South Korea launches domestic production tax credit for solar, semiconductors and other key sectors

The South Korean government unveiled a tax reform plan for 2026 that creates a domestic‑production tax credit covering six strategic sectors: solar and wind power, semiconductors, secondary batteries, core materials and AI‑robot parts. Companies that manufacture and sell these items in Korea can receive reductions in income and corporate tax, with the credit calculated on a per‑unit basis. The measure, dubbed a “Korean version of the Inflation Reduction Act,” aims to strengthen supply‑chain resilience and boost competitiveness against the United States and Japan, which have introduced similar schemes.

The credit will be available from 2026 through 2036, with a phased reduction in the final three years (75 %, 50 %, 25 % of the original amount). Additional incentives are provided for firms in non‑metropolitan and population‑declining regions, offering up to 50 % higher credit rates. The policy also expands existing R&D and investment deductions, and introduces a five‑year income‑tax and corporate‑tax relief for newly established small‑businesses, with higher benefits for those located in designated local areas.