"Ambiguous Standards and Outdated Practices"... Calls for Improvement in Corporate R&D Support Systems Grow Louder

Korea Industrial Technology Association, Survey Results

Photo of corporate research and development (R&D) materials. Not related to the article.

[Asia Economy Reporter Kim Bong-su] “Activities that companies consider as research and development (R&D) are judged otherwise by tax authorities. The application criteria are ambiguous. Therefore, currently, only some research staff are eligible.” (R&D staff at Company A)

Although the government is implementing a tax credit system for R&D investment to promote technological innovation investment by companies, some companies are complaining about inconveniences such as excessive supporting documents, ambiguous criteria, and insufficient information.

According to the Korea Industrial Technology Association on the 22nd, a survey was conducted from January 25 to February 26 targeting 1,978 companies with R&D organizations. As a result, 20.8% (411 companies) responded that it is difficult to utilize the R&D tax credit system due to lack of information and the burden of submitting documents. Among the reasons (multiple responses allowed), lack of information was the highest at 68.4% (281 companies), and some companies also complained about insufficient information (17.1%, 48 companies) and the burden of supporting documents and procedures (24.5%, 101 companies).

In fact, an R&D staff member at Company B said, “Development records are managed electronically, but we were asked to submit supporting materials in paper form. Improvement is needed.” An R&D staff member at Company C also complained, “We were asked to submit excessively broad materials. Thinking that the administrative cost is too high, we are not applying for the tax credit.”

While recognizing the necessity of the 'R&D Tax Credit Pre-Review System' implemented since 2020, they also pointed out the need for improvements. Among the respondent companies, 1,096 (55.4%) said they were aware of the pre-review system, but only 169 companies (15.4%) had utilized it. When asked whether they would use the pre-review system, 50.1% (991 companies) responded that they intended to use it, while 49.9% (987 companies) either did not apply or deferred judgment. Among the companies that used the pre-review system (169 companies), 49.1% experienced difficulties and responded that improvements were needed. Specifically, they cited requests for additional supporting documents during the review process (45.8%) and unclear criteria for applying the tax credit (31.3%) as areas for improvement.

The government has been providing tax reductions on corporate or income tax for a certain percentage of costs invested by companies in R&D since 1982. Globally, 33 countries (as of 2020) use this as an important system to promote private R&D investment. As of 2019, 34,122 companies in Korea received tax reduction benefits amounting to 2.2 trillion KRW (corporate basis). Since 2020, a 'pre-review system' has also been implemented to examine in advance whether research and development expenses incurred by research institutes or dedicated departments of companies qualify for the R&D tax credit (Article 10 of the Restriction of Special Taxation Act).

Kim Sang-gil, Head of Strategic Planning at the Korea Industrial Technology Association, said, “Together with the Ministry of Science and ICT, since 2019, we have been producing research and development activity guidelines so that companies with research institutes can accurately understand the purpose of the R&D tax support system and judge their eligibility themselves. We will strive to enhance companies’ understanding of R&D tax support through the guidelines and enable smooth utilization of the system.”

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