South Korea's integrated investment tax credit for companies is projected to reach 16.56 trillion won next year, making it the country's largest single tax expenditure for the first time. Introduced in 2021, the credit has grown every year since. Experts say the widening scale of tax breaks for corporate investment and research and development calls for more refined eligibility standards.
According to the 2027 tax expenditure budget report the Ministry of Finance and Economy submitted to the National Assembly on the 7th, income and tax deductions for workers' insurance premiums — long the largest tax expenditure item — will fall to third place next year at 8.76 trillion won. The integrated investment tax credit will move to the top, while the R&D tax credit is projected to rank second at 10.51 trillion won, up 51.5% from this year. Together the two credits total 27.07 trillion won, or 25.8% of the 104.93 trillion won in total national tax reductions expected next year. They also account for 78.8% of the increase in tax reductions. The center of gravity in Korea's tax expenditures is shifting from easing workers' social insurance burdens toward supporting corporate production capacity and future technology development.
The surge stems from increased investment by chipmakers including Samsung Electronics and SK hynix, combined with high credit rates. Under the integrated investment tax credit, the basic rate for large companies is 1% for general facilities, 15% for national strategic technology facilities and 20% for semiconductor facilities. A large company investing 100 billion won in semiconductor facilities receives a basic credit of 20 billion won — 20 times the 1 billion won it would receive for the same investment in general facilities.
A finance ministry official said the projection for next year "reflects both credits carried forward from years when companies had insufficient corporate tax liability due to losses and credits from new investment."
The jump in investment and R&D credits will also push tax relief for industry past that for social welfare. Reductions in the industry, small business and energy category will rise to 38.27 trillion won next year from 23.61 trillion won this year, surpassing the 29.9 trillion won for social welfare. It is the first time since 2018 — nine years — that industry has topped the 16 policy categories.
Some argue that the growing scale requires verifying the actual effect on investment and periodically reviewing which technologies and facilities qualify. In its most recent in-depth evaluation of the integrated investment tax credit, conducted in 2024, the Korea Institute of Public Finance recommended that "because Korea's investment credit covers a broader range of assets and carries higher rates than those of major economies, authorities should regularly check whether the scope of support is expanding excessively."
The R&D credit faces a similar challenge. According to the National Assembly Research Service, the number of national strategic technologies eligible for the R&D tax credit rose to 87 this year from 36 in 2022, while new growth and source technologies climbed to 284 from 157 in 2017. The research service said such "one-directional expansion does not align with the purpose of the system, which is to provide higher levels of support to fields that particularly warrant encouragement." The government plans to introduce sunset clauses for individual technologies and facilities starting next year to address the limits of the current approach.
