Job Creating Start-ups to Get Tax Cut

Regardless of size, start-ups will enjoy corporation tax (or income tax) exemptions from 50 percent up to 100 percent for five years if they meet minimum hiring requirements, established this July, for two years.

When a conglomerate launches a new business, or a firm spins off from its parent company for a new business, the barriers for total financing will be scrapped for two years possibly as early as this April.

On March 25, Deputy Prime Minister and Finance-Economy Minister Lee Hun-jai held a meeting with economic ministers at the Banker’s Club in downtown Myeongdong in Seoul, and unveiled a “measure to boost launching job-creation firms”.

According to the new measure, tentatively starting this coming July, start-ups will get a 50 percent corporation tax (or income tax) deduction for five years after they meet the balance. The minimum employees required to be hired from this measure hasn’t decided yet, but five or ten is a strongly valid estimate. Start-ups will enjoy a tax deduction up to 100 percent that is proportional to the number of employees they hire.

When big companies take part in the government-led “10 next generation growth engine industries,” such as digital TV, digital display, artificially intelligent robots, and digital content, they will be unconditionally exempt from existing barriers of total investment for two years.

Until now, the government has exempted such barriers for only four new industries, including information technology and biotechnology, and the conditions were very strict. Corporations were only allowed to enjoy the exemption when more than 50 percent of their total sales came from new industry products.

Also the government will reduce the conditional 50 percent proportion to 30 percent for existing corporations that took part in new industries earlier. Medium-sized corporations financed by a conglomerate which have over 2 billion won worth of property, will enjoy tax exemptions tentatively for three years.

A privately-collected fund will be formed through the Federation of Korean Industries and financing companies to boost start-ups and spin-offs. The measure calls for the creation of a conglomerate spin-off fund worth 10 billion won and a job creation fund worth 30 billion won.

The measure also will try to simplify the process of founding a factory, which currently requires an average of 50 types of authorization, by establishing a “start-up one-step system” with the help of a taskforce comprised of experts from authorities and civilian sectors dedicated to this specific process.

Jong sik Kong kong@donga.com