Innovation Funding Incentives in South Korea

South Korea stands as a global powerhouse in innovation, driven by a robust and systematic approach to fostering research, development, and a thriving startup ecosystem. The government plays a highly active role in providing a comprehensive suite of funding incentives, aiming to maintain a technological “super-gap” in key industries and stimulate economic growth. This report will detail the primary innovation funding mechanisms available in South Korea and their collective impact on the nation’s cutting-edge innovation landscape.

Key Funding Incentives

1 | R&D Tax Credit

South Korea offers a sophisticated R&D tax credit system designed to encourage corporate investment in research and development.

Mechanism: Companies can elect to claim a tax credit on qualifying R&D expenditure. The rates vary significantly based on company size and the strategic importance of the R&D. For SMEs, the credit can be up to 25% of current R&D expenses, or a higher percentage (e.g., 50%) for an increase in R&D expenditure over the previous year. For large companies, the general rate is lower, but significantly enhanced credits (e.g., 15-40%) are available for investments in “new growth engines and core technologies” and “national strategic technologies” like semiconductors, AI, and biotechnology.

Eligible Activities: Qualifying R&D activities include fundamental research, applied research, and experimental development. Eligible costs encompass labor costs, materials, rent for R&D equipment, and commissions paid to qualifying bodies.

Impact: This hybrid tax credit system significantly reduces the effective cost of R&D, incentivising companies to invest in advanced and strategic technological fields. Unused R&D credits can generally be carried forward for five years.

2 | Cash Subsidies and Direct Grants for Foreign Investment

The South Korean government actively uses direct cash subsidies to attract foreign direct investment (FDI) into strategic sectors and R&D.

• Increased Subsidy Rates: The government periodically increases cash subsidy rates for foreign investors, with temporary increases in 2025. These subsidies can cover a substantial portion of initial project investments, with higher ceilings for R&D centers and national advanced strategic industries (e.g., up to 80% of total investment costs for advanced R&D centers).

• Eligibility: Subsidies are typically targeted at key sectors, including advanced R&D, national advanced strategic industries (e.g., semiconductors, biotechnology, AI, future mobility, smart logistics), and projects creating mass employment or contributing to region-specific industries.

• Impact: These cash subsidies make South Korea a highly competitive destination for foreign companies seeking to establish R&D facilities or invest in high-tech manufacturing, directly supporting the government’s industrial policy goals.

3 | Comprehensive Startup Support (e.g., K-Startup Grand Challenge)

South Korea has a robust ecosystem of government-backed programs specifically designed to nurture startups, particularly those with global potential.

K-Startup Grand Challenge (KSGC): This flagship program attracts international startups to establish themselves in Korea. The 2025 edition offers a significant pool of equity-free funding (e.g., up to ₩950 million or US$633,000 total government support), living stipends, and commercialisation grants for top teams.

Corporate-Government Collaboration: KSGC offers unparalleled access to Korea’s leading conglomerates (e.g., Samsung, Hyundai, LG) for proof-of-concept (PoC) projects and strategic partnerships, leveraging Korea’s unique chaebol-dominated business landscape.

Ministry of SMEs and Startups (MSS) Support Plan: The MSS annually unveils comprehensive support plans for startups, allocating substantial budgets (e.g., US$2.23 billion in 2025) across hundreds of programs. Key initiatives include the “Super Gap Startup 1000+ Project” fostering startups in emerging industries (e.g., AI, bio-health, robotics) and the “Deep Tech Value-Up Program” facilitating collaboration between large enterprises and startups.

Incubation and Acceleration: Programs provide free office space, visa sponsorship, business incorporation assistance, curated business matchmaking, and follow-on scale-up grants for top-performing teams.

Impact: These programs aim to attract global talent, accelerate startup growth, and integrate innovative startups into Korea’s industrial fabric, making it a leading innovation hub in Asia.

4 | Special Economic Zones and Tax Reductions

South Korea offers specific tax reductions and exemptions for companies locating in designated zones.

Special Research and Development Zones/Enterprise Cities: Companies establishing operations in these zones can benefit from significant corporate tax reductions or exemptions for several years (e.g., 100% exemption for 3 years, followed by 50% reduction for 2 years).

Impact: These geographically targeted incentives encourage investment and R&D activities in specific areas, fostering regional innovation clusters.

5 | Venture Capital Landscape

South Korea’s venture capital (VC) ecosystem is dynamic, marked by significant public and private investment.

Growth and Focus: Deep tech investment, especially in AI and bio-healthcare, reached record highs in 2024, driven by increasing investor appetite. Strategic national investment plans (e.g., AI-focused investment plan of ₩100 trillion or US$72 billion) further bolster the sector.

Key Players: A mix of local VC firms (e.g., Korea Investment Partners, Kakao Ventures), corporate venture capital (CVC) arms, and government-backed investors (e.g., Korea Development Bank) are active.

Impact: The thriving VC landscape, coupled with robust government support and a focus on deep tech, provides critical capital for Korean startups to scale rapidly and contribute to national strategic objectives.

Conclusion

South Korea’s innovation funding incentives represent a highly strategic and comprehensive framework, deeply integrated with the nation’s vision for technological leadership. Through generous R&D tax credits, substantial cash subsidies for foreign investment, extensive startup support programs like KSGC, and targeted initiatives for deep tech, the government actively cultivates a dynamic innovation ecosystem. This multi-faceted approach, combined with a robust venture capital landscape and strong corporate-government collaboration, is fundamental to South Korea’s continued success in fostering cutting-edge technological advancements and strengthening its global economic competitiveness.