S. Korea to consider tax benefits to venture capital investments

The South Korean government is reviewing various tax benefits and adoption of a dual class stock system to revitalize the lackluster venture capital market amid growing recession fears.

“The government will actively reform tax incentives and related regulations to make the private sector take more active role in the venture capital market,” Finance Minister and Deputy Prime Minister Choo Kyung-ho said on Thursday during a meeting at Megazone Cloud, a local cloud service startup, that was attended by venture capital firms such as KB Investment and Shinhan Venture Investment. “We have to speed up the process to set up a system that can facilitate inflow of abundant private funds into the venture capital market.”

At the meeting, the participants discussed possible tax benefits such as raising the tax deduction rate for venture capital investments from domestic corporations and reducing capital gains taxes on startup funds.

Choo also said that the government will adopt a dual class stock system that allows differential voting rights for shareholders like in the U.S. to bolster the venture capital market.

Venture capitalists’ investments in local startups grew significantly in the recent years, but has rapidly shrunk since the second quarter amid growing recession fears.

According to the Ministry of SMEs and Startups, new venture capital investment stood at 1.83 trillion won ($1.2 billion) during the second quarter ended June, down 4.2 percent from a year ago. Domestic investments in startups amounted to 1.7 trillion won in the July-August period, down 58.9 percent from the same period last year, according to Startup Alliance.

While welcoming the government’s tax incentive proposal, some venture capitalists remain pessimistic about its positive impact because the local venture capital market has lost steam mainly due to concerns over the economic downturn.

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]