Gov’t increases tax credits for content producers, biopharma

President Yoon Suk Yeol looks through a microsope at the Magok Bio Cluster in western Seoul on June 1 when he pledged extended benefits for the industry. [Joint Press Corps]

The Korean government will increase tax credit rates for content production and biopharmaceuticals in a bid to grow the segments into major export items, it announced in its latest tax policy revisions on Thursday.

Another major change involves an extended gift tax exemption for married couples, but the widely-expected lifting of real estate-related taxes was not included as the move could generate fierce opposition from the main opposition Democratic Party.

The announcement, made by the Ministry of Economy and Finance, came as the government is saddled with the contrasting mandates of reducing tax burdens for corporations while beefing up its coffer amid this year's dramatic downturn in tax revenue.

For content production, the tax credit rate for large companies will rise to 5 percent from the current 3 percent, while the rate for medium-sized businesses will increase to 10 percent from 7 percent, while for small companies it jumps to 15 percent from 10 percent.

An extra 10 percent credit is available for large- and medium-sized content providers and 15 percent for small-sized ones, if their shooting location is largely based in Korea.

The country’s entertainment and production companies have long called for higher tax credit rates as the base incentive rate is considered minor compared to other countries in Europe or the United States.

“The average base tax credit rate is 25 percent for many countries,” said a source in the local entertainment industry.

“Countries like the U.K. have introduced even larger incentives of 35 percent recently to better support content production,” said the source, “I think the revision is in line with those steps from other countries, but more support can be made going forward because the maximum tax credit rate for big corporations still stands at 15 percent.”

The government also made biopharmaceutical research and development projects subject to up to a 50 percent tax credit rate as it sees the industry possess great potential.

The move dovetails with President Yoon Suk Yeol’s focus on the bio industry as the administration is looking for the next export champions at a time when the shipment of mainstay items like semiconductors and petrochemicals has been on the decline.

At an individual level, married couples are entitled to exemption in gift tax for up to 150 million won ($117,411) granted two years before and after marriage registration. In the past, the limit was set at 50 million won.

The threshold was designed to meet the common needs of the newlyweds as they often receive financial support from parents to be used for renting or buying houses.

“We mostly considered couples in need of jeonse deposits,” said an official in charge of tax policy at the Finance Ministry.

“We took into account different factors and tried to adjust the level to be neither too generous nor too stringent,” the official said.

The maximum amount of tax deduction for the interest on long-term mortgages was raised to 20 million won from 18 million won.

The government also lifted the upper-income cap eligible for childbirth allowance to 70 million won per household from 40 million won. The amount of the allowance also rose to 1 million won annually from 800,000 won.

The 50 percent reduction of income tax reserved for foreign workers with specialized technology expertise will be extended through 2028 and beneficiaries will be widened to researchers and professors at government-designated research complexes.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]