Starting next year, corporations that produce and sell in Korea major items in six fields, including semiconductors; solar and wind power generation facilities; and secondary batteries, will be able to receive income and corporate tax reductions in proportion to output.
The Ministry of Finance and Economy said on the 3rd that it will revise the Act on Restriction on Special Cases Concerning Taxation through the "2026 tax reform plan" to introduce a "domestic production tax credit" next year. The domestic production tax credit will be introduced for up to 10 years through the end of 2036.
◇ Taxes cut based on output…domestic production tax credit introduced
According to the ministry, the domestic production tax credit applies to six industrial items: ▲ semiconductors ▲ solar power generation ▲ wind power generation ▲ secondary batteries ▲ core materials ▲ artificial intelligence (AI) robots. Despite industry requests, electric vehicles were excluded.
On the background for selecting these items, the ministry said, "We considered that their strategic importance is recognized in terms of green transition and economic security, and that they have a significant impact on the overall national economy." Within the six industries, the detailed items eligible for the tax credit will be set later by presidential decree.
Falling under the six items does not automatically qualify for a tax credit. A domestic person must engage in "domestic production" and "domestic sales." The "domestic production" requirement is met when the core process of the six items is carried out in Korea and the domestic share of eligible production costs exceeds a certain ratio. Core processes and eligible production costs will be set later by presidential decree. The "domestic sales" requirement is that the products must be sold in Korea in the year of production or the following year.
The deduction amount is determined in proportion to output, and corporations that produce in regional areas benefit more. Corporations located in preferred non-capital regions receive up to 50% more than corporations in the capital area. The specific formula will be finalized in a presidential decree. The deduction cap is 50% of that year's production costs.
◇ SMRs also included as national strategic technologies…corporate tax cuts for petrochemical business restructuring corporations
Support for next-generation energy will also be strengthened. The "hydrogen" field, which had been eligible for national strategic technology tax support, will be expanded to "next-generation energy," newly including SMR and micro-modular reactor (MMR) technology facilities. Once designated as national strategic technologies, 30% to 50% of research and development expenses and 15% to 30% of facility investment amounts are credited. The credit rates are higher than for general technologies (research and development 2%–25%, investment 1%–10%) or new growth and original technologies (research and development 20%–40%, investment 3%–12%).
Tax support for corporations restructuring their petrochemical businesses will also be strengthened. First, a new special provision will cut the investment, dividends, and co-prosperity cooperation promotion taxes by 50% for up to two years after the business restructuring plan is completed. In addition, tax deferral on corporate tax payments for gains on asset sales will be expanded from "a four-year grace period with three-year partitioning" to "a five-year grace period with five-year partitioning," and the sunset will be extended by three years to 2029.
To encourage corporations to use eco-friendly vehicles, the government will adjust the depreciation cap for business-use passenger cars. Currently, corporations can recognize up to 8 million won per year in straight-line depreciation over five years for business-use passenger cars; going forward, the cap will rise to 10 million won for electric and hydrogen cars and fall to 7 million won for internal combustion engine cars.