Tax reduction rate raised for investments in semiconductors

The Korean government decided to lower taxes for large corporations investing in semiconductor facilities by up to 15% of the investment amount. Small-to-medium-sized enterprises (SMEs) can get a deduction of up to 25%. On top of that, it announced that it would reinstate the temporary tax reduction program 12 years after the previous economic recession.

The government announced the plan on Tuesday that includes tax benefits for investments in semiconductors. Stressing that the semiconductor business is the nation's core industry as well as a strategic asset that defines national defense, future competitiveness, and survival, Korea's Deputy Prime Minister and Economy and Finance Minister Choo Kyung-ho said that the government came up with the extensive tax benefit program to secure the global presence for the nation's strategic industry and to restore overall investor confidence.

With the measure in place, tax deduction rates for facility investments in national strategic technologies, including semiconductors, batteries, vaccines, and displays, are raised by 7 to 9 percentage points. Large companies benefit from the program by 15%, raised from the previous 8%, and SMEs by 25% from 16%. Earlier in the measure, the government decided to allow an additional 10% tax deduction for investment volume increased during the year 2023. In total, large companies and SMEs get tax benefits of a maximum of 25% and 35%, respectively.

The temporary tax deduction program abolished in 2011 is adopted again limitedly for 2023 to boost corporate investments in areas other than semiconductors. Large companies can gain up to 6% tax reduction for facility investments in new growth engines and core technologies such as future vehicles or carbon-neutral businesses. In comparison, medium-sized companies and SMEs can benefit from the same program by 10% and 18%, respectively. The deduction rate is also raised by two percentage points for facility investments in each area other than new growth engines or core technologies.

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Hee-Chang Park ramblas@donga.com