post-investment merger or acquisition.

The existing requirement that each individual venture investment partnership allocate 20 percent of its funds to startups and venture companies will be abolished. Instead, the obligation will apply at the fund manager level, requiring that 40 percent of total assets under management across all funds be invested accordingly. Rules governing the Korea Fund of Funds will also be supplemented, with new procedures and legal grounds established to distribute principal and returns to partners who wish to exit when the fund's term is extended. The Ministry of SMEs and Startups said the changes would enhance the reliability and transparency of fund-of-funds management. The first week of December each year will also be designated "Venture Business Week," with awards and promotional activities for outstanding venture companies.

The regulatory free zone system will be revised to reduce the compliance burden on businesses seeking to demonstrate new technologies. The amendment limits the conditions attachable to regulatory sandbox approvals and temporary permits to those necessary for ensuring safety and preventing risk. Conditions with little relevance to the project or that impose an excessive burden on companies will no longer be permitted. The change comes in response to longstanding complaints that some regulatory ministries overseeing free zones had imposed conditions or management obligations with little direct bearing on safety, slowing project progress.