More Tax Benefits for Actual Investments This Year... K-Chips Act Promulgated on the 11th

Temporary Investment Tax Credit Reintroduced After 12 Years
Increase in Basic and Investment Growth Credit Rates

The amendment to the Restriction of Special Taxation Act (K-Chips Act), which includes the reintroduction of the temporary investment tax credit and the increase of tax credit rates for national strategic technologies such as semiconductors, will be promulgated and enforced on the 11th.

The investment tax credit is a system where companies receive a deduction from income tax or corporate tax equivalent to a certain percentage of their investment in various assets. Although the amended Restriction of Special Taxation Act will take effect on the 11th, tax credits can be claimed for investments made during the one-year period from January 1 to December 31 of this year.

In cases where investments continue beyond the year, the temporary investment tax credit applies only to the amount invested in 2023. For investments made over two or more years, amounts invested before 2022 and after 2024 are not eligible for the current temporary investment tax credit.

For the temporary investment tax credit, companies will first benefit from an increased basic credit rate, receiving an additional 2 to 6 percentage points in tax credit benefits on this year’s investment amount. With the increased credit rate on investment growth, an additional 10% credit is granted on the amount exceeding the average investment of the previous three years (an increase of 6 to 7 percentage points compared to the previous 3 to 4%). Investments in commercialization facilities for national strategic technologies receive an additional 8 to 13 percentage points compared to general technologies, while investments in commercialization facilities for new growth and original technologies receive an additional 3 to 6 percentage points.

Companies will receive a deduction on part of the business income tax and corporate tax payable in 2024 for income attributable to 2023, thereby reducing their tax burden accordingly. Furthermore, if a loss occurs this year resulting in no tax payable, or if the tax payable is less than the tax credit benefit, the unused portion of the temporary investment tax credit can be carried forward and deducted over the next 10 years.

The 'investment' eligible for the tax credit refers to investments in business-use equipment and facilities. Investments in specific facilities and essential assets by industry are eligible for tax credits. However, items such as land and used goods, which do not affect the Gross Domestic Product (GDP), or buildings and vehicles that have low direct relevance to production, are excluded from the tax credit.

An official from the Ministry of Economy and Finance stated, "Despite difficult domestic and international conditions, the temporary investment tax credit system has been reintroduced for the first time in 12 years to enable our companies to make bold and proactive investments, leap forward more significantly during the economic rebound period, and secure solid future competitiveness in the mid to long term. We expect many companies to actively utilize this system this year."

(Photo) [Image source=Yonhap News]

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