'Extension Under Review for Tax Credit on Employment Increase Companies: Up to 12 Million KRW per Youth'

Announcement of Tax Law Amendment Plan at the End of This Month... May Extend by More Than 2 Years

[Sejong=Asia Economy Reporter Moon Chaeseok] The employment increase tax system, which provides tax credit benefits of 4 to 12 million KRW per person when increasing regular youth employment, is expected to be extended. Originally scheduled to end this year, the government is considering an extension. It is anticipated that detailed information will be revealed in the tax law amendment bill to be announced at the end of this month, with the possibility of an extension for more than two years.

According to the Ministry of Economy and Finance on the 19th, the government is reviewing the extension of the application period for the employment increase tax system. This system reduces taxes by a certain amount per additional employee for companies that have increased the number of regular workers compared to the previous tax year. If the increased employment is maintained, large corporations can receive tax credits for two years, while small and medium-sized enterprises (SMEs) and mid-sized companies can receive benefits for three years. A ministry official stated, "It is true that an extension is being considered, but no specific period has been decided yet," adding, "If extended, it could be for more than two years rather than six months or one year."

In particular, companies that increase employment of youth, disabled persons, or elderly workers aged 60 and above receive preferential tax credits. For example, when increasing regular youth employment, large corporations can receive a tax credit of 4 million KRW per person, mid-sized companies 8 million KRW, and SMEs 11 to 12 million KRW (11 million KRW in the metropolitan area and 12 million KRW in provincial areas). For increases in other regular employees, mid-sized companies can receive 4.5 million KRW, SMEs 7 to 7.7 million KRW in tax credits, while large corporations do not receive benefits.

This system was introduced in 2018 and was scheduled to end last year but was extended once until the end of this year due to high corporate response. According to data released by the Ministry of Economy and Finance last year, government tax expenditures related to the employment increase tax system are expected to reach 1.3103 trillion KRW this year.

The income tax reduction system for employees of SMEs, which is also set to expire this year, may also be extended. This system reduces 70 to 90% of earned income tax for 3 to 5 years when youth, elderly, or career-interrupted women are employed by SMEs. A ministry official said, "Nothing has been decided yet," but added, "It will likely be finalized and announced with the tax law amendment bill soon."

Additionally, the social insurance premium tax credit system (providing tax credit benefits to SMEs that increase employment) and the fuel individual consumption tax refund benefit for compact cars are also known to have a high possibility of extension.

Furthermore, this year's tax law amendment bill is expected to include ▲ directions for tax support for the three major technologies?semiconductors, batteries, and vaccines?and detailed support targets ▲ establishment of a financial investment income reporting system ▲ revisions to the tax withholding system. In particular, for core technologies, the government has previously announced a new support track called national strategic technologies, which will provide up to 50% tax credits for research and development (R&D) investments and up to 20% for facility investments.