South Korea's Green Growth Plan Includes Tax Incentives

by Mary Swire, Tax-News.com, Hong Kong

24 July 2009

The South Korean government plans to promote investment in “green-growth” industries. The plan is aimed at creating fiscal funds and incentives, and expanding sources of financing, for those industries. The government’s plans involve a total investment of KRW107 trillion over the next five years, to create up to 1.8 million jobs.

The government is of the opinion that present funds available in the financial market and from the government are insufficient for “green-growth” industries, largely because such projects contain a large amount of uncertainty and only realise returns in the longer term. They are believed, however, to have external benefits to the country larger than those of other projects.

To attract private investment, the government decided to remove uncertainty by introducing a certification system to approve green technologies and projects and verify companies involved in “green enterprises” if they adhere to the government’s requirements. Certified companies would get favourable treatment, including fiscal incentives to be disclosed later this year.

To promote research and development projects, the government will increase fiscal support from KRW2.0 trillion in 2009 to KRW2.8 trillion in 2013, along with a further KRW300bn funds set up by the Korea Development Bank. SMEs establishing projects will access exclusive fiscal funds, which will be expanded from KRW60bn in 2009 to KRW1.1 trillion in 2013. In addition, credit guarantees offered to “green enterprises” and green projects will also be increased almost threefold from KRW2.8 trillion in 2009 to KRW7 trillion in 2013.

To boost maturing industries, green private equity funds of KRW500 billion will be made available by the KDB and National Pension Fund in the second half of this year, along with long-term “green” deposit and bond products, with tax exemptions, to be launched by banks to attract private investors. The government will grant tax incentives, for example, on capital gains and on dividends of up to KRW30m.

To support fully grown industries, KRW100bn of carbon funds will be set up in October 2009. This will be followed by the exchange of carbon emission rights; to be test run in 2011. To promote the exports of eco-friendly industries and projects, the government is to expand export financing from KRW1.0 trillion in 2009 to KRW3.0 trillion in 2013, in addition to increased government guarantees for exporters.

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