Korea expands R&D tax credit, other technology tax incentives

By Unghwan Rap Choi, Esq., Ph.D., Partner and International Tax Leader, CKP, LLP, Irvine, California

The Korean government, on January 6, announced its enforcement decree for the 2019 tax revisions, including provisions that expand Korea’s research and development (R&D) tax incentive.

Under the new law and enforcement decree, Korea’s R&D tax credit, which can provide a tax credit of up to 40 percent, will apply to 233 technologies, up from 173 technologies. Also, tax new incentives related to investments in advanced technology are provided.

Expansion of Korea’s R&D tax credit

Korea provides R&D tax relief though a hybrid R&D tax credit and volume-based investment credit.  Under this system, companies can claim an R&D tax credit for qualifying R&D expenditure equal to the greater of a portion of their current R&D expenses or an incremental portion of the current R&D expenses over the previous year.   

For R&D expenditures in qualified new growth engine and core technology areas designated in the previous enforcement decree, preferential credit rates of 20% to 40% are applicable, depending on the type of company.

The preferential R&D tax credits for qualified new growth engine and core technology areas were previously limited to 173 technologies in the following 11 areas: futuristic vehicles, intelligence information (e.g., artificial intelligence technologies), next-generation software or security, next-generation electronic information devices (e.g., flexible displays, 3-D printing), next-generation broadcasting communications, bio-health, energy, environmental, convergence materials (e.g., hyper-plastics), robotics, and aerospace. 

Under the revised enforcement decree, 30 new technologies have been added to these 11 areas, including system semiconductor design and manufacturing technology, bioplastic manufacturing technology, driver biometric data analysis technology, and 6G technology. 

Moreover, a new eligible area has been added for advanced materials/parts/equipment, which is comprised of 20 additional eligible technologies, including high purity aluminum oxide powder manufacturing technology, high-pressure control valve manufacturing technology, and advanced machining center manufacturing technology.

As such, Korea’s new R&D law covers 12 areas and 223 technologies.

Additional technology tax incentive

In addition to the expansion of R&D tax credits, the revised enforcement decree provides additional tax incentives (up to 50%) for investment in the electronic finance business (online micro-investment brokerage and small sum international remittance business).

New rules also expand the super-connected network investment tax credit.

Further, individual income tax incentives for foreign engineers working in Korea are expanded with an up to 70% reduction in individual income tax for up to 5 years for engineers working for advanced materials/parts/equipment companies located in Korea.

Unghwan Rap Choi, Esq., Ph.D., is Partner and International Tax Leader at CKP, LLP, Irvine, California.