South Korea’s National Assembly passed a bill that aims to boost the semiconductor industry by increasing tax incentives for chipmakers.
Despite ongoing political tensions following the martial law incident, the ruling People Power Party and the main opposition Democratic Party of Korea reached a bipartisan agreement to support the domestic semiconductor sector, which has been facing heightened competition in the global market.
Lawmakers voted on the revision to the Act on Restriction of Special Taxation during a National Assembly plenary session on Feb. 27. The bill was approved with 239 votes in favor, 14 against, and four abstentions out of 257 lawmakers present.
While the bill is often referred to as the K-Chips Act, it differs from the Semiconductor Special Act, which is also dubbed the K-Chips Act. The Semiconductor Special Act is still in legislative limbo because the ruling and opposition parties failed to reach a consensus on excluding the semiconductor researchers from the country’s 52-hour workweek cap.
The amended Act on Restriction of Special Taxation raises the tax credit rate for semiconductor research & development (R&D) and facility investments by five percentage points.
Under the current law, the semiconductor industry is classified as a national strategic industry, along with secondary batteries, vaccines, displays, and biopharmaceuticals, making it eligible for investment tax credits. Once the amended bill takes effect, the tax credit rate for large conglomerates will rise from 15% to 20%, while the rate for small and medium-sized enterprises will increase from 25% to 30%.
The sunset date for the tax credit has been extended by seven years to 2031. The tax credit applies to labor costs, material costs, facility rental fees, and outsourced research and workforce development expenses incurred by corporate research institutes and R&D departments.
The bill also extends the R&D tax credit period for other national strategic industries and new growth and core technologies by five years. The tax credit rate for large conglomerates will remain at 15%, and the rate for SMEs will be 15% until the end of 2029.
