New 'Integrated Investment Tax Credit' Established... Government's Tax Law Amendment Proposal Finalized

Tax Support for Small and Medium Enterprises Including Partial Amendment to the Special Tax Treatment Control Act

Source=Ministry of SMEs and Startups

[Asia Economy Reporter Kim Daeseop] The Ministry of SMEs and Startups announced on the 25th that the '2020 Tax Law Amendment Government Proposal,' which includes support measures for small and medium-sized enterprises (SMEs) and small business owners, has been finalized at the Cabinet meeting.

The main contents of this tax law amendment government proposal include partial amendments to the Restriction of Special Taxation Act and the Value-Added Tax Act. The partial amendment to the Restriction of Special Taxation Act focuses on early recovery from the damage caused by the novel coronavirus infection (COVID-19) and revitalizing the economy. The government proposal was prepared to extend and newly establish numerous tax benefits related to SMEs.

First, the special tax reduction (Article 7 of the Restriction of Special Taxation Act) for SMEs, which reduces the tax amount for 1.17 million SMEs by about 2 trillion KRW annually (based on 2019 filings), will be extended by two years until December 31, 2022. To support the management stability of SMEs, a special tax reduction of 5-30% on income tax and corporate tax will be applied.

Second, to support the activation of corporate investment, an integrated investment tax credit will be newly introduced. The integrated investment tax credit supports a basic deduction rate of 10% (with a 2 percentage point preferential rate for new growth business facilities) for all business-use tangible asset investments (excluding land, buildings, vehicles, etc.).

Third, to support smooth receipt of payment for SMEs, the application period for the tax credit on payment amounts under the Win-Win Payment system (Article 7-4 of the Restriction of Special Taxation Act) will be extended by two years until December 31, 2022. SMEs and mid-sized companies will receive a tax credit of 0.1-0.2% on purchase payments made through the Win-Win Payment system.

Fourth, to promote investment in promising SMEs related to materials, parts, and equipment, a special exemption system will be newly established that exempts capital gains tax on stock transfers when SME venture capital companies invest in such SMEs.

Fifth, to induce consumption activation, the credit card income deduction limit will be temporarily increased by 300,000 KRW in 2020, and the application periods for investment promotion and job-related tax support systems will be extended.

Investment promotion support systems include tax exemption on capital gains from stock transfers by SME venture capital companies (Article 13 of the Restriction of Special Taxation Act), tax benefits on investments by founders (Article 14), exemption from secondary tax liability for venture company investors (Article 15), and income deductions for investments in venture capital funds (Article 16).

Job-related support systems include tax credits for companies employing women with career interruptions (Article 29-3), tax credits for companies that increase earned income (Article 29-4), and tax credits for conversion to regular employees (Article 30-2).

Additionally, according to the partial amendment to the Value-Added Tax Act, the scope of simplified taxation and payment exemption will be expanded considering the difficult business conditions of individual business owners.

An official from the Ministry of SMEs and Startups said, "The government plans to submit 16 bills approved at the Cabinet meeting to the regular National Assembly session by the 3rd of next month," adding, "We will promote the related contents so that SMEs and small business owners can fully utilize the tax support systems."

This content was produced with the assistance of AI translation services.