Gov’t gives more aid to start-ups

The government will ease tax regulations on start-ups, their investors and even potential merger partners in its continuing effort to nurture new businesses in Korea.

At a Trade and Investment Promotion Meeting hosted by the Blue House on Thursday, the Ministry of Science, ICT and Future Planning and the Small and Medium Business Administration introduced plans to ease regulations on start-ups’ financing and provide tax incentives to startups or firms that invest in them.

“Korea’s investment in start-ups reached its record high last year [at 1.4 trillion won ($1.2 billion)],” said Choi Soo-kyu, deputy minister of the Small and Medium Business Administration, “but most of the funds came from the government while only a small amount came from conglomerates or investment companies.

“Mergers and acquisitions have also been rare,” Choi continued, adding that deregulatory measures should increase the private sector’s interest in investing in start-ups.

The government said it has decided to ease income tax liabilities on stocks options given to employees of start-ups.

Stock options are a common method start-ups in other parts of the world use to attract and keep talent. They allow employees to purchase company stock at a low price or receive stock instead of salary.

However, only 0.3 percent of Korean start-ups used this method in 2013, because start-up employees often had a hard time paying income tax after the company’s stock price went up.

With the new rule, more Korean start-ups can give out employee stock options that could grow in value after the company goes public on technology-oriented markets like the Kosdaq.

The government also decided to ease the requirement needed for start-ups to get unsecured loans guaranteed by others. Previously the companies were only given an exemption for such guarantees for a year. But that will be extended to three years.

From now on, start-ups that have been in business for less than three years can apply for the exemptions. This will encourage start-ups CEOs to get loans and to overcome the three-year “death valley,” when many start-ups fail.

The government is also expanding tax breaks for “angel investors,” the main financiers of early-stage start-ups.

So far, investors could get tax exemptions when they invested in mature start-ups that had their technologies evaluated by certified institutions. From now on, they can get tax breaks as long as the start-up is spending regularly on research and development (R&D).

The Finance Ministry will ease regulations on conglomerates’ taking over start-ups.

By law, if a conglomerate acquires more than 30 percent of a start-up or a venture firm and becomes the largest shareholder, the firm must be designated a subsidiary of the conglomerate within three years of the acquisition. That will be extended to seven years.

When a conglomerate registers a subsidiary, a variety of regulations are imposed on the firm, such as a ban on mutual investments between the company and the conglomerate’s other subsidiaries.

BY KIM JI-YOON, KIM HEE-JIN [kim.jiyoon@joongang.co.kr]