south korea bets big on semiconductors with new k-chips act
Seoul, Thursday, 13 February 2025.
The South Korean government is taking significant steps to bolster its semiconductor industry amid escalating US-China tech tensions. With the recent approval of the K-Chips Act, domestic semiconductor companies will benefit from enhanced tax incentives and extended deadlines for investment. This legislative amendment raises the tax credit rate for investment in semiconductor facilities and extends it to research and development equipment, previously not considered a strategic technology. By applying these benefits retroactively and including small and medium enterprises, South Korea aims to enhance its competitive edge in the global semiconductor market. However, the proposed inclusion of large companies in these benefits was met with opposition, leaving them to shoulder additional corporate taxes. As global tech giants grapple with supply chain disruptions, South Korea’s strategic focus on its semiconductor sector may provide a crucial buffer in the evolving digital landscape.
Tax incentives target strategic growth
The K-Chips Act introduces substantial financial benefits for semiconductor companies. The legislation increases the tax credit rate for facility investments from 15% to 20% for large corporations, while small and medium enterprises will see an increase from 25% to 30% [1]. A key innovation is the extension of these benefits to semiconductor R&D equipment, which previously only qualified for a 1% tax deduction for large corporations [1].
Extended timeline for industry development
The act demonstrates South Korea’s long-term commitment to semiconductor advancement by extending the tax credit deadline to 2031, adding seven years to the previous timeline [1]. The Strategy and Finance Committee has also approved a five-year extension for R&D tax credit applications related to national strategic technologies, pushing the deadline to 2029 [1].
Mixed impact for industry players
While SMEs and middle-market companies will benefit from retroactive tax deductions on their 2024 investments, large corporations face a significant financial burden. Despite initial plans for broader inclusion, opposition from lawmakers led to the exclusion of large companies from retroactive benefits [1]. This decision will result in these corporations paying approximately 930 billion won ($640.6 million) in additional corporate taxes [1].