The BGA Korea Team, led by Managing Director B.J. Kim, wrote an update to clients on the recent passage of the K-Chips Act in the Korean National Assembly.

Context

  • The government emphasized that the tax cut package is designed to encourage corporate investment, and it mirrors measures that countries like the United States, Japan and Taiwan have taken to support their own domestic semiconductor industries.
  • The complex legislative and economic conversations behind the act reflect a long-standing tendency in Korea to promote domestic industries, which have become a greater priority amid U.S.-China decoupling and following the passage of the U.S. CHIPS Act in August 2022.

Significance

  • While supporters have compared the K-Chips Act to the U.S. CHIPS Act and focused on semiconductor implications, several strategic industries will benefit from the amendment. The legislation’s tax benefits cover hydrogen and future mobility in addition to the current NST list, which includes rechargeable batteries, vaccines, display technologies and semiconductors.
  • The K-Chips Act provides temporary tax deductions for all industries and longer-term deductions for NST and NGST. Tax deductions as a percentage of investment are greater for NST businesses, but all industries will see significant tax deductions this year.

Implications

  • The tax announcement for Korea’s chipmakers should not alarm businesses outside Korea. Rather, companies are encouraged to seize new opportunities in Korea as the government takes steps to support several future-oriented industries.
  • The act was intended to help Korea’s semiconductor giants better compete with the largest beneficiaries of the U.S. CHIPS-Plus Act, but it is unclear whether the Korean semiconductor industry will receive a boost from the legislation.

We will continue to keep you updated on developments in Korea as they occur. If you have any questions or comments, please contact BGA Korea Managing Director B.J. Kim at bjkim@bowergroupasia.com.