Ahead of the announcement of the national research and development (R&D) technology commercialization strategy next month, Minister Yoo Sang-im of the Ministry of Science and ICT promised to expand the tax exemption limit for employee invention compensation to 200 million won. The expansion of the tax exemption limit for employee invention compensation, which has been a long-cherished desire of the science and technology sector, marks an important point in the upcoming technology commercialization strategy.
According to the science and technology sector on the 13th, Minister Yoo noted that he would expand the tax exemption limit for employee invention compensation to 200 million won at a meeting with current and former researchers of government-funded research institutes who have experience in technology startups and technology transfer. One researcher who attended the meeting said, "The expansion of the tax exemption for employee invention compensation is an issue that all field researchers can empathize with," adding, "I was glad the Minister emphasized this point."
Employee invention compensation refers to a system in which researchers working at public research institutes, such as government-funded research institutes, receive compensation when they make inventions related to their work, with the rights to patents held by the institution. As of 2023, the total employee invention compensation received by researchers affiliated with public research institutes, universities, and corporations amounted to 153.4 billion won.
When the system was first introduced, compensation was classified as tax-exempt other income, so researchers had no tax burden. However, the Ministry of Strategy and Finance changed the classification of compensation to earned income starting in 2017, making it subject to taxation. The tax exemption limit has been gradually raised, but as of last year, it was only 7 million won per year.
Due to the application of progressive tax rates for high employee invention compensation, tax rates can go up to 45%. This has led to the saying that the tail wags the dog. According to data submitted by the National Research Council of Science and Technology to Representative Choi Soo-jin of the People Power Party, from 2019 to 2023, 5,733 researchers affiliated with government-funded research institutes received employee invention compensation of over 10 million won. Many of them paid taxes at rates of 35-45%. This rate is higher than the rates applied to lottery winnings, which are 22% for winnings under 300 million won and 33% for winnings over 300 million won.
A researcher who achieved significant technology transfer at a government-funded research institute said, "If you receive 100 million won from the technology transfer, the institution takes 50%, and then after more than 30% tax is deducted, several researchers share what is left," adding, "The amount of money a researcher can actually take home is so small that improvement is needed even for motivational reasons." Another researcher attending the meeting said, "It is hard to accept that after working hard and achieving good results, a higher tax rate is applied to the compensation than to lottery winnings."
The science and technology sector has repeatedly demanded an increase in the tax exemption limit for employee invention compensation. The Ministry of Science and ICT and the Korean Intellectual Property Office have also pushed for the expansion of the tax exemption limit several times, but they have faced opposition from the Ministry of Strategy and Finance, which is responsible for the tax system. As a result, both the Ministry of Science and ICT and the Korean Intellectual Property Office have only mentioned their intention to pursue the expansion without specifying concrete limits.
In this context, Minister Yoo has declared that he will significantly raise the tax exemption limit to 200 million won for researchers. A Ministry of Science and ICT official said, "200 million won is the desired level from the Ministry's perspective, and specific details must be decided through consultation with relevant departments," adding, "We continue to convey our position that we would like this level to be raised."
The science and technology sector is hopeful that, given Minister Yoo's strong commitment, the tax exemption limit for employee invention compensation will significantly increase this time. The tax exemption limit has only been incrementally raised from 3 million won to 5 million won, and then to 7 million won. Another researcher at the meeting reported that Minister Yoo was so committed to reforming the system that he referred to the taxation of employee invention compensation as "bad law."
The 'national R&D technology commercialization strategy,' which the Ministry of Science and ICT is preparing, includes plans to enhance the expertise of technology commercialization dedicated organizations (TLO) in government-funded research institutes and to encourage researchers to engage more in technology transfer and startups. In particular, plans are underway to strengthen the rewards for professional staff, such as patent attorneys, when technology commercialization is successful to enhance TLO expertise. One head of a government-funded research institute stated, "Some government-funded research institutes do not have even one patent attorney who can properly assess technology," adding, "To attract high-salary patent attorneys to work at government-funded research institutes, it is necessary to reform the compensation system to share technology transfer success with supporting organizations."
The evaluation system for research institutions and researchers will also be changed. It is expected that a system will be introduced to provide more incentives to researchers engaging in technology transfer or startups. Specific measures are being discussed, such as allowing researchers at government-funded research institutes to take on dual roles with corporations or excluding them from government-funded research institute staff counts during startup leaves.
A Ministry of Science and ICT official said, "We plan to hold additional field meetings chaired by the Minister before March to hear more feedback from researchers and to prepare specific policies while consulting with relevant departments."