South Korean Government to Provide Tax Benefits for Investments into 5G, Blockchain, and Software

Jan 08, 2019

South Korean Government is planning to drastically expand its tax benefits for companies’ new businesses.
It is going to exempt up to 3% of taxes for cost of equipment for 5G base stations and it is also going to provide tax benefits for technologies such as blockchain and wearable robot and contents such as software (SW), music, and image.
Ministry of Economy and Finance (MOEF) announced that it has prepared 21 follow-up revised enforcement ordinances to regulate terms of reference of 21 revised tax laws that passed through The National Assembly in December.
Revised enforcement ordinance will focus on improvement in income distribution and equity on taxation, recovery of economic vitality and continuous growth, and rationalization of tax system. Revised enforcement ordinance to vitalize corporate investments that are on decline will be the most noticeable change.
South Korean Government is planning to drastically modify its system that subtracts up to 40% of taxes for R&D costs that are spent on new technologies.
16 new technologies such as blockchain, fine-dust reduction technology, and wearable robot will be added to a list of technologies (currently 157 technologies in 11 fields) that will receive tax benefits. Costs for purchasing SW, music, ad image that are needed for R&D in cultural industry will also receive tax benefits.

South Korean Government to Provide Tax Benefits for Investments into 5G, Blockchain, and Software

South Korean Government is planning to ease conditions for tax reduction by increasing amount of personnel expense that is included in R&D cost. MOEF will be in charge of determining whether a particular spending corresponds to costs for R&D of new technologies while National Tax Service (NTS) will reduce amount of spending by introducing a system that can determine whether a particular spending can receive tax benefits beforehand.
“Starting from 2020, NTS will determine whether particular costs for R&D can receive tax benefits beforehand.” said Kim Byung-kyu, who is the head of MOEF’s Budget Office. “This is NTS’s effort to prevent any problem or civil complaint from occuring.”
South Korean Government is going to reduce up to 3% of taxes for costs that go into 5G facilities. It is going to reduce 2% of taxes for costs and additional 1% if a company’s employment rate is 5% higher than the previous year. Only costs to purchase equipment for base stations applied with 5G technology are applied with tax benefits.
“Although relevant industries requested to have costs to construct base stations to be included as tax-deductible items, we have decided costs to purchase necessary equipment to be tax-deductible items.” said Kim Byung-kyu.
South Korean Government has also decided to modify flexible tax rate of individual consumption tax on cogenerating LNG and others to rationalize tax system. It is going to drastically reduce individual consumption tax on cogenerating and self-generating LNG from $0.038 (42 KRW) to $0.011 (12 KRW) per kg. Cogenerating LNG will be applied with flexible tax rate of 30% due to its eco-friendliness.
“Revised enforcement ordinance will go through pre-announcement of legislation, a meeting with vice-ministers, and a Cabinet Meeting until the 29th of this month and is expected to be enforced sometime in February.” said Kim Byung-kyu.
Staff Reporter Yoo, Seonil | ysi@etnews.com

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