The South Korean government announced a domestic production tax credit policy at the 14th cabinet meeting, targeting semiconductors, batteries, bio-pharmaceuticals, future vehicle components, and critical minerals. Tax credits will be calculated by multiplying domestic production volumes by unit prices, deductible from corporate and income taxes, with legal amendments planned for the second half of this year. The policy expands government support beyond R&D and facility investment to domestic production, focusing market attention on companies with manufacturing bases in strategic sectors.
Government Announces Domestic Production Tax Credit Mechanism
The government disclosed the domestic production tax credit introduction through the "2026 Second Half Economic Growth Strategy" at the 14th cabinet meeting. The tax credit applies to items with high strategic importance for economic security and green transition. The credit amount is calculated by multiplying domestic production and sales volumes by appropriate unit prices per production unit, with the resulting sum deductible from corporate and income taxes. The government plans to establish detailed legal grounds through amendments to the Restriction of Special Taxation Act in the second half of this year.
The designated strategic items include semiconductors and semiconductor materials/components, batteries and core materials, bio-pharmaceuticals and vaccine-related raw materials, future vehicle core components, and critical minerals and materials related to supply chain stability.
Semiconductor Companies with Domestic Facilities
Samsung Electronics and SK Hynix are identified as major potential beneficiaries in the semiconductor sector. Samsung Electronics is proceeding with expansion of its Pyeongtaek semiconductor factory targeting 2028 operation. SK Hynix is expanding facility investment within the Yongin semiconductor cluster. Both companies have committed to playing core roles in the formation of the Honam semiconductor cluster.
Battery Sector Domestic Production Bases
POSCO Future M and EcoPro BM draw attention in the battery sector. POSCO Future M operates cathode and anode material production bases centered in Pohang and Gwangyang, and is pursuing expansion of Gwangyang NCA cathode materials and construction of new Pohang precursor/nickel plants and LFP cathode material plants. EcoPro BM is also continuously expanding domestic cathode material production capacity centered in Pohang and Ochang.
Bio-Pharma and Critical Minerals Sector Beneficiaries
In the bio-pharmaceutical sector, Celltrion and SK Bioscience are subjects of interest. Celltrion is expanding domestic bio-pharmaceutical production capacity, while SK Bioscience is strengthening production competitiveness.
Future vehicle core component stocks include Hyundai Mobis and HL Mando. In the critical minerals and materials sector, POSCO Holdings, Korea Zinc, and Union Materials are mentioned. POSCO Holdings is building a materials value chain by securing battery core minerals such as lithium and nickel. Korea Zinc is discussed for potential benefits from critical mineral supply chain strengthening policies based on non-ferrous metal refining. Union Materials operates rare earth permanent magnet materials business.
FAQ
What did the South Korean government announce at the 14th cabinet meeting?
The government announced a domestic production tax credit policy targeting strategic items including semiconductors, batteries, bio-pharmaceuticals, future vehicle components, and critical minerals. The tax credit is calculated by multiplying domestic production and sales volumes by unit prices, with the amount deductible from corporate and income taxes. Legal amendments are planned for the second half of this year.
Which companies have domestic production facilities in strategic sectors?
Semiconductor sector companies include Samsung Electronics (Pyeongtaek expansion) and SK Hynix (Yongin cluster). Battery sector companies include POSCO Future M (Pohang/Gwangyang facilities) and EcoPro BM (Pohang/Ochang facilities). Bio-pharma companies include Celltrion and SK Bioscience. Future vehicle component companies include Hyundai Mobis and HL Mando. Critical minerals companies include POSCO Holdings, Korea Zinc, and Union Materials.
