By Cordia Scott Hennaman, MNE Tax
The Republic of Korea signaled its intention to heavily boost its semiconductor industry with an announcement on May 13 that it will offer up to 50 percent tax credits on research and development (R&D) investment and up to 20 percent on facilities investments to help private companies there to reach total investment of KRW 510 trillion (USD 452 billion) in memory chips by the year 2030.
The R&D incentive marks a 10 percentage point increase from the current maximum 40 percent credit for R&D investment.
As part of the plan, the Ministry of Trade, Industry and Energy announced other tax breaks, finance, and infrastructure changes to aid chipmakers’ competitiveness.
Small and medium-sized companies will be eligible to receive up to a 50 percent R&D credit, but the upper limit for large companies is 40 percent, according to the plan.
The credits can apply from the middle of this year for investments made through 2024.
The 10 to 20 percent credits for corporate facilities investments is a noteworthy increase, as the maximum credit is currently just 3 percent.
The government announcement was delivered at the Samsung Electronics Pyeongtaek campus, a sign of the critical partnership emerging between the Korean government and private industry. Samsung Electronics and SK Hynix are two industry leaders that stand to be key players in the new effort to raise Korea’s global standing amidst a worldwide shortage of the crucial components.
“In particular, in order for our semiconductor industry to gain a competitive edge in the aggressive semiconductor competition between the US and China, a voice is being raised that a joint response from the government is necessary,” the ministry said in a statement.
The “K-Semiconductor Strategy” is seen by observers as a way for Korea to inch above global competitors, such as Taiwan, the US, and China.
“[T]he government has developed this measure with a sense of speed, communicating closely with the private sector through industry ministers,” the ministry said.
Samsung Electronics now plans to invest KRW 171 trillion in non-memory chips through 2030, sharply raising its previous investment goal of KRW133 trillion won, announced in 2019, according to Nikkei Asia. SK Hynix plans to spend KRW 230 trillion over the next 10 years, it said.
Korea’s semiconductor sector has been the main driver of the country’s exports, totaling about 20 percent of the country’s annual outbound shipments, according to the Yonhap news agency.
When looking at the global picture, total US government support for corporate R&D as a percentage of GDP has dropped slightly in recent years while support in general among OECD countries has trended upwards, according to OECD R&D incentives country profiles released on April 8.
In the US, tax incentives account for only 38 percent of total government support for business R&D. Tax incentives accounted for 76 percent of business R&D support in Canada, 55 percent in China, 71 percent in France, 84 percent in Japan, and 76 percent in the UK.
Cordia Scott Hennaman
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