Lots of Perks
Companies investing in biopharmaceutical-related technologies and production facilities will now be eligible for a maximum tax deduction of 35 percent.
On July 27, the Ministry of Economy and Finance held the 56th session of the Tax System Advancement Review Committee presided over by Deputy Prime Minister and Minister of Finance Choo Kyung-ho, where they deliberated and approved the “2023 Tax Law Amendment” containing these provisions.
The amendment includes the addition of eight biopharmaceutical technologies and four facilities in the category of “national strategic technologies and commercialization facilities” eligible for investment tax deductions. This move solidifies and expands the measures announced in the “Plan for Nurturing Global Clusters in Advanced Industries” last month and the “Second-half 2023 Economic Policy Direction” earlier this month with the application of the new provisions commencing from investments made in July.
Currently, the tax deduction rates for investments in national strategic technology production facilities are 15 percent for large and medium-sized enterprises and 25 percent for small and medium-sized enterprises. Moreover, companies can claim an additional temporary investment tax deduction of 10 percent for this year only based on the increase in investment compared to the average of the previous three years. As a result, large and medium-sized enterprises can receive up to a 25 percent tax deduction, and small and medium-sized enterprises can benefit from up to a 35 percent tax deduction for their investments.
Earlier this year, the government included biotechnology in national strategic technology, but it was limited to the vaccine sector. However, with this latest amendment, the scope of support has been expanded to encompass biopharmaceuticals, and specific criteria have been established, including the discovery and manufacturing technology of biopharmaceutical candidates, phases 1 to 3 clinical trial technology, and more.
The detailed categories cover a wide range of aspects, such as the discovery and manufacturing technology of biopharmaceutical candidates, bio-similar manufacturing and improvement technology, clinical pharmacology evaluation technology (phase 1 trials), therapeutic exploratory clinical evaluation technology (phase 2 trials), therapeutic confirmatory clinical evaluation technology (phase 3 trials), biopharmaceutical raw material and substance manufacturing technology, biopharmaceutical component and equipment design and manufacturing technology, as well as non-clinical trial technology for biopharmaceutical candidates. Additionally, it includes the facilities involved in the discovery and manufacturing of biopharmaceutical candidates, biosimilars manufacturing, biopharmaceutical raw material and substance manufacturing, and biopharmaceutical component and equipment design and manufacturing.
The recent global spotlight on biosimilars as a battleground for the bio-industry worldwide added significance to their inclusion in the national strategic technology list for the bio-industry. With over ten drug patents expiring this year in the United States alone, it is estimated that biosimilars will create a new market exceeding US$30 billion (38.48 trillion won). Consequently, domestic companies such as Celltrion Healthcare and Samsung Bioepis have entered the biosimilars market, particularly targeting “Humira,” an autoimmune disease treatment that held a monopoly for eleven years.
Historically, the substantial costs associated with the development, clinical trial, and approval of biosimilars served as significant entry barriers for the industry. However, as biosimilars are now classified as national strategic technology, the perceived burden on the industry is expected to be considerably reduced. For instance, Celltrion and Samsung Bioepis spent 412.3 billion won and 268.2 billion won, respectively, on research and development (R&D) last year. The government initially planned to establish a 500 billion won K-Bio and Vaccine Fund in February, intending to attract private investment. However, due to a lack of investor interest, the fund's launch has been scaled down to approximately one-third of the original plan.