[2023 Tax Reform] National Strategic Technology 'Bio-pharmaceuticals' Added... Up to 50% R&D Support

by Lee Dongwoo

Published 27 Jul.2023 16:00(KST)

Updated 27 Jul.2023 23:59(KST)

The government will include biopharmaceutical-related technologies and facilities in the national strategic technologies. Once designated as a national strategic technology, companies in the related fields can receive tax credits of up to 50% on research and development (R&D) expenses. The government plans to significantly strengthen tax support for the bio industry to prevent the outflow of key talent and foster it as a future core industry by creating world-class clusters.

According to the '2023 Tax Reform Plan' announced by the Ministry of Economy and Finance on the 27th, biopharmaceutical-related technologies and facilities will be included in national strategic technologies and commercialization facilities. National strategic technologies refer to technologies that are strategically important for the national economy, security, and the creation of new industries. Currently, under the Restriction of Special Taxation Act, this includes semiconductors, secondary batteries, vaccines, displays, hydrogen, and future mobility.

If the bio industry is included in national strategic technologies, the tax credit rate for production facility investments will be raised to 15% for large and medium-sized enterprises and 25% for small and medium-sized enterprises. In addition, for the increase in investment compared to the average investment over the past three years, a temporary additional credit of 10% (temporary investment tax credit) will be granted for this year only. In this case, large and medium-sized enterprises can receive up to 25%, and small and medium-sized enterprises up to 35% in investment tax credits.

Countries around the world are racing to develop vaccines and treatments to overcome the novel coronavirus infection (COVID-19). Korean bio venture company Engicam Life Sciences is conducting Phase 2 clinical trials after receiving approval for a new drug substance from the U.S. Food and Drug Administration (FDA). Ahead of the New Year 2021, a researcher is studying the COVID-19 treatment EC-18 at Engicam Life Sciences Central Research Institute in Jecheon, Chungbuk. Photo by Jinhyung Kang aymsdream@

Companies' R&D and workforce development expenses can also receive tax credit benefits of up to 50%. Specifically, large and medium-sized enterprises designated as national strategic technologies will receive a 30-40% credit, and small and medium-sized enterprises will receive a 40-50% credit. This includes labor costs, material costs, and facility rental fees incurred at company-affiliated research institutes and dedicated R&D departments.

From January 1 next year, essential technologies related to energy efficiency improvement and supply chains such as core minerals will be additionally designated as new growth and source technologies. If included in new growth and source technologies, facilities investments can receive tax benefits of 16-28%, and R&D can receive 20-40% tax benefits.

Furthermore, tax support for reshoring companies returning to Korea from overseas will also be strengthened. Currently, income tax and corporate tax reductions for returning companies provide a 100% tax exemption for up to 5 years and a 50% exemption for the following 2 years. Starting next year, the exemption period will be extended to 7 years at 100% exemption and an additional 3 years at 50% exemption.

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said, "We will create a global innovation special zone similar to the Boston bio cluster in the U.S. domestically," adding, "We will improve related regulations and strengthen infrastructure so that digital bio companies can utilize high-quality data."