Korean Content Tax Credit One-Tenth of US... "At This Rate, It Will Become a Global Subcontracting Base"

US and EU Offer 35% Tax Credit on Production Costs
Domestic Credit Rate Only 3%

Relying on Foreign Capital Poses Risks
IP Must Be Secured Through Domestic Investment

[Asia Economy Reporter Lim Hye-seon] Amid growing attention to K-content such as "Parasite" and "Squid Game," concerns are rising that due to a lack of national-level policy support, South Korea could become a subcontracting base for global online video services (OTT) like Netflix, Amazon, and Apple TV. Although the government has selected the content industry as one of the four new fields for securing a super-gap alongside display, energy, and advanced defense industries, the industry views the actual support measures as grossly insufficient.

U.S. and Europe Offer Up to 35% Tax Credits on Production Costs... South Korea Only 3%

At the "Forum 2 on Institutional Improvements to Strengthen K-Content Competitiveness," held on the morning of the 10th at 9:30 a.m. in Seminar Room 2 of the National Assembly Members' Office Building in Seoul, jointly hosted by Assembly members Byun Jae-il of the Democratic Party, Kim Young-sik of the People Power Party, and the Media Future Research Institute, such advice was shared. While the tax credit rates for production costs in the U.S. and Europe range from 10% to 35%, South Korea's rate is only about 3%.

Lee Chan-gu, a research fellow at the Media Future Research Institute and a presenter at the forum, expressed concern that "with domestic broadcasters having limited reinvestment capacity and production costs rapidly increasing recently, dependence on overseas capital is deepening." He warned, "If the growth model relying on foreign capital continues, South Korea could become a subcontracting base for production in the mid to long term." He emphasized, "To ensure that domestic businesses, not overseas ones, reap the benefits of operators' efforts, securing intellectual property rights through stable domestic investment capital is crucial," and added, "It is necessary to improve support measures such as tax incentives that can activate content production."

Lee introduced examples of tax credits on video content production costs in overseas countries such as Canada (30-40%) and the U.S. (20-30%). According to him, Netflix received about $60 million (approximately 84.5 billion KRW) in tax support last year from California alone, and Amazon received about $16 million (approximately 22.5 billion KRW). In contrast, South Korea's total tax credit amount was only 9.9 billion KRW as of 2020.

Regarding the basis for credit rates, he explained, "No country applies differentiated credit rates based on company size; rather, differences in credit rates appear according to the scale of production investment," adding, "Since the system aims to activate production investment, it is necessary to apply credit rates based on the scale of production investment." For example, in Connecticut, USA, a 10% tax credit is applied for expenditures of $100,000, and a 30% credit rate is applied for expenditures of $1 million. Among the 231 special provisions in South Korea, 77 (33.3%) have no sunset clause. He also called for the abolition of the sunset clause and the regularization of the current tax special cases law related to production cost tax credits.

Globally Successful K-Content Generates 14 Trillion KRW in Direct and Indirect Export Effects and Employment for 130,000 People

As the global influence of K-content grows, the economic ripple effects of the video content industry are increasing. According to the Korea Creative Content Agency, as of 2020, the content industry generated direct and indirect export effects of $10.52 billion (14 trillion KRW), production inducement effects of about 21 trillion KRW, value-added inducement effects of about 10 trillion KRW, and employment inducement effects for 130,000 people. In particular, the Korea Eximbank Overseas Economic Research Institute announced that for every $100 million (13.68 billion KRW) increase in K-content exports, related consumer goods exports increase by $180 million (24.63 billion KRW), domestic production inducement effects amount to $510 million (69.79 billion KRW), and employment inducement reaches 2,982 people.

Professor Park Jong-su of Korea University, who serves as president of the Korean Tax Association, stated, "Unlike technology-intensive industries and manufacturing centered on facility investment, the content industry is a high value-added industry where intangible assets such as human resources create more impactful economic value," emphasizing, "It is necessary to shift the perspective from the previous tax support direction focused on technology to support for creative talent."

On this day, Assembly member Byun Jae-il said, "Compared to the domestic content production scale of about 1 trillion KRW, the content investment scale of the top eight U.S. companies reaches about 137 trillion KRW, so domestic capital invested in content production needs to be further expanded, and obstacles hindering this must be resolved." Assembly member Kim Young-sik pointed out that the domestic production cost tax credit rate is lower than overseas rates, saying, "The success of K-content leads to the global spread of the Korean Wave, resulting in a chain of positive ripple effects," and added, "To sustain the growth of the video content industry as a global core soft power, tax support at the level of advanced countries is essential."

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