The Korean Intellectual Property Office is promoting a measure to raise the tax exemption limit for job invention compensation to over 20 million won. This is the first time a government agency has disclosed specific plans to expand the tax exemption limit.
According to the Korean Intellectual Property Office and related industries on the 9th, the office recently finalized its plan to promote job invention activation projects for this year. Job invention refers to inventions made by researchers or employees working at public research institutes or corporations related to their work. In the case of job inventions, instead of retaining the patent rights, the institution or corporation provides fair compensation to the inventors.
Job invention compensation is a typical reward for job inventions. The compensation helps researchers to engage in research and development with motivation. According to the Korean Intellectual Property Office, as of 2023, the total amount of job invention compensation paid to researchers by corporations, public research institutes, and universities reached 153.4 billion won.
The issue is that many researchers receiving job invention compensation bear a heavy tax burden. When the job invention compensation system was first introduced, it was classified as non-taxable other income, eliminating the tax burden for researchers. However, since the Ministry of Strategy and Finance changed the job invention compensation to earned income starting in 2017, it became taxable. A tax exemption limit was set, but as of last year, it was only 7 million won.
A patent industry official noted, 'As the job invention compensation changed to earned income, it is taxed in addition to the annual salary, and in cases of high compensation, a progressive tax rate applies, leading to rates as high as 45%.' This explains why there is a saying that the 'belly is bigger than the stomach.'
According to data submitted to Representative Choi Soo-jin of the People Power Party by the National Research Council of Science and Technology, there were 5,733 researchers affiliated with government-funded research institutes who received job invention compensation of over 10 million won from 2019 to 2023. Many of these individuals paid taxes at rates ranging from 35% to 45%. This is even higher than the tax rates for lottery winnings, which are 22% for amounts under 300 million won and 33% for amounts exceeding 300 million won. Researchers are thus facing a higher tax rate on their earned compensation compared to that on lottery winnings.
In the science and technology sector, there have been ongoing arguments that the tax exemption limit for job invention compensation should be significantly increased or revert back to tax-exempt status. The government acknowledges the necessity but has appeared cautious. This is because the Ministry of Strategy and Finance has taken a lukewarm stance. Even when the Ministry of Science and ICT announced a growth strategy for scientific and technological talent at the third talent development strategy meeting last September, only a phrase indicating that continuous improvement measures would be prepared to expand the tax exemption limit was included. A senior government official explained, 'The expansion of the job invention compensation tax exemption limit was excluded from priorities due to disagreements among departments.'
Amid this, the Korean Intellectual Property Office, the ministry in charge of the job invention system, has made it clear that the tax exemption limit for compensation should be significantly increased this year to promote job invention activation. According to the Korean Intellectual Property Office's plan to promote job invention activation, it includes the expansion of the tax exemption limit to at least 20 million won. The office plans to secure data on the current status of job invention compensation in the country in collaboration with the National Tax Service and persuade the Ministry of Strategy and Finance along with related agencies such as the Ministry of Trade, Industry and Energy, Ministry of Science and ICT, and the Ministry of Education.
Several legislative proposals regarding the expansion of the job invention compensation tax exemption limit have been submitted in the National Assembly, which also supports the improvement of the system. Representative Choi Soo-jin introduced an amendment to the Income Tax Act last July that would classify job invention compensation as other income and make it fully tax-exempt. Representative Lee Haemin of the Justice Reform Party also proposed an amendment in August to change the compensation to separate taxation for other income and increase the tax exemption limit to 40 million won.
Kim Hak-hyo, a deputy research fellow at the Science and Technology Policy Institute (STEPI), stated in a policy brief last year, 'If the tax exemption limit is set between 20 million won and 40 million won, it is estimated that 90% to 96% of employees reporting job invention compensation will not incur income tax.' He emphasized the need to initiate discussions on improving the income tax system for job invention compensation to boost researcher morale.