The Korea Telecommunications Operators Association (KTOA), the Korea Internet Corporations Association, and other IT associations and organizations have requested tax incentives from the government for data centers established in the metropolitan area. Under current law, investments in artificial intelligence (AI) qualify for tax reductions, but related infrastructure in the metropolitan area is treated as an exception.
Data centers are essential facilities that aggregate the data needed for AI inference and learning. Currently, most data centers in South Korea are concentrated in the metropolitan area to reduce expenses related to AI development and to quickly secure relevant technologies.
According to industry sources on the 14th, KTOA, the Korea Internet Corporations Association, and 37 other IT associations and organizations recently requested the Ministry of Strategy and Finance to revise the enforcement decree of the Restriction of Special Tax Treatment Act for metropolitan data centers. According to the Restriction of Special Tax Treatment Act, AI and cloud businesses designated as new growth and source technologies can receive tax credits for 20% to 30% of research and workforce development expenses and 3% to 12% of facility investment costs. However, establishments located in metropolitan areas, such as Seoul and Gyeonggi, are excluded from tax credits to prevent the overconcentration of major infrastructure in the metropolitan area. For the same reason, data centers established in the metropolitan area are also not subject to tax credits.
However, under the enforcement decree of the Restriction of Special Tax Treatment Act, certain 'business-use fixed assets' such as broadcasting equipment, exchange facilities, transmission facilities, and information processing facilities can receive tax reductions even if they are located in the metropolitan area. IT associations and organizations have reportedly conveyed a request to the Ministry of Strategy and Finance to amend the enforcement decree to include data centers in the definition of 'information processing facilities.'
The industry is pointing out that the current Restriction of Special Tax Treatment Act is disconnected from the reality faced by IT corporations. Industry estimates that 70% of the total data centers in the country are located in the metropolitan area. Currently, the data centers of SK Telecom, KT, LG Uplus, and Naver, as well as Kakao, are concentrated in the Seoul and Gyeonggi areas, with some exceptions in Busan, Daegu, and Chuncheon. Generally, IT companies establish data centers near their headquarters in the metropolitan area for initial management purposes. Although local governments are promoting the transfer and establishment of data centers, reducing reliance on the metropolitan area, a majority of infrastructure still remains in the metropolitan region.
For this reason, even if the AI industry is designated for tax reductions, investments in data centers, which require significant expenses, cannot receive tax credits, leading to a lack of substantial benefits, according to industry voices. It is noted that even if new data centers are built outside the metropolitan area to qualify for tax reductions, it takes at least three years to become operational.
On the 13th, the Ministry of Science and ICT announced plans to elevate AI to a national strategic technology under the Restriction of Special Tax Treatment Act to strengthen tax credit support. Given the significant expenses involved in AI development, the aim is to alleviate the burden on corporations and allow them to quickly secure their own technologies. Industries designated as national strategic technologies can receive tax reductions for 30% to 40% of research and workforce development expenses and 15% to 25% of facility investments.
An official from the IT industry noted, "In the context of intensifying global competition in AI technology, the IT industry's position is to request tax credits for facilities in the metropolitan area at least until their own technology level increases," explaining that given the increased likelihood of AI being designated as a national strategic technology, they have simultaneously called for amendments to the enforcement decree to create synergy.