Korea to up tax credit rate for chipmakers, but critical semiconductor act in limbo

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Korea to up tax credit rate for chipmakers, but critical semiconductor act in limbo

Published: 18 Feb. 2025, 18:56

PARK EUN-JEE
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Audio report: written by reporters, read by AI

Representatives from the liberal Democratic Party and conservative People Power Party discuss the so-called K-chips Act at the National Assembly in western Seoul on Feb. 18. [YONHAP]

A parliamentary committee passed a bill known as the K-chips Act on Tuesday, which has faced criticism for offering lower-than-expected tax credit rates for chip facility investments, following months of political wrangling.

Under the proposed revision to the Act on Restriction on Special Cases Concerning Taxation, the tax credit rate for large- and medium-sized companies will rise to 20 percent from the current 15 percent, while the rate for small companies will increase to 30 percent from 25 percent. The rates will be applied both for manufacturing and research facilities through 2031.

The National Assembly’s Strategy and Finance Committee passed the revision, putting the bill on the path to becoming a law. A review by the Legislation and Judiciary Committee will follow before a plenary session for the finalized passage.

Given that the Korean government is not offering direct subsidies for investments in high-tech areas including semiconductors, many lawmakers have called for a rate of at least 25 percent for big chipmakers.

Despite the underwhelming outcome, Korean chipmakers still welcomed the decision.

“From the perspectives of a chipmaker, it is an encouraging sign because the proposal could help increase Korea’s competitiveness in attracting investments for semiconductor-manufacturing facilities,” said a source at a major Korean chipmaker in response to the committee's move on a bill that aims to keep pace with incentives in other countries.

On top of financial grants, the United States provides a tax credit rate of up to 25 percent when a company decides to build a semiconductor factory, although the fates of the President Joe Biden-era incentives remain murky under the Trump administration.

China provides a financial support package worth of 1 trillion yuan ($143.38 billion) to the local semiconductor industry, while Taiwan also upped its tax credit rate from 15 to 25 percent for in-house research and development by semiconductor companies.

Still, the source said that the passage of another disputed bill dubbed the Special Act on Semiconductors is critical.

“The passage of the K-Chips Act could bolster the need for the special act, which is designed to exempt chipmakers from the 52-hour workweek requirement,” the source said.

The bill initially contained clauses that permit more than 52 hours of work a week in the semiconductor industry, but it failed to pass during a subcommittee review on Monday due to opposition from the liberal Democratic Party (DP).

The government plans to put the proposal on the table during a meeting of government officials and lawmakers from the two largest parties on Thursday.

Advocates say that the 52-hour workweek cap imposes an excessive cost burden on chipmakers, which typically run factories around the clock, while critics say that the exemption could trigger overwork.

The special act also concerns more infrastructure support for chip complexes and the establishment of a legal framework for direct financial subsidies for semiconductor facility investments.

The DP insists that the bill exclude articles related to the workweek exemption, a proposal rejected by the conservative People Power Party.

"Overwork concerns related to the 52-hour workweek exemption can be fully addressed through sincere communication," said acting President Choi Sang-mok, who also serves as deputy prime minister and minister of economy and finance, during a Cabinet meeting on Tuesday.

BY PARK EUN-JEE [[email protected]]