Tax Benefits If 80% of K-Movie Production Costs Are Spent Domestically

Addition of HBM to Strategic Technologies and Defense Industry to New Growth Technologies

The government has decided to provide tax benefits when producing video content such as movies or dramas, if more than 80% of the production costs are spent domestically, to revitalize the K-content industry. High Bandwidth Memory (HBM) has been added to both the ‘National Strategic Technologies’ and ‘New Growth and Original Technologies,’ which apply higher tax credit rates compared to general research and development (R&D) tax credits, and a defense industry sector has been newly established. Medical expense tax credits for postpartum care will be expanded to all workers, and corporate passenger cars must have dedicated license plates to be recognized as necessary expenses.

According to the Ministry of Economy and Finance on the 24th, the government announced the ‘2023 Tax Law Amendment Follow-up Enforcement Decree Amendment’ with these key points yesterday. This enforcement decree amendment will be open for legislative notice from the 25th until July 14th, followed by a Cabinet meeting on July 27th, and is scheduled to be promulgated by the end of next month. The tax revenue loss due to this enforcement decree amendment is expected to reach up to 200 billion KRW.

If the proportion of production costs spent domestically during video content production is 80% or more, and three or more of the following conditions are met?80% or more of wages for writers and key staff paid to nationals, 80% or more of actors’ fees paid to nationals, 80% or more of post-production costs spent domestically, and ownership of three or more major copyrights (IP)?an additional tax credit of up to 15% (10% for medium and large enterprises) can be applied.

Detailed technologies in the semiconductor, display, and hydrogen sectors are included in the National Strategic Technologies eligible for tax credits. In the semiconductor sector, HBM and other technologies are added to ‘next-generation memory semiconductor design and manufacturing technologies.’ In the display sector, equipment and component technologies for organic light-emitting diode (OLED) pixel formation and encapsulation processes are included. In the hydrogen sector, technologies such as hydrogen gas turbine design and manufacturing, hydrogen reduction steelmaking, and hydrogen storage efficiency improvement are added. National Strategic Technologies apply a higher tax credit rate of 40-50% (30-40% for medium and large enterprises) compared to general R&D.

The New Growth and Original Technologies, which apply a tax credit rate of up to 40% (20-30% for medium and large enterprises), will newly include the defense industry sector. The defense industry sector adds three technologies: propulsion system technologies such as gas turbine engines, military satellite system technologies, and manned-unmanned complex system technologies. Additionally, a total of 15 new technologies including large nuclear power plant manufacturing technologies, nano-silicon anode material manufacturing technologies, and ammonia power generation technologies will be applied. As a result, the existing 258 New Growth and Original Technologies across 13 sectors will increase to 270 technologies across 14 sectors.

The requirements for income deduction on housing pension interest expenses will be relaxed. To promote housing pensions and secure retirement income, the housing price standard for applying the housing pension interest expense deduction will be raised from the previous standard market price of 900 million KRW to 1.2 billion KRW. The annual income deduction limit remains at 2 million KRW. The medical expense tax credit for postpartum care costs will also be expanded from workers with total annual income of 70 million KRW or less to all workers.

The income deduction requirements applicable to borrowers switching to cheaper loans will also be eased. Previously, income deductions were only applied when financial institutions directly repaid the existing loan balance with new borrowing funds, but going forward, income deductions will also apply when the borrower deposits the new bank loan into their own account and immediately repays the existing loan themselves.

For domestic corporations merging with or acquiring more than 50% equity in technology innovation-type small and medium enterprises (SMEs) through ‘technology innovation M&A,’ a tax credit of 10% of the technology value amount is provided. Previously, the technology value amount was calculated by subtracting 130% of the net asset market value from the transfer price, but going forward, it will be calculated by subtracting 120% of the net asset market value.

Post-management requirements for special tax treatment on business succession inheritance tax and business succession gift tax will also be relaxed. Previously, the scope of business type changes for successors was limited to the middle classification within the standard industrial classification, but with this amendment, changes within the major classification will also qualify for special tax treatment. To prevent private use of corporate passenger cars, from the business year including January 1 of this year, only corporate passenger cars with dedicated license plates will have operating expenses and depreciation costs recognized as deductible expenses.

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