[Changes in 2022] Up to 50% Tax Credit for National Strategic Technologies... Establishment of Youth-Type Long-Term Fund

Finance, Fiscal Affairs, and Taxation

[Sejong=Asia Economy Reporter Son Seon-hee] Starting next year, core technologies related to the three major fields of semiconductors, batteries, and vaccines will be designated as 'National Strategic Technologies,' and up to 50% of related research and development (R&D) and facility investment costs will be tax-deductible.

Additionally, the income criteria for the Earned Income Tax Credit will be raised by 2 million KRW per household, and a new 'Youth Long-term Fund Income Deduction' will be established to support asset formation for young people. This book contains major policy changes by each ministry and sector.

The newly established 'National Strategic Technology' tax credit next year is a system designed to focus on nurturing core technologies directly linked to national economic security in response to global technological hegemony. Sixty-five technologies in the three major fields will be designated as National Strategic Technologies by February, and tax credit rates of 30-40% for large and medium-sized enterprises and 40-50% for small and medium-sized enterprises will be applied to related R&D expenses. This is a 10 percentage point increase compared to the existing tax credit rates for new growth and original technologies (20-30% for large and medium-sized enterprises, 30-40% for small and medium-sized enterprises).

For facility investments related to National Strategic Technologies, tax credit rates of 6% for large enterprises, 8% for medium-sized enterprises, and 16% for small and medium-sized enterprises will be applied only for the current fiscal year. This also represents an increase of 3-4 percentage points compared to new growth and original technologies.

This National Strategic Technology tax support applies to R&D expenses and facility investments made from July 1 of this year to December 31, 2024. Furthermore, plans are underway to consider adding hydrogen-related technologies as National Strategic Technologies in the future.

To expand support for low-income households, the income criteria for the Earned Income Tax Credit will be raised by 2 million KRW per household starting next year. The threshold for single-person households will increase from 20 million KRW to 22 million KRW, for single-earner households from 30 million KRW to 32 million KRW, and for dual-earner households from 36 million KRW to 38 million KRW. This will apply to applications submitted from January 1 next year.

Various systems for the youth will also be implemented starting next year. First, to support asset formation for young people, a 'Youth Long-term Fund Income Deduction' system will be newly established. Young people aged 19 to 34 with a total salary of 50 million KRW or less or comprehensive income of 38 million KRW or less who subscribe to a long-term fund will be able to deduct 40% of their contributions (up to 6 million KRW per year) from their comprehensive income. This applies to subscriptions to long-term funds with a subscription period of 3 to 5 years between January 1, 2022, and December 31, 2023.

Along with this, a tax exemption system for interest income from the Youth Hope Savings will also be introduced. Interest income received through savings (with an annual payment limit of 6 million KRW) from subscribing to the Youth Hope Savings will be exempt from taxation. This applies to subscriptions made between January 1 and December 31, 2022, and interest income received until December 31, 2024.

To overcome low birth rates, tax support related to infertility has also been expanded. The tax credit rate for infertility treatments has been increased from 20% to 30%, and the tax credit rate for medical expenses for premature and congenital anomaly infants has been increased from 15% to 20%, while the deduction limit (currently 7 million KRW per year) has been abolished.

Tax credit requirements will be relaxed for companies that employ so-called 'career-interrupted women' who lost their jobs after marriage or childbirth. The criteria for career-interrupted women will be expanded to include those who have been employed in the same industry between 2 and 15 years after resignation. This will apply to employment of career-interrupted women from January 1, 2022.