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South Korea's Ministry of Strategy and Finance has finalised the range of tax incentives, which were first announced in May 2013, and which will encourage and help the start-up and venture capital businesses that, the government hopes, will be the creative engine for future economic growth.
 

 

The start-up financing structure is to be changed from a loan-based structure to an investment-based structure in order to support the high-risk, high-reward nature of venture/start-up businesses. By supporting angel investment and venture capital, the tax code will be used to support technology mergers and acquisitions (M&As) and strategic partnerships, which promote technological innovation.

 

For example, investments of up to KRW50 million ($46,900) will be eligible for an income tax deduction of 50 per cent (increased from 30 per cent), with any investment above that amount being eligible for a 30 per cent deduction; tax exemptions for venture capital investments in businesses listed on the Korea New Exchange (KONEX) will be expanded; and direct investment in KONEX-listed businesses will be exempt from both the corporate tax for income on dividends and capital gains, and also the securities transaction tax.

 

In addition, the government will provide a 10 per cent corporate tax deduction to M&A involving research and development and technology-driven businesses, and taxes on the exchange of shares between businesses that engage in strategic partnerships will be deferred until those shares are sold.

 

Finally, tax postponement systems will be created on capital gains in order to promote the reinvestment of venture capital. Tax on the sales of venture shares will be deferred if the capital is reinvested in another start-up or venture, until the reinvested shares are sold.

 

It has previously been indicated that, following the introduction of the new tax incentives, total venture capital is forecasted to reach KRW2 trillion in 2017, up from KRW1.2 trillion in 2012.

 

Source: Tax-News