Boosting Investment: Tax Credits for R&D, Integrated Investment, and Job Creation

1) Why these credits matter

These incentives—largely under the Restriction of Special Taxation Act—directly reduce your final corporate tax (not just your income). They are especially valuable for SMEs, mid-sized companies, and foreign-invested businesses building a long-term footprint in Korea.

Coupon analogy: After you compute your tax bill, qualifying investments/hires let you apply credits that cut that bill—sometimes dramatically.

2) Integrated Investment Tax Credit

Purpose: Encourage facility upgrades and productivity via investment in business-use tangible assets (e.g., machinery, equipment).

Scope: Tangible assets used for business. Land/buildings/vehicles/vessels are generally excluded, except certain vehicles essential to transport businesses.
Basic credit rates (illustrative):
- General investment: SME ~10%, Mid-sized ~5%, General ~1%.
- New Growth / National Strategic Technology (e.g., semiconductors, batteries, vaccines): substantially higher rates; policy windows may temporarily boost ceilings (e.g., up to ~25% for SMEs during certain periods).
Clawback: If you dispose of the asset within 2 years (5 years for buildings/structures), you must repay the credited tax plus interest.

Watch-outs: Exclusion lists are detailed; confirm asset eligibility before purchasing. Keep invoices, payment proof, and in-service dates.

3) Tax Credit for R&D Expenses

Goal: Reward innovation. A portion of qualified R&D spend is creditable against corporate tax.

High-value R&D:
- National Strategic Tech: approx. 30%–50% credit range (SMEs can reach upper bands).
- New Growth / Source Tech: approx. 20%–40%.
General R&D: SMEs can claim up to ~25% on a current-year basis or an incremental method (a higher % on the portion exceeding the prior year, sometimes up to ~50%).

Documentation tips: Track project charters, payroll splits, subcontractor invoices, and IP outputs. Eligibility hinges on definitions of R&D and technology categories.

4) Integrated Tax Credit for Employment

Purpose: Reward headcount growth and stable employment.

Per-head credits for net increases in full-time employees vs. prior year. Amounts are higher for SMEs/mid-sized and for non-metropolitan locations.
Illustration: An SME hiring in a non-metro area may claim around KRW 9.5M per added employee over 3 years.
Priority groups: Youths, persons with disabilities, and women returning from career breaks can yield larger credits (e.g., up to ~KRW 15.5M per person for SMEs in non-metro areas).
Conversions & returns: Extra credits for converting fixed-term/part-time to regular employees (e.g., ~KRW 13M per person for SMEs, 1 year) and for re-hiring after childcare leave.
Clawback: If headcount drops within 2 years after claiming, you may need to repay the credit.

Key checks: Definitions of “full-time,” base headcount snapshot dates, and regional categories are technical—align HR data with tax records.

5) Overlap Rules (No Double-Dipping)

If multiple reductions/exemptions could apply to the same business year and same place of business (e.g., start-up reduction and SME special reduction), you must choose one. This “restriction of duplicate support” prevents stacking overlapping incentives.

6) Quick Examples — Back-of-Envelope

Example A: Integrated investment (SME)

SME buys eligible equipment: KRW 1.2B. Basic credit ~10% → KRW 120M off corporate tax. Dispose within 2 years? Credit may be clawed back.

Example B: R&D (Strategic tech)

Qualifying R&D spend: KRW 800M. Credit band 30%–50% depending on status—say 40% → KRW 320M credit (subject to limits).

Example C: Employment (SME, non-metro)

Net +3 employees. Approx. KRW 9.5M × 3 over 3 years → headline KRW 28.5M (timing/retention tests apply).

Exact rates/thresholds change by year and category. Apply current law and confirm caps, carryforwards, ordering rules, and interaction with minimum tax/AMT, if any.

7) Summary

Integrated investment: credit on eligible tangible assets; beware clawbacks if early disposal.
R&D: higher bands for strategic/new growth tech; strong documentation is essential.
Employment: per-head credits, bigger outside the metro; retention matters.
No double-dipping: choose one if benefits overlap for the same year/site.

Next (Part 6): Withholding on cross-border payments—payer obligations, treaty rates, and typical pitfalls.

8) Disclaimer

This post is for general information only and not legal or tax advice. Rules and rates evolve; outcomes depend on your facts. Consult a qualified professional before acting.

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Korean Tax Credits Integrated Investment Credit R&D Tax Credit Employment Tax Credit Restriction of Special Taxation Act Korean Taxation Series

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