South Korea's trade ministry unveils domestic production tax credit

South Korea's Ministry of Trade, Industry and Energy said Friday it will create a domestic-production tax credit for six strategic sectors, seeking to bolster industrial supply chains and national competitiveness in fields where Korea's production base remains weak. The ministry said the importance of industrial supply chains to the national economy and people's lives has been renewed after the Middle East war, as global competition around advanced industries including semiconductors intensifies.

The measure was included for the first time in the 2026 tax-revision plan announced Aug. 3. It covers solar power, wind power, rechargeable batteries, semiconductors, core materials and artificial-intelligence robot parts. The ministry regards the sectors as strategically important to the green transition and economic security. The credit is intended to give companies that have forgone Korean production because of high operating costs another tax-benefit option.

Tax residents that directly manufacture and sell eligible products in Korea would receive a credit determined by production volume and a standard credit amount. The scheme would run through Dec. 31, 2036.

Support would be weighted by location to promote region-led growth, with coefficients of 1.0 in the capital region, 1.1 in non-capital metropolitan cities and similar areas, 1.3 in other non-capital areas and 1.5 in priority areas.

The credit would taper to 75 percent, 50 percent and 25 percent in its final three years and could not be used alongside the integrated investment tax credit. The ministry said the restriction aligns with the approach in major economies, including the United States and Japan.

During National Assembly deliberations and preparations for follow-on regulations, the trade and finance ministries said they would "listen as widely as possible" to industry while defining eligible products, qualification requirements and standard credit amounts so domestic producers can receive practical benefits.