This file photo shows the buildings of South Korea’s major companies in Seoul. (Yonhap)
SEOUL, Jan. 6 (Korea Bizwire) — South Korea will expand tax incentives for companies to increase investments and permit more firms seeking innovative technologies to receive tax credits on research and development (R&D) costs, the finance ministry said Wednesday.
The country will expand the scope of corporate assets eligible for tax credits and offer more tax incentives on a rise in investments, according to a revised enforcement ordinance to the tax code unveiled by the Ministry of Economy and Finance.
Except for the property segment and some service sectors that include bars and hotels, all sectors will be subject to such tax benefits if they invest in business assets that exclude land, buildings and cars.
The government will also apply the higher tax credit rate on investments in new technologies, such as advanced memory chips, in an effort to foster future growth engines, the ministry said.
To support companies’ innovation-driven growth, the country will allow more firms developing new and indigenous technologies to receive tax credits on R&D costs.
Currently, the country offers such tax exemptions on 223 technologies, including next-generation cars and artificial intelligence (AI). The scope will be expanded to 240 technologies, such as digital and eco-friendly technologies.
The finance ministry seeks a “fast and strong” economic recovery this year as the country has set its sights on overcoming economic slumps caused by the new coronavirus pandemic.
The ministry expects the Korean economy to grow 3.2 percent this year from last year’s estimated contraction of 1.1 percent, on the back of improving exports and mild recovery in domestic demand.
Meanwhile, to promote fair taxation, the government plans to levy capital gains taxes on trading of new over-the-counter derivatives, called contracts for difference (CFD).
The finance ministry said its tax revenues are estimated to fall 165 billion won if the revised enforcement ordinance takes effect.
It will go into effect after the package is approved at a Cabinet meeting in February, the ministry added.
With regard to calls to reduce the inheritance tax rate, the government said it is scheduled to entrust outside experts to study the issue this year in accordance with the parliament’s request.
The country’s business lobby groups have called for a cut in the inheritance tax rate, claiming that heavy burdens of the tax payment are hurting business activity. The nation’s maximum inheritance tax rate stands at 50 percent.
“The government thinks it would be possible to cut the inheritance tax rate only after a public consensus is built on the issue,” Im Jae-hyun, a senior ministry official in charge of taxation, said at a press briefing.
(Yonhap)
