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Tax Benefits for Small or Medium Start-Up Enterprises

 Date: May 21, 2021


I. Introduction

The government is providing various taxbenefits for small and medium start-up enterprises. This post will sketch outthe benefits where an enterprise is deemed small and medium venture businesses.

 

II. Tax Benefits for Start-up Enterprises underCorporate Tax Law and Income Tax Law

1) Tax Reductions or Exemptions for Small orMedium Start-Up Enterprises

 

A small or mediumenterprise incorporated for a type of business or a national designated as anoperator of a business incubator under the Support for Small and MediumEnterprise Establishment Act, on or before December 31, 2021, is entitled to anincome tax or corporate tax reduction by the equivalent to an amount calculatedby multiplying income tax or corporate tax on the income accrued from therelevant business by the rate classified as follows, for the taxable year inwhich the first income accrues from the relevant business and for the taxableyears that end within the four subsequent taxable years from the date thefollowing taxable year commences.

 

2) Where a small ormedium enterprise, in whose case three taxable years have not passed since thedate of its incorporation, is recognized as a new energy technology small ormedium enterprise prescribed by Presidential Decree by not later than December31, 2021, the small or medium enterprise is entitled to an income or corporatetax reduction by the equivalent to 50/100 of the income tax or corporate taxlevied on the income accrued from the relevant business, for the taxable yearin which the first income accrues from the relevant business since it wasrecognized as a new energy technology small or medium enterprise or the taxableyear falling on the fifth anniversary from the date such enterprise wasrecognized as a new energy technology small or medium enterprise, if no incomeaccrues from the relevant business by the taxable year falling on such fifthanniversary, and for the taxable years that end within the four subsequenttaxable years from the date the following taxable year commences: Provided,That the same shall not apply where the small or medium enterprise is grantedan income or corporate tax reduction, if the small or medium enterprise ceasesto be a new energy technology small or medium enterprise during the period ofreduction, it becomes ineligible for reduction, starting from the taxable yearin which it ceases to be a new energy technology small or medium enterprise.

 

 

3) Where an enterpriseamong venture businesses, is certified as a venture business by not later thanDecember 31, 2021 that enterprise is entitled to an income tax or corporate taxreduction by the equivalent to 50/100 of the income tax or corporate tax leviedon the income accrued from the relevant business, for the taxable year in whichthe first income accrues from the relevant business since the date of suchcertification or the taxable year falling on the fifth anniversary from thedate such enterprise is certified as a venture business, if no income accruesfrom the relevant business by the taxable year falling on such fifthanniversary, and for the taxable years that end within the four subsequenttaxable years from the date the following taxable year commences: Provided,That the same shall not apply where the enterprise is granted an income orcorporate tax reduction and, if any of the following events occurs during theperiod of reduction, it becomes ineligible for reduction, starting from thetaxable year in which the date classified as follows falls.

 

Where its certificationas the venture business is revoked: The date of revocation;

 

Where the valid period of thecertificate of venture business issued, expires (excluding where the relevantenterprise is re-certified as a venture business as at the end of the relevanttaxable year): The expiry date of the valid period.

 

4) Requirements for business Type

1. Mining business;

2. Manufacturing business (including thatprescribed by Presidential Decree, similar to manufacturing business: hereinafterthe same shall apply);

3. Construction business;

4. Restaurant business;

5. Publishing business;

6. Business producing or distributing video andaudio record products (excluding business operating rooms for viewing videoproducts);

7. Broadcasting business;

8. Telecommunications business;

9. Computer programming, system integration,and management business;

10. Information service business (excludingbusiness providing news information and block chain-based encryption assetssales and brokerage business);

11. Research and development business;

12. Advertising business;

13. Other science and technology servicebusiness;

14. Specialized design business;

15. Exhibition, convention, and event agencybusiness;

16. Service business related to creation andart (excluding individual artists);

17. Engineering business prescribed byPresidential Decree (hereinafter referred to as "engineeringbusiness");

18. Logistics industry prescribed byPresidential Decree (hereinafter referred to as "logisticsindustry");

19. Business operating a private instituteteaching vocational skills under the Act on the Establishment and Operation ofPrivate Teaching Institutes and Extracurricular Lessons, or business operatinga vocational skill development training establishment under the Act on theDevelopment of Vocational Skills of Workers (limited to where the main businessis vocational skill development training);

20. Tourist accommodation business,international conference business, amusement facilities business under theTourism Promotion Act and tourist facilities business prescribed by PresidentialDecree;

21. Business operating welfare facilities forelderly persons under the Welfare of Older Persons Act;

22. Exhibition industry under the Act on theDevelopment of Exhibition Industry;

23. Human resources supply and employmentarrangement services (including services supplying farm workers);

24. Cleaning services for buildings andindustrial facilities;

25. Security and guard services;

26. Market research and opinion surveybusiness;

27. Social welfare services;

28. Security system services;

29. Retail sale via mail order houses or viainternet;

30. Maintenance and repair services forpersonal and household goods;

31. Hairs, nails and skin cares.

 

5) The application of minimum tax:

Eligible for minimum tax

 

6) Deduction carried forward

The Korean tax law does not allow deductioncarried forward. Therefore, the tax amount which was not deducted should beextinct not to be carried forward.

 

7) Farming and fishing village special tax:

Tax exemption

 

III. Tax Benefits under Local Tax Law

 

1) 75% acquisition tax cut:

 Acquisition tax on real estate used directly(excluding lease) by a small or medium start-up enterprise or a small or mediumstart-up venture business incorporated for its relevant business, shall beexempted for four years from the date of incorporation and reduced by 75/100.

 

2) Requirements for business Type

 

1. Mining business;

2. Manufacturing business;

3. Construction business; 

4. Publishing business;

5.  Videoand audio documentary production and distribution business (excluding videoviewing room operation business); 

6. Broadcasting business;

7. Telecommunications business;

8. Computer programming, system integration and management business;

9. Information service business (excluding business providing newsinformation);

10.  Researchand development business;

11. Advertising business; 

12. Specialized design business;

13. Exhibition and event agency business;

14. Service business related to creation and art (excluding individualartists);

15. Engineering business prescribed by Presidential Decree (hereinafterreferred to as "engineering business");

16. Logistics industry prescribed by Presidential Decree (hereinafterreferred to as "logistics industry");

17. Business operating private institutes teaching vocational skills underthe Act on the Establishment and Operation of Private Teaching Institutes andExtracurricular Lessons; or business operating vacational skill development trainingestablishments under the Act on the Development of Vocational Skills of Workers(limited to where vocational skill development training is the principalbusiness);

18. Exhibition industry under the Act on the Development of ExhibitionIndustry;

19. Human resource supply and placement business (including businesssupplying agricultural laborers);

20. Business cleaning buildings and industrial facilities;

21. Security and escort business;

22. Market research and public opinion polling business;

23. Tourist accommodation business, international conference business, andamusement facilities business under the Tourism Promotion Act, or touristfacilities business prescribed by Presidential Decree;

24. Other science and technology service business

 

3) Requirements for business site:

It applies to all businesses regardless oftheir location such as over-concentration control region of the SeoulMetropolitan area

 

4) In any of the following cases, the portionof acquisition tax reduced shall be collected as a penalty: Provided, That thisshall not apply in cases of consolidation

Where the real estate isnot used directly for the relevant business without just grounds, within threeyears from the date of acquisition;

Where the real estate isused for any other purpose, sold, or donated within three years from the dateof acquisition;

 

5) 50% property tax deduction

In cases of assets of a small or mediumenterprise for direct use property tax shall be exempt for the first threeyears and reduced by 50% for two years for the date the first tax liabilityarises regarding the relevant asset.

 

 

 

 

 

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