"Tax Credit Costs for Video Content to Be Reinvested in the Production Market"

Ministry of Culture and Korea Creative Content Agency Tax Law Amendment Impact Analysis Report
"Expected Immediate Effect of Reduced Corporate Tax Burden"
"Review Needed for Introducing New Tax Systems"

A study has found that expanding tax credits for video content production costs will lead to a virtuous cycle in the production market. The Ministry of Culture, Sports and Tourism and the Korea Creative Content Agency recently released a report analyzing the expected effects of the tax law amendment on the video production sector.

On the 31st, citizens are touring booths at the international broadcasting video market 'BCWW (BroadCast WorldWide) 2022' held at Dongdaemun Design Plaza in Seoul. Photo by Mun Ho-nam munonam@

In the tax law amendment announced last month, the basic deduction rates for video content (films, dramas, entertainment, documentaries, animation, OTT content) production costs were significantly increased. For large corporations, the rate rose from 3% to 5%, for mid-sized companies from 7% to 10%, and for small and medium enterprises (SMEs) from 10% to 15%. If the industrial ripple effect of video content is substantial, an additional deduction of 10% (for large and mid-sized companies) to 15% (for SMEs) also applies. If the 'Restriction of Special Taxation Act' is amended as planned, large corporations can expect up to a 15% tax credit, mid-sized companies up to 20%, and SMEs up to 30%.

The increased rates and differential application can serve as a foundation for creating a healthy production environment. In 2021, the tax credit amount for video content production costs was approximately 16.7 billion KRW, with large corporations receiving about 9.8 billion KRW, mid-sized companies about 5.5 billion KRW, and SMEs 1.6 billion KRW. With the application of the tax law amendment, the credit amount is expected to increase and the gap between companies to narrow.

Lee Areum, a senior researcher at the Future Policy Team of the Korea Creative Content Agency who authored the report, stated, "Production companies are expected to first feel the effect of reduced corporate tax burdens," adding, "The higher the sales through content, the greater the perceived benefit of the expanded production cost tax credit." She continued, "As the industry grows and awareness of the system itself increases, the number of beneficiaries will also rise," and concluded, "Ultimately, the costs covered by the tax credit will be reinvested into the production market, creating a virtuous cycle."

Global video online service provider (OTT) Netflix held a 'Netflix and Korean Content Meeting' on the 22nd at the Four Seasons Hotel in Jongno-gu, Seoul. Ted Sarandos, Co-CEO of Netflix (second from the left), is having a discussion with domestic production partners under the theme "For the Future of Korean Content." Photo by Joint Press Corps

In fact, Mr. A, affiliated with a video content-related association, said, "The expansion of the production cost tax credit rate will induce new investments in the currently contracted content production field," adding, "It can help raise the global recognition of K-content and strengthen the overall competitiveness of the domestic content industry." He further noted, "It will contribute not only to promoting production activities but also to content creation and job generation."

Mr. B, also affiliated with a video content-related association, said, "Although changes that can be tangibly felt may not appear immediately, it is clear that it helps the virtuous cycle of funds in production and investment." University professor Mr. C also expressed confidence, saying, "Because almost all production costs from initial planning to production stages can comprehensively receive tax credits, this will be a very important support policy for video content producers who find it difficult to receive tax support applied to start-up SMEs, venture companies, or R&D."

Several issues need to be resolved to further increase on-site perception. The abolition of the sunset clause is a representative example. The video content industry is difficult to predict in terms of outcomes and operates based on human resources. If the period for receiving tax benefits is fixed, it is difficult to conduct business with a long-term perspective. It is also necessary to consider that much of the value of video content is intangible assets. In addition to corporate tax credits, review is needed for introducing new tax systems such as minimum tax reductions for SMEs and exemption from agricultural and special taxes.

In response, Kim Dohyung, Director of the Media Policy Bureau at the Ministry of Culture, Sports and Tourism, said, "We are discussing additional improvements," and promised, "We will do our best to ensure that the significance of the system reform and its effects on the industry are well communicated."

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