Semiconductor Industry: "Positive on Tax Credit Rate and Floor Area Ratio Increase... Expect Active Support"

[Asia Economy reporters Sunmi Park and Chaeseok Moon] Following the unveiling of the “Strategy to Achieve Semiconductor Superpower Status,” which includes enhanced tax benefits for facility investments and government-funded infrastructure support to enable approximately 340 trillion KRW in semiconductor industry investments over the next five years, the government announced a tax reform that lowers the top corporate tax rate and simplifies the tax brackets. While the semiconductor industry welcomed these government policies aimed at revitalizing corporate investment, some expressed disappointment over the somewhat modest level of support.

According to the “Strategy to Achieve Semiconductor Superpower Status,” the tax credit rate for semiconductor facility investments by large corporations will be raised by 2 percentage points to 8?12%, aligning it with that of mid-sized companies. The scope of national strategic technologies eligible for tax credits will also be expanded beyond advanced process equipment to include test equipment and intellectual property (IP) design and verification technologies.

The floor area ratio (FAR) for semiconductor complexes will be increased from the current 350% to 490%, a maximum 1.4-fold rise. In this case, the number of clean rooms (production facilities free of dust and bacteria) will increase from 12 to 18 in Pyeongtaek and from 9 to 12 in Yongin. Additionally, through tax reform, the top corporate tax rate will be lowered to 22%, the level before the Moon Jae-in administration, and the number of tax brackets will be reduced from four to two or three. The “territorial taxation” system will also be introduced, whereby companies bringing overseas earnings into Korea will not pay additional domestic taxes if they have already paid corporate tax in the foreign country.

The semiconductor industry has sent a welcoming message regarding the government’s proactive support for corporate investment in this policy direction. An industry official said, “We basically welcome the government’s measures,” adding, “We view positively the fact that broad support across the semiconductor sector?including manpower, tax benefits, and research and development (R&D)?is being considered.”

Expectations were particularly high regarding the increase in the floor area ratio for semiconductor complexes. An industry representative said, “Since we cannot utilize vast land like in the U.S., maximizing production capacity within a single factory is beneficial for semiconductor companies,” adding, “The increase in FAR allows for taller buildings, which can increase the number of clean rooms and thereby strengthen production capacity.” Another official said, “The increase in the FAR for semiconductor complexes is a direct and practical measure that benefits the semiconductor industry,” and added, “The extent of the FAR increase is also at a satisfactory level.”

The tax reform bill was also seen as helpful for expanding the semiconductor ecosystem. Particular significance was attached to the reduction of the top corporate tax rate from 25% to 22%, a 3 percentage point cut. For major companies such as Samsung Electronics and SK Hynix, the tax reduction amount may be in the order of several hundred billion KRW, but it is expected to secure investment capacity and increase net income across the industry. An industry official said, “Given the current economic uncertainty, the fact that the new government is announcing an overall support direction for semiconductor companies is interpreted as a sign that companies are receiving government attention and support, which is welcomed.”

However, the dominant reaction to the 2 percentage point increase in the tax credit rate for large corporations’ investments in national strategic technologies, including semiconductors, was that the increase was insufficient. An industry representative said, “The semiconductor industry had expected a tax credit rate of around 20?40%. Compared to other countries that are fostering the semiconductor industry, the tax credit rate is clearly low,” adding, “We hope for further broad consideration on this matter.”

Economic organizations also expressed support for the government’s recent support measures.

The Federation of Korean Industries (FKI) issued a statement from Yoo Hwan-ik, head of the Industrial Headquarters, saying, “We positively evaluate the government’s comprehensive measures to strengthen the competitiveness of the semiconductor industry through investment support, manpower development, securing leading technologies, and ecosystem establishment.” However, it added, “The government said it would raise the tax credit rate for large corporations’ facility investments by 2 percentage points from the existing 6%?10% to 8%?12%. Considering that the U.S. is promoting a tax credit of up to 40% on semiconductor facility investments, a corresponding increase in the tax credit rate is necessary,” expressing some regret.

The Korea Employers Federation (KEF) also stated, “The government’s announced ‘Strategy to Achieve Semiconductor Superpower Status’ comprehensively includes ways to enhance Korea’s semiconductor industry competitiveness through public-private cooperation and government support,” and urged, “We hope the government and the National Assembly actively cooperate to ensure the government’s support measures are implemented quickly and successfully.”

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