GOVERNMENT REVISES TAX CODE TO STIMULATE VENTURE ECOSYSTEM


Summary of the Revisions

Legal foundations have been laid to implement the 'Measures to Develop a Venture-Startup Funding Ecosystem,' which was announced on May 15 2013. Now that those foundations have been laid, the government will use the tax code to promote the creation of a virtuous cycle of creation-growth and remittance-reinvestment.

The government will promote the creation of a 'try again' culture by supporting angel investment and venture capital through the tax code. The tax code will be used to stimulate business growth by supporting technology M&As and strategic partnerships, which promote technological innovation. The tax code will be used to invigorate the venture ecosystem by encouraging successful startups to teach prospective startups about their experiences and provide financing.

The outline of tax incentives that will be offered according to stage of the investment cycle is as follows:

Creation

Venture financing will have its emphasis shift from loan-centered financing to investment-centered financing. Tax deductions for investing in startups will be increased:

- Investments of up to 50 million won will be eligible for a 50 percent income tax deduction, and any amount exceeding the first 50 million won will be eligible for a 30 percent deduction. This deduction will not be included in the total income tax deduction limit.

Tax exemptions for venture capital investments in businesses listed on the KONEX exchange will be expanded in order to stimulate the KONEX market, a special exchange for startups. 

- Direct investment in KONEX-listed businesses will be exempt from both the corporate tax for income from dividends and capital gains, and the securities transaction tax. 

Growth and Remittance

A tax credit will be instituted to stimulate technology M&As.

- 10 percent tax deduction for the amount that the technology is valued at.

Tax postponement systems will be created to support venture businesses that engage in strategic partnerships.

- Taxes on the exchange of shares between businesses that engage in strategic partnerships will be deferred until those shares are sold.

Reinvestment

Tax postponement systems will be created in order to promote reinvestment by venture-startups.

- Taxes on the sales of ventures shares will be deferred in the case that the money is reinvested in another startup or venture.
- Taxes will be deferred until the reinvested shares are sold.  

Please refer to the attached PDF.


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