Korea to provide tax deductions on content, biopharma, hydropower industries

The South Korean government plans to ease tax burdens on industries deemed as potential new driving forces for the economy, including video content, biopharmaceuticals, and hydropower, according to the new tax rules announced Thursday.

While last year’s major tax overhaul was aimed at attracting investments across various sectors, most notably with corporate tax rate cuts, this year’s approach focuses on providing tax credits to specific high-potential industries in response to the revenue shortfall.

One of the most outstanding changes is the expansion of tax credits on the video content sector, which has significant value-added effects.

The government plans to amend the relevant law this year to raise the tax credit rate for TV shows and movies to 15~30 percent from the current 3~10 percent, providing a bigger tax credit rate than the industry‘s initial expectation of 25 percent.

If the revision passes the National Assembly, the content industry is estimated to generate a production-induced effect of at least 2 trillion won ($1.6 billion).

Currently, tax credits for content creators stand at 3 percent for large corporations, 7 percent for middle-market companies, and 10 percent for small and medium-sized enterprises (SMEs).

The government plans to raise the basic tax credits to 5 percent for large corporations, 10 percent for middle-market companies, and 15 percent for SMEs, with additional tax refunds of 10 percent for large corporations and mid-sized companies, and 15 percent for SMEs, for companies with significant implications on the domestic economy.

The determination of significant implications will be based on the share of domestic spending of the total cost for the production of specific content, with more details to be included in the enforcement decree.

SMEs and mid-sized companies investing in content through their investment in cultural industry-specialized companies will benefit from the new tax deduction of 3 percent.

The government’s decision to increase tax benefits for content creators is a response to the industry’s call for more tax support.

Advanced economies provide higher tax credits compared to Korea, with the U.S. providing 25-35 percent, France 30 percent, and Australia 16-40 percent.

[Image source: Gettyimagesbank]

“Companies like Netflix Inc. receive larger tax benefits as production costs increase, which reduces the cost burden for major productions,” said an industry insider. “Without tax support, Korea may end up being a base of subcontractors for global platforms.”

According to a recent industry analysis led by Dongguk University professor Kim Yong-hee, doubling the tax credits for content creators from the current rates could induce a production effect of 1.87 trillion won and create 9,922 jobs over the next four years.

If the credits are increased to 15~30 percent, as the government plans, the production and employment effects are expected to be even greater.

Biopharmaceutical companies will also benefit from larger tax credits compared to other industries, with the industry designated as one of the national strategic technologies.

Facility investments in the industry will be subject to a tax credit of 25~35 percent, and research and development (R&D) will receive a tax credit of 30~50 percent.

Amid the growing impacts of the economic slowdown, the government aims to increase the tax credits for key biotech and healthcare industries, hoping to ensure investment that can lead to the development of high-value-added new drugs.

Key energy technologies that can enhance energy efficiency and supply chain-related technologies will be regarded as “new growth and foundational technologies,” making them eligible for tax credits of 16~28 percent for facility investment and 20~40 percent for R&D investment.

Hydropower has also been included for the new tax credit, allowing liquefied natural gas (LNG) for hydrogen production benefiting from a 30 percent lower tax rate than the standard rate.

The latest tax reform has also included tax benefits for reshoring companies aiming at attracting overseas investments and eased gift tax burden for the succession of controls at SMEs.

“Under the difficult economic situations, the government will secure the investment and consumption capabilities of companies and the public by reducing tax burdens,” said Minister of Economy and Finance Choo Kyung-ho.