Legislation & Government Relations Consulting Center 2023-04-24
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P&B Report - April 2023 Issue

DR & AJU Legislation & Government Relations Consulting Center's latest issue of its specialized legislative journal, the Policy & Business Report, is now available in digital format.

“Up to 35% Tax Credit” … The K-Chips Act passed the plenary session of the National Assembly, offering tax deduction to support the semiconductor and secondary battery industries

On March 30, the “K-Chips Act” that aims to foster the domestic semiconductor industry, officially known as the Partial Amendment to the Act on Restriction of Special Taxation, passed the plenary session of the National Assembly 71 days after its proposal. The major change made by the Amendment is the expansion of the tax deduction rate for enterprises investing in facilities of national strategic technology industries, including semiconductors. It aims to encourage businesses to make prompt investment decisions and stimulate investor sentiment. According to the Amendment, the tax deduction rate increases from 8% to 15% for middle-standing and large enterprises and 16% to 25% for small and medium enterprises.

The national strategic technologies that benefit from this Amendment include future means of transportation such as hydrogen, electric, and autonomous vehicles, along with semiconductors, secondary batteries, vaccines, and displays.

Under the Amendment, businesses will be entitled to a tax credit of up to 35% for investments made this year by applying a basic deduction of 25% for the current investment and a temporary investment tax credit of 10% for the investment increase (the average investment increase for the immediately preceding three years).

The temporary investment tax deduction, reintroduced after 12 years, will be temporarily applied in 2023. It is significant since it increases the tax deduction rate not only for investment in national strategic technologies but also investment in new growth engine and source technologies (from 12% to 18% if a small or medium enterprise invests in new growth engine or source technologies facilities), and provides 10% of the additional tax deduction for the increased amount of investment compared to the average of the investment amount for the immediately preceding three years, which is two or three times higher than the current rate (3% or 4%).
Apart from the temporary investment tax deduction, the Amendment also notably raises the tax deduction rate for national strategic technologies, including semiconductors, and expands the scope of national strategic technologies to include hydrogen and future means of transportation, in addition to displays newly added this year. As governments around the world scrambled to announce measures to support the semiconductor industry to gain hegemony, this Amendment enables the Korean government to provide a 25% tax deduction on investment in the semiconductor industry, thereby supporting its growth.

The approval of the K-Chips Act is a significant stepping stone in responding to the global hegemony competition for semiconductors. Given the fierce technological hegemony competition between the U.S. and China, such a measure to provide institutional incentive that enables domestic corporations to make large-scale investments in domestic facilities is a prerequisite.

The semiconductor industry particularly has welcomed the passage of the K-Chips Act. This news comes as a relief to an industry that has been suffering from a slowdown, as well as the U.S. semiconductor sanctions targeting China and guardrail provisions. The Federation of Korean Industries said in a statement, “The Korean semiconductor industry has faced unprecedented challenges, such as escalating geopolitical risks due to the intensifying US-China hegemonic competition, with a forecasted worst deficit in the first quarter of this year.” They commented, “The Amendment will greatly support companies in making timely investments amid the crisis, thereby strengthening their global leadership in the semiconductor industry in the long term and responding to the reorganization of the supply chain.” 

The Ministry of Economy and Finance has emphasized that full-scale investment tax support provided by the K-Chips Act will serve as “a turning point for the economic rebound.” The ministry expects that this Amendment will significantly encourage companies that have been hesitant to invest this year, given the unprecedented level of support provided for investment.

The government plans to promptly promote the process for selecting additional national strategic technologies and commercialization facilities eligible for the tax credit, as well as making amendments to the subsequent enforcement decrees and enforcement rules via consultations with relevant ministries and industries.

As the first-ever Korean law firm to issue specialized legislative journals, DR & AJU LLC has been publishing the monthly Policy & Business Report since August 2019. The April 2023 issue of the P&B Report conducted a full inspection of legislation proposed to the National Assembly Subcommittee, Standing Committee, and Plenary Session from March 15, 2022, to April 14, 2023, and selected and analyzed legislation with a significant impact on corporate activities. In the case of major legislation, key mentions of legislators, members of the Standing Committee, and government officials are included.

*DR & AJU Legislation & Government Relations Consulting Center provides P&B Report subscription service. Please contact us at for further inquiries.