[2021 Tax Revision] 'Semiconductor, Battery, Vaccine' R&D and Investment, Tax Support of 1 Trillion Won

Extension of Vehicle Special Tax Reduction Until Year-End... Hybrid Cars Eligible Until End of Next Year

[Sejong=Asia Economy Reporter Son Sun-hee] A tax credit exceeding a total of 1 trillion won will be applied to research and development (R&D) and facility investments related to the three major 'national strategic technologies'?semiconductors, batteries, and vaccines. This will be temporarily applied for three and a half years from the second half of this year until the end of 2024.

On the 25th, the Ministry of Economy and Finance announced the '2021 Tax Reform Bill' containing these details. For R&D expenses related to national strategic technologies, tax credit rates of 30-40% for large and medium-sized enterprises and 40-50% for small and medium enterprises will be applied. For facility investments, credit rates of 6% for large enterprises, 8% for medium-sized enterprises, and 16% for small and medium enterprises will be applied. The current two-tier (general, new growth and original technology) tax credit structure will be expanded to three tiers, increasing the R&D credit rate by up to 10 percentage points and facility investment credit rates by 3-4 percentage points compared to before. This will be temporarily applied from the second half of this year until December 31, 2024, for three and a half years.

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, stated at the tax reform briefing, "Recently, in the international community, movements to reorganize the supply system of major strategic items around allies and friendly countries are rapidly progressing in relation to the global supply chain." He added, "In this situation, if we secure core technologies and supply capabilities in advance, it could be a golden opportunity to expand supply chain leadership and external influence," explaining the background of the support.

The 'national strategic technologies,' which receive expanded tax credit rates compared to existing new growth and original technologies, include core technologies in the three major fields deemed important for national economic security purposes. Semiconductors were considered due to their large share in the domestic economy and exports and their significant ripple effects across industries. Batteries (secondary batteries) are also key components of future major industries such as electric vehicles. Additionally, future investments to secure vaccine autonomy in response to the COVID-19 pandemic have been included as national strategic technologies.

The estimated tax revenue reduction due to the introduction of the national strategic technology tax credit is about 1.16 trillion won. Of this, 883 billion won will benefit large enterprises, and 277 billion won will benefit small and medium enterprises. The larger the scale of R&D and investment, the greater the credit amount. Kim Tae-joo, Director of the Tax Policy Bureau at the Ministry of Economy and Finance, explained, "This was calculated comprehensively based on forecasts of R&D and facility investments in the semiconductor, battery, and vaccine sectors, as well as the proportion of technologies eligible for related tax support."

The government also expanded the scope and application period of technologies eligible for the existing two-tier tax credit rate for new growth technology R&D. Technologies in new industries such as carbon neutrality and bio are included, and the application period of this system has been extended by three years until the end of 2024, the same as for national strategic technologies. Additionally, to expand demand in the intellectual property (IP) market for patents and other IP developed by domestic researchers, related investment tax credits will be expanded to promote transactions.

To revitalize the domestic market, which has been slower to recover compared to the export sector after the COVID-19 pandemic, the government is also undertaking tax reforms related to job creation and improving the business environment. The scope of tax reductions for startup small and medium enterprises will be expanded, and the application period extended by three years until the end of 2024. Special capital gains tax exemptions related to stock exchanges and reinvestments for venture companies will also be additionally extended until the end of 2023.

The 'Employment Increase Tax Credit,' which applies a certain amount of tax credit per additional regular employee for three years (two years for large enterprises), will be extended for three more years until 2024. The annual support scale is about 1.28 trillion won.

Furthermore, to improve the business environment, the government will relax the domestic business relocation deadline from one year to two years for so-called 'reshoring' companies returning from overseas, and extend the application period for income, corporate tax, and customs duty reductions by three more years until 2024.

If companies undertake business restructuring to enter new industries such as carbon neutrality, a tax deferral special case will be applied to investments made with proceeds from asset sales.

Due to recent shortages in automotive semiconductors and other factors, the application period for the 30% reduction in individual consumption tax on passenger cars, which was originally scheduled to expire at the end of June, has been extended by six months until the end of this year. The individual consumption tax exemption for hybrid vehicles (up to 1 million won) will also be extended by one year until the end of next year.

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