South Korea will fix its tax breaks for foreign entities in incremental phase in apparent response to the European Union’s blacklisting the country as a tax haven by pointing to “harmful preferential tax regimes” in its free economic zones.

“Free economic and foreign investment zones are extraordinary venues designed to attract foreign investment with tax incentives. But since the offerings have come under criticism as discriminative, we will consider improving the system in gradual phase,” the Ministry of Trade, Industry and Energy said in industrial policy outline reported to the National Assembly on Monday.

The ministry did not give details, but is believed to be responding to the EU’s blacklisting South Korea among 17 states and territories as “non-cooperative tax jurisdictions” that could face economic sanctions from the region.

The EU mostly found fault with Korea’s “preferential tax system” for foreign tenancies in free economic zones around the country. When fixed, the EU reportedly will drop South Korea in the list finalized by the executive board early next year.

Also under the outline, the government will offer greater incentives to companies that invest on home turf instead of overseas.

The ministry plans to assign five sectors including mobility, connected solutions, and energy as key project areas to lead creation of new businesses. It aims to allow autonomous vehicles on highways from 2020, increase electric cars to 350,000 units by 2022, and add more facilities for renewable energy generation.

Mid-sized companies will also be nurtured as new growth engines with an aim to increase the number of mid-sized companies with sales of 1 trillion won ($922 million) or more to 80 firms by 2020 from 34 in 2015.

The ministry envisions the promotions can add 300,000 or more jobs by 2020.

By Ko Jae-man and Cho Jeehyun

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