US to Block 'Semiconductor Rise'... Government Supports $510 Trillion Investment with Tax, Financial, and Infrastructure Aid

Ministry of Industry Announces 'K-Semiconductor Strategy'
Up to 50% Tax Credit for Semiconductor R&D Investment... 6-10% Credit for Large Corporations' Facility Investment
Establishment of 'K-Semiconductor Belt'... Supporting 510 Trillion Won Private Investment Over the Next 10 Years

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Kwon Haeyoung] The government's announced K-Semiconductor strategy encompasses comprehensive support for the semiconductor industry, including tax, finance, and infrastructure. As governments worldwide, including the U.S. and China, compete to support the semiconductor industry, the plan is to pour all public and private capabilities into maintaining Korea's semiconductor technology lead and establishing a stable supply chain. Although criticized for being a step behind major countries, the fact that our government has now recognized the importance of the semiconductor supply chain and prepared a comprehensive plan is welcomed. The government aims to build a 'K-Semiconductor Belt' by fully supporting private companies' investments, transforming Korea into a stable semiconductor supply base.

◆ Semiconductor R&D Investment Tax Credit Up to 50%... Large Corporations' Facility Investment Credit at 6-10%＝ The core of the 'K-Semiconductor Strategy' announced by the Ministry of Trade, Industry and Energy on the 13th is the expansion of tax benefits. In particular, a new 'Core Strategic Technology' track has been established within the corporate tax credit system, expanding semiconductor tax credit limits to up to 40-50% of R&D investment and up to 10-20% of facility investment. This is an increase of 10 percentage points and 3-4 percentage points respectively compared to before.

For large corporations, R&D tax credits will be expanded to 30-40% of investment, and facility investment credits to 6-10%. This is also 10 percentage points and 3-4 percentage points higher than before. For small and medium enterprises, up to 50% of R&D investment and up to 20% of facility investment can be refunded through tax credits. These tax benefits will apply from the second half of this year through investments made in 2024.

This level falls short of industry demands. The government increased the tax credit limit for large corporations' facility investments from the previous 3% to 6-10%. Initially, the industry requested that R&D and facility investment tax credit limits be expanded to about 50% of investment. According to the government, the U.S. does not offer tax credits for semiconductor facility investments, and Taiwan's tax credit rate for advanced industry facility investments is only 5%. The passage of a bill in the U.S. Congress to expand semiconductor facility investment tax credits to 40% remains uncertain. Regarding tax benefits, the government explained that "all possible support has been provided."

The government will also establish a 'Special Fund for Semiconductor and Related Facility Investments' exceeding 1 trillion won, offering loans at an interest rate 1 percentage point lower.

Support for semiconductor infrastructure will also be strengthened. Water supply for semiconductor use will be secured for 10 years in areas such as Yongin and Pyeongtaek, and when building power infrastructure for semiconductor manufacturing facilities related to core strategic technologies, the government plans to co-share up to 50% of costs with Korea Electric Power Corporation (KEPCO) to support companies. Additionally, due to intensified labor shortages caused by the global semiconductor competition, 36,000 semiconductor industry workers will be trained over the next 10 years.

◆ Accelerating the Creation of the Semiconductor Supply Base 'K-Semiconductor Belt'... "Achieving $200 Billion in Exports by 2030"＝ Through these tax benefits and infrastructure support, the government plans to actively back private sector investments and create a 'K-Semiconductor Belt' connecting key points along the semiconductor value chain. The belt will connect Pangyo, Giheung~Hwaseong~Pyeongtaek~Onyang, Icheon~Cheongju, and Yongin in a 'K-shaped' network to establish a semiconductor manufacturing supply chain. ▲ Specialized complexes for materials, parts, and equipment (SoBuJang) ▲ advanced equipment alliance bases ▲ advanced packaging platforms ▲ and fabless (design) valleys will be developed.

Domestic companies will invest over 510 trillion won in semiconductors from 2021 to 2030. According to the Korea Semiconductor Industry Association, 153 companies will invest 41.8 trillion won in the semiconductor industry this year alone, the largest amount in any single industry. From 2021 to 2025, 238.2 trillion won will be invested, and from 2026 to 2030, 274.1 trillion won will be invested. The government will support private investment through tax benefits and infrastructure support.

Minister of Trade, Industry and Energy Moon Seungwook stated, "In response to the massive private investment exceeding 510 trillion won, the government will not spare any support, including increasing investment tax credits more than fivefold and providing a 1 trillion won special fund for semiconductor facility investments." He added, "If the announced K-Semiconductor strategy is implemented smoothly, exports are expected to increase from $99.2 billion in 2020 to $200 billion by 2030, and employment will grow to a total of 270,000."

◆ Responding to U.S.-China Semiconductor Rise... Promotion of Semiconductor Special Act＝ The government's semiconductor measures come amid urgent global moves to reorganize semiconductor supply chains centered on their own countries. The semiconductor shortage that began with automotive semiconductors at the end of last year has spread across the entire semiconductor sector, prompting major countries like the U.S. and China to roll out semiconductor industry support measures.

The U.S. enacted the National Defense Authorization Act in January this year, which includes semiconductor subsidies and R&D support. The Act provides up to $3 billion (about 3.4 trillion won) per facility for semiconductor production facility construction. The Biden administration announced in March an infrastructure investment plan that includes an additional $50 billion (about 56.5 trillion won) to support semiconductor manufacturing facilities. China is accelerating semiconductor localization and self-reliance efforts by providing differentiated tax benefits to semiconductor companies based on process difficulty through its 'Made in 2025' policy. The European Union (EU) is also pushing plans to subsidize 20-40% of semiconductor companies' investments to strengthen the regional semiconductor supply chain.

Following the announcement of the K-Semiconductor strategy, the government plans to work with the National Assembly and others to enact a 'Semiconductor Special Act.' The special act will include regulatory exemptions, workforce development, infrastructure support, expedited investment support, and R&D acceleration measures. Additionally, the government will promote localization of core semiconductor supply chains for future vehicles and strengthen protection of core technologies through measures such as mergers and acquisitions (M&A) review systems and enhanced security management for national core technology partner companies.

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