South Korea is seeking to expand tax benefits to facilitate domestic M&As of foreign entities in the areas of semiconductors, vaccines, and batteries dubbed national strategic assets amid intensifying global race and prolonged supply chain disruptions.

Under the tax reform plan from the new government pending legislative review and approval, the government proposes to grant up to 10 percent tax deduction to Korean firms in their acquisitions of assets in foreign entities with proven technologies in the country’s designated national strategic technology sectors, such as semiconductors, batteries, displays, future mobility, robots, and biopharmaceuticals.

The tax breaks are part of the government`s efforts to sustain chip supremacy as home to the world’s top two memory chipmakers – Samsung Electronics and SK hynix. The tax incentive may further persuade SK hynix to go after U.K.’s chip design giant ARM.

Currently, only those who buy stakes or shares of foreign firms supplying materials, components and equipment are subject to the country’s special tax benefits. The former government in 2019 introduced the current special tax act to bolster the country’s materials, components and equipment sectors as a countermeasure for Japan’s sanctions on exports of its high-tech materials, which are key to chip and display production, to Korea.

The tax benefit scope for large conglomerates is 5 percent of the total acquisition amount, 7 percent for medium-sized firms and 10 percent for small firms. But maximum transaction amount per case eligible for tax deduction is 500 billion won ($381.38 million).

The tax credits are due to expire in the end of this year, but the government is also seeking to extend its grant to the end of 2025 to facilitate more global M&As in the country’s growth engines. If the amendment in the special tax act passes the National Assembly, it will go effective January 1, 2023.

By Lee Jong-hyuk and Jenny Lee

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