Korea's EV investment tax credit going to a maximum 35 percent

Electric vehicle (EV) manufacturing investments could soon be qualified for tax credits totaling 35 percent, the Korea government said Tuesday.

Finance Minister Choo Kyung-ho talks in a meeting during his visit to Hyundai Motor's Ulsan plant on Tuesday. [YONHAP]

Electric vehicle manufacturing investments could soon qualify for tax credits totaling 35 percent, the Korean government said Tuesday.

The Finance Ministry said it will add the EV and hydrogen categories to the country's list of strategic industries and offer the same tax credits it has been providing to chip, battery and vaccine investments.

Under the so-called K-EV Act, the tax credit on EV investments may be increased from the current 8 percent to 15 percent for big companies.

For small and medium-sized enterprises, the maximum tax credit could be raised to 25 percent from 16 percent.

An additional 10 percent will be granted for the increased amount of investments compared with the average of the previous three years.

"The government will provide tax incentives to the EV sector as a part of efforts to strengthen the country's competitiveness in the future mobility sector," Finance Minister Choo Kyung-ho said during his visit to Hyundai Motor's Ulsan plant on Tuesday.

"The government will also actively solve the related regulations that are obstacles for Korean companies to grow their competitiveness."

Finance Minister Choo Kyung-ho, front, and Hyundai Motor CEO Chang Jae-hoon, far right, inspect the automaker's Ulsan plant on Tuesday. [MINISTRY OF ECONOMY AND FINANCE]

Under the current policy, Hyundai Motor only gets a 1 percent tax credit for its 2-trillion-won ($1.5 billion) EV factory in Ulsan. The total incentives only come at around 40 billion won, even after combining all additional incentives from local governments.

But under the new policy, Hyundai Motor will be able to get up to 500 billion won in tax incentives.

The Finance Ministry will make an announcement of the bills on Wednesday. They are likely to go into effect at the beginning of June.

The latest decision comes as there have been particular concerns about Korea’s relatively weak policy support compared to other leading competitors like the United States.

The United States, under the Inflation Reduction Act (IRA), provides a maximum 30 percent tax credit for spending on EV production lines and related equipment.

Under the IRA, Hyundai Motor may receive a $1.8 billion tax credit for its $5.5 billion EV plant under construction in the state of Georgia.

EVs are a big export for Korea. Korea's EV exports totaled $8.1 billion last year, a 7.5-fold increase from 2018, making it the world's No. 3 EV exporter after Germany and China.

BY SARAH CHEA [chea.sarah@joongang.co.kr]