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This week in tax: South Korea plans semiconductor tax credits

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This week South Korea announced plans for generous tax breaks for semiconductor production, while Dubai lifted its levy on alcohol sales ahead of its corporate tax reform.

The Korean government announced plans for tax breaks for the semiconductor industry on Tuesday, January 3. Companies investing in domestic production can claim a tax deduction of up to 25%, depending on the size of the business.

Large companies may access a tax credit of 15% on investments in manufacturing facilities, up from 8% in the original proposal. Small- to medium-sized businesses may claim a capital expenditure tax break of 25%.

This could help save taxpayers more than 3.6 trillion won ($2.8 billion) in 2024. However, the scheme will have to go through parliament to win approval and the ruling People Power Party lacks a majority. The opposition Democratic Party may thwart the plan.

South Korea is the world’s biggest producer of memory chips, with 70% of the global market controlled by Korean firms Samsung and SK Hynix. But the country is facing increasing competition as China, Japan and Taiwan are offering more tax incentives for semiconductor production.

Perhaps the greatest challenge comes from the US, where the Biden administration approved tax incentives and subsidies in August 2022. As the world faces a shortage of semiconductor chips, the competition is only going to get more intense.

Dubai suspends alcohol levy ahead of new corporate tax rate

The Emirate of Dubai suspended the 30% levy on alcohol sales on Sunday, January 1, months ahead of the introduction of corporate tax.

Dubai has gradually softened regulations to make the city a more attractive location for foreign professionals and tourists. The 30% tax on alcohol sales will be suspended for a year as a trial period, while the fee to get a licence to buy alcohol is being scrapped.

Meanwhile, the UAE government expects the loss of tax revenue to be offset by the introduction of a federal corporate tax regime in June. The new system will impose a 9% rate on business income, though it may soon be increased to fulfil the UAE’s OECD commitments to a 15% minimum rate.

The UAE is facing growing competition as a tourist destination from Saudi Arabia and Qatar. All three Gulf states are trying to diversify their economies, partly by opening up to greater tourism and by attracting investment in new industries.

UK tax break for crypto-assets comes into effect

The UK tax exemption for foreign investors purchasing crypto-assets via British investment brokers came into effect on Sunday, January 1.

Prime Minister Rishi Sunak announced the tax break as part of plans to build on the UK’s reputation for financial services and turn the country into an investment hub for cryptocurrency.

HM Revenue and Customs published its crypto tax guide in February 2022 to promote tax compliance among crypto investors. UK resident investors should pay capital gains tax when buying or selling crypto-assets and income tax when receiving payments in cryptocurrency.

Meanwhile, a bitcoin mining operation would incur taxes on business income whereas a hobbyist engaged in small-time mining would have to declare their earnings for income tax.

As a result of this tax exemption, foreign investors in crypto no longer have to worry about the tax implications of appointing a UK-based investment manager.

Next week in ITR

ITR will continue its coverage of the EU consultation on the Business in Europe: Framework for Income Taxation (BEFIT) proposal. The European Commission aims to use the BEFIT initiative as the basis for an EU-wide corporate tax regime.

ITR will be reviewing the most important transfer pricing cases to watch in 2023, including such household names as Amazon and Facebook. These cases could set precedents for entire industries, not just individual companies.

Readers can expect these stories and plenty more next week. Don’t miss out on the key developments. Sign up for a free trial to ITR.

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